Benchmarking your practice
How's it going? This may be a commonplace greeting, and we know we shouldn't answer those honestly. But if you did want to be honest, then, if you are like most architects, the question 'how's it going?' would stump you.
Of course, there's that fabulous building you are doing ('but I'll lose a packet on it'), that competition which you so nearly won, and that dreary job which is just dragging on and on. But although architecture is the major concern of most architects, the wise are beginning to realise that in today's increasingly competitive world, there is no way you will be able to continue to do that work unless you run your business effectively.
Did a marvellous scheme but somebody else undercut you on the fee? Perhaps that's because you are paying too much for your office space. Working like mad on wonderful projects, but somehow the practice is struggling? It could be because, as a partner or director, you are spending too much time designing and not enough managing the practice. No money to 'waste' on marketing? That could be, paradoxically, because you are not spending enough on marketing.
'How's it going?' 'I haven't a clue' just isn't good enough any more. The first rule if you want to improve performance tomorrow is to know how you are doing today, both in absolute terms and in relation to your peers. This is why The Architects' Journal, in association with Caroline Cole and Chris Andrews of architectural management consultancy Colander, is launching a major programme of benchmarking architects' practices. This exercise, aimed at helping practices to improve their effectiveness and competitive ability, will provide the first major measures of profitability and performance.
What is benchmarking?
Benchmarking is the setting of a standard of performance which an organisation should achieve in order to consider its performance is satisfactory. Achieving figures consistently above the benchmark is a cause for congratulation; falling well below it is a reason for concern.
An initial study of 15 practices, with a headcount ranging from five to 61, has allowed Colander to set some provisional benchmarks. The practices that took part were also keen to have inter-firm comparisons, ie to measure their own performance against that of their peers.
Colander divided the practices into two groups on the basis of size and provided individual reports which showed them how they were doing in terms of all the key criteria. The study has yielded some surprising counter-intuitive results.
For example, in a measure of profit as a percentage of turnover, there was found to be no correlation between size and performance. Small practices are not penalised, provided they manage themselves effectively.The researchers set a benchmark figure of 30 per cent as the ratio of profit to turnover.Nearly half of the group achieved this benchmark.
They also used two other measures of profitability: profit or salary per partner or director, and profit per fee earner.
About two-thirds of the sample achieved the benchmark figure on each of these measures.
It was interesting that no one practice had the best performance in all three of these categories.
Other pilot study findings include:
a need to make work stages H-L more profitable concern that partners and directors are doing too many hours of chargeable work, leaving insufficient time for managing the practice. And frequently their charge-out rates are too low few practices achieved the target of winning 50 per cent of the projects for which they bid. This lack of success is a reflection of the generally low marketing spend nearly half of the projects completed in the past year were refurbishment projects.
Practices therefore need to have a pricing strategy and working methods that deal with the different cost and time factors that are inherent in refurbishment work or new build.
What are the benefits?
All those who participated found the exercise extremely useful, both in terms of the findings and in the way that the evaluation process focussed them on their own performance.
Robert Sakula of Ash Sakula is proof that a practice does not have to be big to benefit. Ash Sakula currently comprises the two partners and two architectural assistants, and is about to take on another architect with three years' post-Part III experience. Actually filling in the forms was very helpful for Sakula. 'Because it was for somebody else and to a deadline, ' he said, 'I actually got down to it and started to have a feel for things like profitability and staff turnover.' Some of the findings were unexpected. 'We had a sense that in terms of profitability of job stages, we did well with feasibility studies and lost money when the job was on site.We found nearly the opposite was true. On feasibility we did too much.When the job was on site, although it seemed to drag on for weeks, we didn't do that many hours.'
Sakula is confident that the benchmarking project 'will make architects more powerful.They really need to be.It is very important that everybody knows what is going on and how to measure themselves.'
ORMS is a much larger practice, with 37 directors, associates and Part I and Part II graduates. It has been aware of management issues for years and, says the practice's Dale Jennings, has seen 'people over the years who have tried to produce statistical analyses.' But he says, 'it has been impossible to draw any conclusions from them.'
In contrast, what he liked about this exercise were 'the conclusions drawn.We could look at the graph of success rate versus marketing spend for the bigger practices, and see a direct correlation. It was astonishingly convincing.'
