The RIBA Business Benchmarking Survey. Answering the questions every practice should be asking.

Transcription

1 Answering the questions every practice should be asking.

2 Foreword by Angela Brady, President of the RIBA. We have always said that the role of the Royal Institute of British Architects is to champion better buildings, communities and the environment through architecture and architects. To do that effectively, I believe that the RIBA needs to do everything that we can to support all architects in practices both large and small. These are without doubt the most challenging times that I have experienced in my professional career. My partner, Robin Mallalieu, and I set up our private practice 23 years ago in London and, as a small practitioner, I have personal experience of the challenges that practices are facing. The economic landscape of recent years has been difficult for the whole construction industry, with many architects, amongst so many others, facing under-employment and cancelled projects. It is my belief that in order to enable our recovery from this situation, the construction industry must work even more collaboratively in order to cut waste and produce better affordable and sustainable buildings. Worryingly, trends seem to indicate that it is some of the more vulnerable people in our industry who have been hit the hardest by the current economic climate. I am sure that we can all remember how challenging it can be to get into architecture and how hard it was to try and find our feet when we were just starting out. It is now more important than ever for the future protection of our industry that students and younger architects are valued and supported. The RIBA is looking at initiatives over the coming years which will ensure that we, play our part in supporting the future of the profession and its future professionals. We can also help each other by working together and sharing knowledge and information that will ultimately enable us all to adapt to the changing environment we continue to find ourselves operating in. That is why I am pleased to see that so many of our RIBA Chartered Practices are committing to support future architects through the new pay and conditions criteria, and continue to contribute to the annual RIBA Business Benchmarking Survey. The information the survey provides is not only extremely useful to all practices, and I would encourage all of our members to take part, but it enables the RIBA to lobby Government for a better future. We want as many practices in the industry to contribute to the RIBA Business Benchmarking Survey; more information and knowledge will make the intelligence received even more representative and useful. This report, which draws from the RIBA s Business Benchmarking and Future Trends surveys, highlights some of the issues we, as an industry, are facing and illustrates how that information can be used to plan for the future. I wish you all the best of luck and we will continue to do everything we can to support you. Angela Brady FRIAI. RIBA. ARB. FRSA. B. Arch Sc. Dipl. Arch. RIBA President 2 3

3 Understanding what has happened to the architectural industry. Having enjoyed boom times in the late 1990s and for most of the noughties, the architectural profession has faced a dramatic financial downturn in the past three years. It was always inevitable that the juddering global economic climate would take its toll on the UK's construction industry and, sure enough, the RIBA Future Trends Survey tells us that the workload of UK architects has fallen by one third since Clients in the private sector have drastically reduced construction of new or speculative projects and, with the change of Government, the public sector has significantly slowed its major building programmes in both health and education. Many practices have seen their work projections slashed, they've had to instigate pay cuts, shed good staff and generally tighten belts. Meanwhile, a generation of architects is in danger of being lost, as young practitioners coming out of university are finding it almost impossible to find placements overall staffing across the profession is down by 25%. As ever in recessionary times, there are patches of prosperity: one-off, domestic projects at the high end of the market continue to hold firm and, while the commercial markets are generally looking gloomy, they seem to be rallying slightly in London Sector forecasts 01/09 03/09 05/09 07/09 09/09 11/09 01/10 03/10 Private House Commercial Public Sector Community However, practices in the North of England, Scotland and Northern Ireland are forecasting particularly tough times and it goes almost without saying that the bottom has fallen completely out of public sector work in the UK. 05/10 07/10 09/10 11/10 01/11 03/11 05/11 07/11 Similarly, some local areas are thriving but, for most of the country, workload is still falling not as fast as it was in 2008 and 2009 but falling nonetheless. It is true to say that British architects continue to bask in a glorious reputation across the globe, respected for their understanding of sustainability, for large infrastructure projects and for building better communities for the future and this is being reflected in the income that is being generated from projects abroad. While it might be tempting for the profession to bury its head in the sand and hope that it will all come right in the end, the continuing turmoil in global economies and the political and economic uncertainty in the EU suggests that even when times get better, life will be very different indeed. Globally, there is a shift away from the historical dominance of North America and Europe, towards the BRIC countries (Brazil, Russia, India and China) and, within the UK markets, changing perceptions of the value of design will inevitably have a long-term effect on how our society views architects. 4 5

