Full Sail Partners Blog | Executives

Deltek Vantagepoint is a project-based ERP system. This makes it unique in that it is intended to not only track overall firm revenue and expenses, but also the revenue and expenses of many separate components, or the projects, that contribute to the overall profitability of the firm. Vantagepoint offers several ways to help identify which projects are contributing to, and which are detracting from a professional services firm’s profitability. Let’s explore a few of them. 

Linked Promotional Projects

Can you easily see if a project with a $5,000 fee took your team $5,000 worth of time and expenses to win it? Deltek Vantagepoint offers the means to do so by using promotional projects. In the stages of the project lifecycle, when your professional services firm is pursuing new work, use linked promotional projects to track the time and expenses the pursuits require. This can help you calculate the return on investment (ROI) of your marketing spend.

Consider setting a budget for your promo projects to show staff that the expected maximum level of pursuit spend is dependent on the size of the project. To set the budget, you may want to think about the typical maximum that should be spent to win $1 of chargeable work and multiply that by the labor fee your firm is expecting if the project is awarded. Using linked promo projects can help you analyze the costs of pursuits, as well as the “all-in” cost of the job compared to the fee you were awarded. Analyze the data and perhaps you will find certain types of projects or certain clients are boosting or dragging down your overall profitability.

Contract Management

If your professional services firm struggles with tracking contract documents for projects, look to the contract management area for help! Making sure you have the signed agreements, and that you have them in time for billing, is crucial for efficiency and cash flow. The contract management area lets you customize the list of contract types and statuses and track the dates that contracts were sent and received. You can easily report on missing contracts to see where follow-up is needed. Unpaid invoices and the inability to bill for work due to missing contracts will negatively impact the bottom line!

Project Planning and Resource Management

Have you seen the latest project planning tools in Deltek Vantagepoint? Project Planning allows you to add generic or named resources to a project and schedule hours throughout the project schedule. A plan can be started at the time the in-pursuit project is added to Vantagepoint, and updated as the project scope and fee are developed. Planning can help build more accurate estimates for proposals and also serve as a communication tool during project hand-off from sales to the project manager.

After the project is awarded, updating the plan frequently can immediately show pinch points in budgets and schedules. By continually updating the number of hours each resource will need based on work completed and project progress, you can see, for example, if you need to scale back the effort to better match the scope or if a schedule slip is going to cause the need for a change order. Plan updates may also help identify earlier on the issues caused by scope creep and allow you to more easily negotiate change orders to cover costs not originally included in the fee.

Resource Management takes the project planning data and “flips it” to present it by person as opposed to by project. Being able to quickly identify staff that is consistently over-scheduled, which can lead to resignation and cause expensive turnover costs, and then reassign work to under-utilized staff will help keep firm chargeability on track. In the consulting industry, chargeability drives profits!

Accurate Time and Expense Tracking

Analysis of project profitability relies on accurate time and expense tracking. Make sure employee cost rates whether it is a true payroll cost, or a blended cost rate, are recorded correctly in Deltek Vantagepoint. Check out resources like the Deltek Clarity survey to make sure your professional services firm’s billing rates are in line with industry standards, while also taking into consideration factors such as your client base and your geographical location.

Encourage employees to carefully record all time and expenses to the projects they are working on, even if it might cause the project to go over budget. If over-budget costs are “buried” in marketing and overhead, can you ever truly analyze the profitability of each project? Additionally, if your firm performs similar work across your client base and uses past projects as a starting point to budget new projects, you will consistently lose money if project costs are not accurate.

Project Review/Reporting/Dashboards to Compare Budgets and Actuals, and View AR Info

Deltek Vantagepoint offers many tools to help you analyze profitability. The Project Review area, in addition to the project plan, provides a convenient snapshot of project budget versus actuals. Train your project managers to look at project review and their project plans frequently to stay “in the know” about their projects.

Project Reporting shows everything from labor and expense charges by date, to revenue and projected profit. Determine what is important to your professional services firm, build reports that reflect it, save them for your project manager roles to implement consistency across PMs, and train them on what they are seeing. Remember, in the A/E industry most project managers are engineers or architects by nature, so don’t be remiss in assuming they know how to analyze the financial aspects of the projects!

Leverage the dashboard capabilities in Vantagepoint as well, to bring critical project data front and center. Take a look at the project manager dashboards that come with the system or build a dashboard that reflects the project information your firm wants PMs to focus on. By using a combination of charts, graphs, tables, and reports in your dashboard you can help PMs with different preferences for consuming the project data.

Deltek Vantagepoint Ensures Firm Profitability

As you can see, Deltek Vantagepoint offers many ways to help your professional services firm track and analyze project-related data. By using a combination of these options, your firm can more easily see which projects are helping and which may be hurting your overall profitability. By keeping your eye on the profits, you can make more informed business decisions that will help your firm outperform the competition.

Curious to see what else Deltek Vantagepoint can offer you? Explore the full potential of Vantagepoint here!

This year’s Annual Deltek Clarity Architecture & Engineering (A&E) Study delves into how firms are navigating challenges to boost their operations and drive progress. It takes a close look at the evolving dynamics of labor costs, the strategic shifts in where firms are investing their resources, and the innovative financial approaches they’re adopting. Let's examine these findings to understand how they’re shaping the future landscape of the A&E industry and what they mean for firms aiming to thrive in this changing environment.