For Jennings, 'What is vital is to know whether you are doing well or badly relative to your peers.You make money if you are doing something people want, you manage yourself well relative to your peers, and you tell people what you are doing.'
The pilot study, he said, 'gave us a lot of confidence we were doing the right things.' But it did also suggest some changes, for instance that there should be a computer for every member of staff.'We aren't there yet, we are below par.'
He believes 'it is worth every penny. If you don't realise that, you are in desperate straits. Although we came out well in the small sample, when it goes nationwide we will have a much better idea. We will be looking at practices we compete with more directly.'
David Morley of David Morley Architects said: 'It confirms one's hunches about what we do compared to other practices. There are a number of areas where the results give one more confidence to move on from what one is already doing.
The study is particularly helpful in areas not covered by other broad reviews. The figures on space utilisation were particularly interesting - this is not something one picks up from chatting to people.' It is essential, Morley believes, to look at 'all those things which affect one's profitability in the knowledge that we are often forced into competitive fee situations.'
Morley's practice currently employs 19 architects and he is aware that 'we are at a threshold where as one grows from 20 upwards, management issues require a greater degree of control.' Doing the pilot study, he found a lot of the lessons 'were in gathering in the information. It is interesting to compare yourself with other practices and with yourself over time.'
Joanna van Heyningen of van Heyningen and Haward, which now has five directors, said: 'We found it very useful to do together. It was very good for focusing our minds. It made us aware of how important it is to make better use of the financial records we keep.'
Filling in the forms provided an insight into the way the practice works.
Looking at the percentage of jobs won 'we were very pleased, ' said van Heyningen, but when it came to the proportion of work won by value, the results were less impressive.And in the inter-firm comparison she was surprised to discover that much larger practices than van Heyningen and Haward were actually doing much smaller jobs. 'We are doing bigger jobs, ' she explained.'We want to establish a continuing practice, with people who feel they have a career.'
The practice has reached the stage, she explained, where the directors are aware that they want to do not on ly jobs that they love but which are also profitable.'We have started making choices, ' said van Heyningen.'This helps us to make those choices.'
The study is now being opened up to all architectural practices in the country.
Practices which participate will enjoy the benefits of being involved in the first year of an annual exercise. In a world where the architect's position is under increasing threat and pressure from other parts of the industry, practices will only survive if they are as effective as possible. This benchmarking exercise will give you a chance to assess your own performance, and to see how you measure up to the standards set for the industry.
The AJ's commitment
The Architects' Journal has become involved with this project because we believe it offers enormous benefit to the profession. As the Egan report and the Movement for Innovation have emphasised, performance has to improve, which is only possible if one can measure that performance.
We will be publishing updates on the study and covering seminars on the pages of the AJ.However, to preserve the value of the investment to be made by the participating practices, the only way to get a copy of the detailed report will be to sign up to take part in the study.
Who is involved?
Colander is an architectural management consultancy. Its two directors Caroline Cole and Chris Andrews have been running the successful courses in Business Management Training for Architects in association with the RIBA.
Caroline Cole studied architecture at Cambridge University. She has worked at practices including Arup Associates, Pentagram, Conran Associates and Crighton, where she became managing director.She has also worked as a client, commissioning architects and designers, most notably with Olympia & York at Canary Wharf.
She now works as a consultant with those who commission the built environment and their consultants - establishing effective working processes between client and consultant to create excellence, and adding value to both the service provided and the end product. She also works with consultant practices developing business, marketing and client-care strategies.She is currently responsible for the Clients'Advisory Service and the Competitions Office at the RIBA.
'I have been really fascinated by the results of the pilot benchmarking study which demonstrate what a powerful tool benchmarking and inter-firm comparison can be for architects. Practices clearly gain a broader perspective of their position in the profession from benchmarking and I have been convinced that those which participate and act on the results, are not only going to steal a march on their competitors but also to provide a stronger, more focused service to their clients and improve their profitability.'
Chris Andrews specialises in consultancy and training for professional-service practices. She trained in business management and developed her career in personnel with Coopers & Lybrand. Subsequently she worked as director of administration for three international firms of solicitors.
As an independent consultant she went down in the history of the Bar Council by introducing management training and writing practice management standards and guidelines for the Bar.She was a major contributor to Fit for the Future which is top of the recommended reading list in the Keeping Clients Guide, sent to every solicitor in the UK.She takes professional-service clients through Investors in People. She is currently work ing on a major initiative to help solicitors assess their exposure to operational risk.64 She has also worked for firms of architects helping them with analysis of their financial information for the purpose of strategic planning and adopting new ways of working.