4 Planning for the future. The RIBA Business Benchmarking Survey. An essential business tool for practices of every shape and size. If the RIBA is to help the architectural profession exploit the positive, and mitigate the negative aspects of these changes, then it needs to have hard data at its fingertips as well as anecdotal evidence with which to lobby Government, influence private sector clients and educate the general public. The monthly RIBA Future Trends Survey, which analyses market confidence by sector and region, and the annual RIBA Business Benchmarking Survey, which gives detailed data on the management of architectural businesses, both provide in-depth information as to the health of the industry. With the information gleaned from these surveys the RIBA is well placed to promote a better working environment for architects from a position of strength. It is interesting to note that despite the downturn, many practices are incredibly busy but much of their time is being spent bidding for work or in beauty parades. When fee-earning work is on offer it is primarily focused at the front end of projects: feasibility studies and optioneering, perhaps taking projects up to planning but probably no further. Projects that result in a built product are most often refurbishment or creative reuse of existing building stock often with a sustainable design agenda. The problem is that much of this work is poorly paid or speculative, which means that juggling income versus expenditure has become a real art. There is no question that architectural businesses must work much more efficiently and much smarter if the profession is to maintain the level of success to which it became accustomed to in the first few years of the 21st Century. Of course, it is important to understand the markets and how they are changing: what opportunities are appearing out of the turmoil, which are worth pursuing and which are not. It has never been more important for architects to be aware of and interested in the world in which they work: to read the financial and property press, to understand the political climate and how potential clients are responding. Equally however, it is important to really understand how an architectural business works, how each aspect of the day-to-day management interlocks to create a profitable whole. Where is the money coming from? Where is it going? Can it be put to better use? This is where the RIBA Business Benchmarking Survey of the profession comes into its own, giving RIBA Chartered Practices a confidential, comparable and impartial insight into the management of practices of different sizes and interests, working in different markets across the UK. The benchmarking on offer is especially useful as it addresses all aspects of running an architectural practice: financial, business development and planning, HR and salaries and day-to-day management issues. The topics that it addresses include: profitability, as a percentage of turnover as well as per fee-earner allocation of expenses, to salaries, premises, marketing, IT and other expenses strategic planning, setting targets and forecasting management policies and systems, charge-out rates people, headcount, skills and experience salaries and add-ons business development, client sectors, services offered, international working marketing, success rates with new and repeat clients. The RIBA Business Benchmarking Survey is a useful, albeit retrospective tool, to assess how you are compared with similar practices. Ian Davies, Director, DLP Design Ltd 6 7

5 Assessing performance accurately against recommended benchmarks. What is a reasonable profit to expect from each fee-earner? Over the years we have found that a high ratio of profit to fee-earner is hard to maintain as practices grow in size. Interestingly last year, this trend was reversed, perhaps because of improved staff efficiencies due to redundancy programmes. Turnover and Profit Fee-Earner All Small Small Medium Large Medium Large East Midlands East of England London North East North West Northern Ireland Scotland South South East South West Wales Wessex West Midlands Yorkshire 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90, ,000 What should we be paying our Senior Architects? Initially, most practices reacted to the downturn by cutting staff rather than salaries. However, this was followed quite quickly with cuts to the salaries of senior staff a tough decision to take, as senior staff are usually some of the most valuable to a practice. In the last year, basic salaries have stagnated with a slight increase for junior staff to help maintain morale. However, the good news stops here as the average value of add-ons (bonuses and other perks) has fallen significantly, particularly at senior level. What is a reasonable hourly rate to use when calculating fees? Generally speaking, the larger the practice the higher the charge-out rate, particularly for Partners and Directors. Perhaps unsurprisingly, practices in London and the South East average far higher rates, reflecting the higher expenses that these practices incur. Average Turnover Per Fee Earner Average Profit Per Fee Earner The RIBA Business Benchmarking Survey for RIBA Chartered Practices is an excellent way for us to validate our business decisions on investment levels, staff pay and conditions and overall project financial performance. The individual company performance comparison is a great tool for identifying trends and helping us position our company in relation to them. Phil Holden, Managing Director Pascall+Watson Architects Ltd 8 9

