2015 cbiz tofias architectural survey

National Award-Winning Architectural Survey

An Analysis of Key Industry Statistics2015A r c h i t e c t u r a l S u r v e y

Photo © Ed Wonsek. Tahanto Regional Middle/High School, Boylston, MA. Architect: HMFH Architects, Inc. All rights reserved.

Our Architecture, Engineering and Consulting PracticeCBIZ Tofi as and Mayer Hoffman McCann P.C. has decades of experience supporting the accounting, tax, and consulting needs of architecture, engineering and consulting (A/E/C) fi rms. We have a dedicated team of experts that specialize in the A/E/C industry, and leverage our hands-on experience to proactively address the unique business needs of your fi rm and its owners, both today and throughout the life cycle of your company.

As your partner, we strive to provide you with accounting and tax planning advice that will improve your fi nancial performance in an ever-changing and competitive market. To learn more about our A/E/C Practice, please visit our website at www.cbiztofi as.com.

Dave SwanManaging Director in Charge of the A/E/C Practice617.761.0734DSwan@cbiztofi as.com

1 | Copyright 2015 by CBIZ Tofi as and Mayer Hoffman McCann P.C. - Tofi as New England Division


“Effi ciency often begets profi tability, and signs indicate that architectural fi rms continue to maximize their resources and usher in profi ts.”

CBIZ Tofi as and Mayer Hoffman McCann P.C.’s 2015 edition of the Architectural Survey takes a deeper dive into the fi nancials to explore how fi rms balance overhead expense, direct labor costs and client billings with profi ts.

Our report, now in its 30th year, analyzes key industry statistics from 2014 fi nancial information from fi rms in Greater Boston. We provide context for the data collected by comparing current rates with those of years past and identifying trends and best practices. The information is designed to assist architectural fi rm management teams, including our clients and various allied service providers, with detailed fi nancial information that can be used as a benchmark of operational performance and as a guide for future planning.

Executive Summary

Profi t Per Direct Hour Reaches New High. The more than $3 rise in the average billing per direct hour along with the increase in the billing multiple (see Operating Effi ciency Continues To Improve below), contributed to the highest profi t per direct hour, $18.85, in the history of the

survey for the second year in a row.

Overhead Rates May Be Stabilizing. Compared to 2013 when overhead rates jumped $1.40 per hour, the overhead rate per hour in 2014 held about steady

from the previous year, coming in 4 cents higher than 2013’s level at $60.18. However, there may be an opportunity for

many in the fi eld to reduce their overhead by increasing the utilization of staff, which would increase the direct labor

utilization rate and reduce indirect labor costs.

Key Findings

Direct Labor Utilization Rates Increase.The percentage of time employees spent on billable hours increased from 62.7% in 2013 to 63.7% 2014. Most of the

more profi table fi rms in the survey achieved direct labor utilization rates at or above the 65% level, with a few

fi rms around 70%.

Operating Effi ciency Continues To Improve. For the third consecutive year, fi rms reported a record-high

billing multiple at 3.26 times direct labor. This positive project management trend indicates that when fi rm personnel are

working on projects, they are doing it very effi ciently.


5-Year Key Average Financial Indicators

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

2014201320122011201060%

62%

64%

66%

201420132012201120102.90

2.95

3.00

3.05

3.10

3.15

3.20

3.25

3.30

20142013201220112010$90

$95

$100

$105

$110

$115

$120

20142013201220112010


*Range of Surveyed Firms: The high/low range represents the second highest/lowest of the fi rms participating in the survey.

2014 Range of Surveyed Firms*

2010 2011 2012 2013 2014 High Low

Total Direct Hours 89,662 61.4% 80,655 62.4% 74,055 64.2% 64,772 62.7% 67,896 63.7% 71.0% 55.5%

Total Indirect Hours 56,479 38.6% 48,562 37.6% 41,231 35.8% 38,554 37.3% 38,745 36.3% 29.0% 44.5%

Total Hours 146,141 100.0% 129,217 100.0% 115,286 100.0% 103,327 100.0% 106,621 100.0% 100.0% 100.0%

Indirect Expenses $5,318,991 $4,666,880 $4,349,415 $3,966,280 $4,129,957 $9,818,530 $1,318,926

Overhead Rate per Direct Hour $58.34 $59.09 $58.74 $60.14 $60.18 $75.72 $41.24

Breakeven Multiple 2.89 2.70 2.66 2.70 2.68 2.96 2.31

Direct Labor Billing Multiple 3.04 3.05 3.09 3.19 3.26 4.13 2.75

Average Billing per Direct Hour $100.41 $101.84 $104.98 $111.37 $114.41 $129.76 $94.27

Employee Average Hourly Rate: Direct $36.53 $35.86 $35.30 $34.78 $35.38 $39.99 $30.47 Indirect $39.43 $37.78 $38.94 $40.34 $40.90 $45.00 $35.49