Top Financial Challenges

This year’s top financial challenges for A&E firms mainly centered around finding and retaining qualified staff, increasing profitability, and managing succession planning and ownership transitions. These issues remained mostly consistent with last year's challenges, though managing growth saw a slight decline in importance, dropping from 46% to 38%, thus moving it out of the top three challenges.

Retaining qualified staff, while still the foremost challenge, saw a reduction in the number of firms ranking it as their primary concern, decreasing from 65% to 59%. The focus on boosting profitability gained prominence, with a 9% increase to 54%, reflecting its rising priority among firms.

Meanwhile, the importance of enhancing project leaders' financial knowledge also diminished, indicating a shift in strategic focus towards more immediate financial pressures and long-term organizational sustainability.

Stability in Labor Costs

In 2023, total labor costs per employee among A&E firms showed remarkable stability, with only a modest increase of $345. This slight uptick reflects adjustments in labor-related expenses and inflation, aligning with the changes in firms' headcount levels from the previous year. Notably, the impact varied significantly across firm sizes with:

• Small firms experiencing the most substantial increase, with labor costs rising by over $3,000 per employee.
• Large firms seeing a dramatic increase of more than $9,000 compared to 2022.
• Medium-sized firms remaining relatively stable, with minimal changes in labor costs or employee numbers.

These variations underscore the nuanced approaches A&E firms are taking to manage labor costs while maintaining competitive compensation structures.

Marginal Increases in Gross Wages per FTE

Gross wages per full-time equivalent (FTE) is calculated by dividing the total labor expenses by the current number of full-time employees. This number remained relatively stable this past year, registering a marginal increase of less than one percent compared to the previous year. This contrasts with the notable five percent surge observed in 2022. Key segments such as high performers, small firms, large firms, and engineering firms experienced slight increases in gross wages per FTE, highlighting the importance of tailored compensation strategies to retain and engage staff.

Understanding these wage trends is crucial for firms to ensure that labor cost increases are effectively balanced by topline revenue growth, thereby improving labor multiplier metrics.

Shifts in Asset Investments

The study reveals a significant shift in firms' asset investment strategies. Net fixed assets per employee decreased by six percent, indicating a strategic move away from traditional fixed asset investments like infrastructure, hardware, and software. Instead, firms are increasingly allocating resources toward on-demand operational expenses for software and technology solutions. This shift is particularly evident in:

• Large firms and architecture firms reported significant declines in net fixed assets per employee.
• High-performing firms and engineering firms which maintained stability or showed slight improvements.

This trend reflects firms' adaptation to changing market demands and their focus on leveraging new tools to enhance competitiveness and drive growth.

Current Ratio: A Mixed Bag

The overall current ratio can be found by dividing current assets by current liabilities. A&E firms saw a slight decline in this, decreasing by 0.18 points. This decrease suggests firms' increased efficiency in managing current assets and liabilities, possibly by accelerating accounts receivable collections. Notably:

• High performers, medium-sized firms, and engineering firms experienced the most noticeable declines in current ratio.
• Small and large firms reported increases, indicating diverse strategies across different firm sizes.

Despite these variations, the current ratio decline does not necessarily translate into reduced liquidity but rather reflects strategic management decisions aimed at optimizing operational efficiency.

Debt-to-Equity Ratio: A Slight Increase

The median debt-to-equity (D/E) ratio is determined by dividing total liabilities by stockholders’ equity. This ratio rose slightly from 0.61 to 0.66 in 2023. This increase suggests that firms continue to leverage debt strategically to achieve higher returns. High performers, medium-sized firms, large firms, and both A&E sectors reflected this overall trend. This cautious yet confident approach to financial management positions helps firms navigate current economic challenges.

A Decline in Return on Equity

Found by dividing pre-tax income by stockholders’ equity, and then multiplying it by 100, the overall return on equity (ROE) for A&E firms declined by 4.5 percentage points to 19.1% in 2023. This decline was the most pronounced among small, medium-sized, and architecture firms, which faced challenges in generating profit growth commensurate with gains in shareholders' equity. In contrast, high performers, large firms, and engineering firms reported flat or improved ROE relative to the previous year.

Increased Focus on Firm Valuations

An interesting trend identified in the study is the increased focus on firm valuations. More firms (up by 1.5 percentage points) completed firm valuations within the past two years, with large firms and engineering firms showing the most significant increases. Additionally, 52.6% of firms without a recent valuation plan to complete one within the next 12 months, up by 3.2 percentage points. This trend underscores the growing importance of firm valuations in the context of merger and acquisition activities, strategic positioning, and financial health management.

Top Financial Initiatives

A&E firms have identified several key financial initiatives to address their greatest challenges over the next three years:

• Training project managers on financial management (+3 points): This initiative reflects a shift towards enhancing project management capabilities to optimize operational efficiency.
• Business process improvements (steady): Emphasizing streamlining processes to improve overall efficiency.
• Better forecasting (+7 points): Highlighting the importance of financial planning and resource allocation to navigate market uncertainties.

Other notable initiatives include better management of growth, organizational changes, and increasing spending on talent acquisition and retention, although these saw declines compared to the previous year.

More To Look Forward To

The 45th Annual Deltek Clarity Study provides valuable insights into the financial trends and challenges faced by A&E firms in 2023. As firms navigate a complex economic landscape, strategic management of labor costs, asset investments, and financial metrics become crucial to sustaining profitability and securing long-term growth. By focusing on tailored compensation strategies, leveraging new technology solutions, and enhancing financial acumen, A&E firms can better position themselves to thrive in an evolving market.