6 Is the diversity of our clients a good thing or are we spread too thinly across too many sectors? The benchmark suggests that no more than 40% of a practice's turnover should come from any one sector. However, as the events of the recession in the early 1990s and the latest downturn have shown, it is equally important to ensure that work is spread across both the public and private sectors. Client types by number of clients Are we any good at converting new business opportunities into to live projects? Private corporate clients Public sector c Remarkably in last year's survey, almost half the practices reported that they win more than two-thirds of the projects that they chase. With repeat business averaging around 55% this might well be the case. However, this success rate is expected to drop significantly in next year's survey. Jobs won as a percentage of jobs chased All Small Small Medium Large Medium Large East Midlands East of England London North East North West Northern Ireland Scotland South South East South West Wales Wessex West Midlands Yorkshire All Small Small Medium Large Medium Large East Midlands East of England London North East North West Northern Ireland Scotland South South East South West Wales Wessex West Midlands Yorkshire Domestic clients Private corporate clients Public sector clients Other client types 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Architects will need to adopt a more flexible approach to their work in order to remain viable businesses and be prepared to change their business models if necessary. They also need to develop their specialisms in order to compete effectively you could say be a Jack of all trades and master of one. Nigel Ostime, Director, 3DReid What other services are our competitors offering to our clients? Last year, over 60% of practices were offering non-architectural services alongside their core architectural work. In next year's survey, the plan is to analyse these non-architectural offers in more detail and discover what other services work best alongside architecture

7 A bespoke report tailored to your business. All Small Small Medium Large Medium Large East Midlands East of England London North East North West Northern Ireland Scotland South South East South West Wales Wessex West Midlands Yorkshire Are we spending enough on marketing, on IT, on premises, on non fee-earning staff? As times get tough so the focus on overheads becomes more acute. The temptation to cut marketing and IT budgets is, for some, overwhelming; however both are critical if a business is to survive and take advantage of changing markets. Most practices allocate small sums to their marketing efforts, with two-thirds of practices in last year's survey falling short of the benchmark figure for marketing expenditure. Similarly, expenditure on IT has seen a steady fall; if this trend continues then there is a very real danger that the profession will fall behind in both software and hardware, just at the time when new, integrated design packages (BIM) are becoming a requirement in many sectors of work. Expenses, excluding salaries Premises IT, telecoms equipment Marketing Other As well as helping to inform RIBA policies, the results of this survey are available in two reports that are issued free of charge to all RIBA Chartered Practices which take part. To ensure that the results are as comprehensive and as accurate as possible, all practices comprising two or more staff are required to submit data. In return, each practice receives a tailored, confidential, practice specific report showing how the practice has performed and a more general report that considers the state of the profession as a whole: setting out targets, reviewing past trends and considering future expectations. As well as graphs and analysis against a whole range of detailed measures, the reports include six best practice' benchmarks. The collective voice of architects and the RIBA will strengthen everyone's ability to build a better future for the profession. Taking part in the RIBA Future Trends Survey and the RIBA Business Benchmarking Survey enables practices to assist with this common cause, while at the same time giving them access to data that will help them to run architectural businesses that are more successful and robust, better able to respond to the ever-changing markets that we are now facing. Private corporate clients Public sector c Reading the RIBA Business Benchmarking Survey and comparing our hourly rates with others gave us the confidence to increase our charge-out rates. It is evident from the report that we still have some way to go with our systems and administration this will act as a spur!" Graham Handley, Graham Handley Architects Ltd We have been doing the RIBA Business Benchmarking Survey for several years now. We find the actual process as useful as the final report in as much as it forces us to consider items such as how we use, record and cost our time, and has led us to make changes which we hope will improve our productivity and profitability. Jenny Goss, O LearyGoss Architects Ltd 12 13

8 We ve made it easier for you to get involved. The RIBA Business Benchmarking Survey. To know where you re going, you must first know where you are. To find out more about the RIBA Business Benchmarking Survey and to confidentially contribute data and receive your own report, visit or The RIBA Future Trends Survey is based on a representative sample of the range of different practice sizes and geographical locations which enables analysis of the trends in sectors, size groups and by nation and region. The development of the database of respondents helps to ensure the statistical accuracy of the survey, and if your practice would like to participate in future months, please contact the RIBA Practice Department on or practice@riba.org The RIBA Future Trends Survey takes approximately five minutes to complete each month, and all returns are independently processed in strict confidence by our partners, The Fees Bureau. To become an RIBA Chartered Practice and take part in the RIBA Business Benchmarking Survey contact membership.development@riba.org or call The RIBA would like to thank the analysts of the RIBA Business Benchmarking Survey, Caroline Cole of Colander and John Swire from MRM Solutions Ltd. Angela Brady image Morley von Sternberg 14

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