ASHRAE Journal - February 2014 - 13

SPECIAL REPORT

Net Revenues are the revenues generated by in-house
labor.
Overhead includes indirect labor or raw labor costs
allocated to non-project related work; labor burden,
which includes group insurance, payroll taxes, paid
time off, and mandatory retirement plan contributions;
and non-labor costs required to run the firm, such as,
rent, training and development costs, etc.
Profit is the remaining earnings after overhead and
direct labor expenses are paid. Profit will be defined
throughout this article as profit before bonus and taxes,
due to the vast variation in the allocation of year-end
profits from firm to firm.
Direct labor costs, direct labor hours (DLH), and net
revenues are all project-related measures commonly
used as the basis of key financial metrics.
Figure 1 indicates the variation in direct labor,
overhead costs, and profit as a function of direct
labor costs over the past 12 years. It shows that
reasonable profits were being achieved until 2003,
when the impact of an economic downturn hit the
industry. As the design industry recovered between
2004 and 2007, firms were able to raise prices, hold
the level of overhead costs steady, and generate
higher profits.
Unfortunately, as the economic climate
shifted to severe contraction and recession,
16%
2010's survey results indicated that prof14%
its were being squeezed again as overhead
12%
10%
costs increased faster than net revenues
8%
over the previous three years. This year's
6%
results indicate higher profits, though not
4%
all firms are enjoying these positive results.
2%
0%
Whether these higher profit levels can be
1989
sustained and remain for a comparable
FIGURE 2
period of time will be the subject of future
surveys.
A detailed comparison of these key financial indicators
for 2010 through 2013 is provided in Table 1.
So while Table 1 indicates that the financial position of
firms that practice in the A/E industry is improving, let's
take a closer look at profit. Profit is commonly expressed
in terms of a percentage of net revenues which reflects
invoiced income for a firm (less reimbursable expenses
and sub-consultants). The industry is still struggling
to earn a reasonable profit, but it's headed in the right
direction (Figure 2).

$120
Profit

$100
$80

overhead

$60
$40
$20

Direct Labor
$0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Net revenue
Per DLh

breakeven
Costs

Direct Labor
Costs Per DLh

FIGURE 1 Direct labor benchmark trends.

TABLE 1

Comparison of key financial indicators, 2010 - 2013
(MEDIANS)

2013

2012

2011

2010

Net Revenues Per Direct
Labor Hour

$101.66

$100.32

$94.69

$86.63

Direct Labor Costs Per
Direct Labor Hour

$31.90

$31.31

$30.99

$30.99

Total Costs Per Direct
Labor Hour (Overhead +
Direct Labor)

$86.50

$88.73

$86.06

$87.78

Operating Profit
(Net Revenues)

11.42%

9.31%

9.86%

9.49%

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Operating profits as a percentage of net revenues.

Compensation Trends
During the recent recession, many firms went into
survival mode and some had to freeze salaries while
others instituted firm-wide salary reductions. The recession of 2006 to 2009 resulted in record job losses and
high unemployment across most industry segments. In
2009, the stimulus plan provided some opportunities
for public infrastructure projects, and in 2010 we began
to see a slow recovery in the private sector as well. Longterm capital investment coupled with construction's
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