'Measuring performance within your profession through benchmarking and comparison, over a period of time, is the most reliable way to know how you are doing. The first picture is no more than a snapshot, invaluable thought it is as a start. Subsequent photos show whether you have benefited from that picture.'
Ruth Slavid has a degree in metallurgy and materials science from the University of Cambridge. She has many years experience as a journalist dealing with the construction industry, for the last six years as deputy editor of The Architects' Journal.
For the past three years she has been responsible for the practice pages of the AJ, including other statistical studies, such as the AJ100 and the Architects'Workload Survey.
'I am aware how essential it is for architects' practices to manage themselves in a way that fits them for a changing world. Measuring their performance is vital and this benchmarking exercise offers a unique way to do that. I recommend that any practice, large or small, that cares about its future signs up.'
This is an entirely independent exercise.
However, in recognition of the importance of ben- chmarking to the profession, the RIBA has given the project its endorsement.
Keith Snook, RIBA director of practice, writes, 'Some architects were surprised when the RIBA welcomed Rethinking Construction, the findings of Egan's Construction Task Force, and others would have had us make a detailed public response challenging the report. Instead we resisted these pressures and (rather quietly) set about using Rethinking Construction as a 'jumping off point' for much more positive action outlined in our paper Constructive Change. This benchmarking exercise fits perfectly with the proposals in our paper. The results of the pilot confirm many of the findings of Egan and of our own deliberations and, so far limited, research. This is why I am pleased to give the exercise the support of the RIBA.'
John Wright, vice-president of practice, writes: 'I am frankly evangelical about M4I (Movement for Innovation) following-on from Egan. For the industry to make the necessary improvements, each part of it has to improve and frankly get its own act together; including architecture. This can only be done against some objective measure of performance and so I see this benchmarking exercise as making a really major contribution.'
What will it cost?
In the first year of the study, prices are being held down. The cost of participating, per practice, excluding VAT is:
Up to five head count: £300 Six to 20 head count: £450 More than 20 head count: £600
What will you get?
A 32-page benchmarking report full of clear and colourful graphs analysing the data from all the practices taking part and including pages of useful explanation. This will be available exclusively to participating practices.
The opportunity to send one member of your practice, at no extra cost, to a one-day seminar in September 2000, where the findings and implications of the report will be discussed in detail. There will also be distinguished guest speakers from the worlds of architecture, management and marketing.
These will include Robin Nicholson of Edward Cullinan Architects, currently chairman of the Construction Industry Council and one of the key figures in the Movement for Innovation, and Simon Jones, managing director of Interbrand Newell & Sorrell.
The opportunity to commission from Colander a further practice-specific report showing how you perform against your peers. These inter-firm comparisons will allow you to compare yourself to other practices selected by criteria such as size, sector or location.
The chance to take part in the second year of Colander/AJ benchmarking at a special founder-practice price.
How do you take part?
We will be writing to all practices with an invitation to join. Alternatively you can send a letter now saying that you wish to register, or respond to one of the advertisements that will appear in The Architects' Journal in the forthcoming weeks. Cheques and a letter should be sent to Chris Andrews, at Colander, 40 New Oxford Street, London WC1A 1EP.
A questionnaire will be sent to you in January 2000 along with details of options for inter-firm comparisons. This questionnaire has been devised to be simple and clear to fill in. It will however require the investment of some time on your part. The answers will then be analysed entirely confidentially, using the latest sophisticated software, and used to compile the benchmarking report, the definitive measure of management performance in the architectural profession.
Your report will be sent to you. None of the information that you supply will be divulged to anybody or seen by anybody beyond Colander and its analysts.
What will the questionnaire cover?
Areas covered in the questionnaire will include:
profitability measured as profit to turnover, as profit/salary per partner/director, as profit per fee earner.
profitability by work stage breakdown of expenses hourly charge-out rates ratio of fee earners to non fee earners salary bands age bands staff turnover premises space and costs marketing spend time spent on marketing marketing success marketing tools used ways clients find architects project procurement methods sectors of expertise services offered fee arrangements numbers and scale of projects project types technology used.