Total $37.54 $36.95 $36.65 $36.74 $37.34 $41.19 $32.33

Calculation of Profi t per Direct Hour:

Average Billing $100.41 $101.84 $104.98 $111.37 $114.41

Direct Labor ($36.53) ($35.86) ($35.30) ($34.78) ($35.38)

Overhead ($58.34) ($59.09) ($58.74) ($60.14) ($60.18)

Profi t per Direct Hour: $5.54 $6.89 $10.94 $16.45 $18.85 $44.78 $3.48

Time Statistics, Historical Survey Averages


$0$2$4$6$8$10$12$14$16$18$20

58%

60%

62%

64%

66%

68%

201420132012201120102009200820072006200520042003200220012000199919981997199619951994199319921991199019891988198719861985

Direct Labor Utilization Rate: The percentage of direct hours as compared to total hours. This ratio indicates how chargeable a fi rm’s employees are.

Profi t per Direct Hour: The fi rm’s adjusted profi t divided by direct hours. This calculation indicates how much profi t is earned per direct hour.

2.0

2.5

3.0

3.5

2.0

2.5

3.0

3.5

201420132012201120102009200820072006200520042003200220012000199919981997199619951994199319921991199019891988198719861985

Direct Labor Billing and Breakeven Multiples

Direct Labor Billing Multiple: The multiple of employees’ direct labor that you achieve. This is computed by dividing the net fee income (i.e. the gross fee income minus all direct and reimbursable expenses excluding labor) by direct labor.

Breakeven Multiple: Ratio calculated by adding direct labor costs and overhead (indirect expenses) and then dividing the sum by direct labor costs. Multiply the breakeven multiple by an employee’s pay rate to determine what you would have to bill out that employee for, on an hourly basis, in order to break even.

It is important to note that the spread between the direct labor billing multiple and the breakeven multiple represents profi t.

Direct Labor Utilization Rate and Profi t per Direct Hour


Outlook for 2015


“Firms increased their effi ciency and revenues, setting a record-high profi tability rate in 2014.” It will be diffi cult to increase the record setting billing multiple and profi t per direct hour. Nevertheless, fi rms face opportunities for fi nancial growth if they can fi nd the optimal balance between billing rates and overhead costs. Firms can build their revenues by increasing their direct hours and/or their average billing per direct hour.

As the billing per direct hour has been rising year-over-year, we recommend that fi rms focus their attention on their direct hour utilization rate. Improving this rate should lower fi rms’ overhead rate, which has also been at a higher level over the past few years, and help improve the staffi ng as well as the overall operating effi ciency.

CBIZ Tofi as, the New England Division of a top 10 national accounting and tax provider, uniquely combines national resources with local decision making by experienced, New England-based professionals. Our experts, skilled in accounting and auditing*, tax, and a range of consulting services, are dedicated to strengthening our clients’ fi nancial positions. When you choose CBIZ Tofi as, you get proactive, accessible professionals who communicate in understandable terms, and deliver practical solutions on time, with no surprises, to help your organization thrive. Our New England offi ces are located in Boston and Providence. Nationally, we have over 100 offi ces in 34 states.

Survey MethodologyOur survey is based on the 2014 fi nancial information derived from our architectural fi rm clients in the Greater Boston region. The information, which may be rounded, is not statistically derived, but rather a representative cross-section of architectural fi rms in the region. As always, we wish to extend our sincere appreciation to the fi rms that have allowed us to include their fi nancial information and other data in our award-winning survey. Their participation has made this survey possible.

About CBIZ Tofi as and Mayer Hoffman McCann P.C.

*CBIZ Tofi as is a leading provider of tax and consulting services. Mayer Hoffman McCann P.C., an independent certifi ed public accounting fi rm, provides audit and other attest services. Like other national fi rms, our tax/consulting and audit practices are organized as separate and independent legal entities that work seamlessly together to service our clients.


Working Together

Tax Preparation, Planning and Consulting

Benchmarking of Financial Results

Ownership Transition/Merger and Acquisition Consulting

Internal Audit

Retirement and Employee Benefi t Consulting

Accounting Advisory Services

Forensic, Litigation and Valuation Services

Executive Coaching and Retreat Services

Financial Statement Audits, Reviews and Compilations

Overhead Rate Audits

Employee Benefi t Plan Audits

Agreed Upon Procedures

Forecasts

Projections

Due Diligence

SOC Reporting (formerly SAS 70)


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617.761.0600 | www.cbiztofi as.comLink with us on LinkedIn: cbiz-tofi as | Follow us on Twitter: @CBIZTofi as

Photo © Ed Wonsek. Tahanto Regional Middle/High School, Boylston, MA. Architect: HMFH Architects, Inc. All rights reserved.

2015 cbiz tofias architectural survey

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