What are the numbers to know for engineering professional services and does it really matter?
This was something that I asked myself constantly when I was working for A&E firms. What are our numbers or does it really matter? Here are the numbers that I’m talking about:
- What is our cost per square foot of design?
- What is our overhead?
- How many projects can we do? Or, what is our capacity with the staff that we currently have?
- What is the margin we are looking to achieve?
What these questions are getting at is what is the smallest unit of measurement that we can then use to measure every project moving forward? Without these metrics, we would be looking at the next project in rose colored glasses. Live in reality, not fiction.
Since most firms track hours, this becomes pretty easy to look at. Take the hours for each project divided by the square footage of the building.
This is what the fee for that discipline should equate to, so long as the billable rate accounts for overhead and profit.
Say that a 100,000 square foot building takes 1,000 electrical hours to complete at an average billable rate of $150 per hour. Meaning that the cost is $1.5 per square foot. Now, for any project moving forward, this gives a good starting point to see whether you are going to make money on the project. If it is close, if your fee is equal to or below this cost, it might be worth reconsidering taking the project.
Often firms are optimistic about this, thinking that this project is different than all the rest and that they can get it done faster. Yet, there has been no time spent on templates, process improvement or anything else. Primarily because it is not billable time, or, at least, the firm does not recognize how to associate the two. Yet a dollar that is saved today can be earned back on every project. Therefor it is an asymmetrical dollar. One dollar saved today can yield $10 or $100 or $1,000 with the new process in place.
While this is a simple formula, I have never seen it used or put into practice. Decisions to pursue or not to pursue a project can be done in minutes and done objectively.
Let me know how this works for you!