Amid a search to curtail inflation rates and current news about the failure of Silicon Valley Bank, speculations about financial outlooks for the remainder of 2023 shape how architecture offices make decisions in an increasingly volatile world.
“Economic uncertainty is top of mind for firm leaders in the architecture and engineering industry,” Robert Yuen, CEO and cofounder of Monograph, a firm performance management platform for architecture and engineering (A/E) practices, told AN. “Inflation. Interest rates. Rising material costs. The combined effect of these uncertainties intensify risks already at play in the A/E industry.” In Yuen’s view, after a period of expansion due to general economic growth, today firms are renewing efforts for business development and efficiency.
Some sectors of work have already been disrupted. For example, architects with tech or developer clients are already experiencing impacts. Meanwhile, “firms that have yet to see direct impacts on firm performance so far are still anticipating downstream effects on their markets as uncertainty moves through the economy,” Yuen shared. Responses to this upcoming instability happen in part through technology—so firms can “track and forecast firm performance to create more time and transparency across the team”—but also central tasks like business development and empowering staff to “take on new responsibilities in billings and developing client relationships.”
To better understand the ways that successful practices perform well regardless of economic conditions, Monograph interviewed A/E industry leaders to identify key trends. Its Strategic Risk Report 2023 offers “a collection of strategies that enable A/E firms to tackle risks associated with clients, money, time, and talent.”
To create this report, Monograph listened to industry leaders to understand how they are guiding their offices lately. Meryati Johari Blackwell, managing principal at Marlon Blackwell Architects (MBA), is one of the featured experts. She shared that her practice attempts to better manage cash flow. MBA is currently holding on hiring more staff and tries to keep projects moving to avoid falling into holding patterns. Blackwell is “doing a lot more business development, marketing, and jointly marketing with other architects to create opportunities in other markets,” she stated.
In the midst of a tightening market for talent and wider structural conversations about labor, Blackwell shared that MBA is set on keeping its current staff happy through matching good work with “good annual raises and bonuses, providing professional development opportunities, and allowing for fun company-wide events.” MBA lets them “know they are valued by elevating them within the team, letting them shine, and amplifying their voices/talent.”
Similarly, Hemanshu Parwani, “HP,” principal/owner and CEO at Olson Kundig, said that his office is currently witnessing a transformation in leadership, with new—and younger—owners and partners. (HP was also consulted for Monograph’s report.) These individuals “bring a lot of creativity to leadership, as well as being more engaged with social issues at play in our industry and society more broadly—social justice, diversity, inclusivity,” HP related. “They’re more attuned with the climate challenge ahead of us and bring a new perspective to how spaces—and practices—are designed.”
Both HP and Blackwell have seen the continued impacts of the COVID-19 pandemic. HP said that Olson Kundig has experienced this largely in international contexts where travel “continues to be a challenge,” and especially to China and parts of Asia. “While the profession has collectively established a great culture of working on Zoom and Teams, there’s no substitute to being physically on-site.” Increased costs reduce the frequency of the trips and the number of team members who can attend. Additionally, currency fluctuations put “increased pressure on fee structures and the cost of construction,” an experience other architects have shared with AN.
Blackwell saw impacts more locally. The construction market in Arkansas, where MBA is based, is strong due to the nearby headquarters of large corporations like Walmart and Tyson. She sees “a lot of outside architecture practices coming into [MBA’s] area, getting those projects, and so practices based here cannot rely on regional work to come [their] way.” The office has had to expand its market and, due to competition, lower fees to remain competitive. Instead of a remote or hybrid arrangement, Blackwell said MBA’s employees work together at the office, with “no work-from-home unless approved prior on a case-by case basis.”
Blackwell is clear about what needs to happen to improve architectural business practices: “We need clients to value our services where they will pay us fairly.” In construction, cost and profit are tied to schedule and fees. “If the project takes longer to construct than anticipated and [it’s] not due to the contractor’s fault, they are entitled to a change order to their fees. We, as architects, are not held to the same agreement.” If things change, architects are usually forced to renegotiate their fees—“with mixed results.”
The ability to quantify value is critical, Blackwell said. She relayed that while an artwork by a “well-known, nationally recognized artist can sell for a lot more than an unknown local artist, we have no metrics or similar method to bring value to our work as architects.” “Not all architects bring the same value to a project or a client,” yet offices are so often evaluated “based on more or less the same antiquated system” of experience, claims history, and fee.
To best understand how a practice functions, HP stated it’s important to “develop metrics and waypoints that allow the architecture profession to manage not just the business but the uncertainty that surrounds the business.” This strengthens responsiveness and flexibility during turbulent times. To be able to consistently deliver quality design, HP noted that both servicing client relationships and investing in people and internal culture are important activities.
Rather than a worn-out split between business and design, financial literacy is part of a dynamic, successful practice, HP commented. Olson Kundig frames “business practices as supporting creativity, by liberating those creative minds to focus on what they do best.” The company’s “entrepreneurial spirit and risk-taking” are anchored by solid business practices. “It’s how we improve client services and build strong relationships and deliver projects in a more effective and efficient manner,” HP said. “If design is the heart of a practice, then good business processes are the backbone.”
Monograph’s Strategic Risk Report 2023 can be downloaded from its website for free.