7 C-level myths around professional services profitability
By Raj Narayanaswamy | August 23, 2018
Working with a variety of clients across the globe, we hear a strikingly similar number of stories from C-level executives. From their vantage point, everything is mostly under control. “I know my business is doing fine,” they’ll say, “but there’s a 12 million dollar leakage that we don’t have the right tools to plug.”
They assume these issues are inevitable and irreparable functions of any organization. Theoretically, of course, every asset available is already covered when aiming for profitability – but a major one goes forgotten: how we use our time.
For an accurate picture of their business, it’s time COO’s, CFO’s, and other senior stakeholders start being concerned about what they aren’t seeing. And that means looking deeper into the ideas that surround professional services profitability, and learning that some of those age-old assumptions might just be a myth.
I’ll bust 7 of the most popular Professional Services myths below:
1. Billable Hours = Total Time
Many businesses tend to believe that the ultimate metric of total time measured equals the billable hours declared. Unfortunately, this method leaves a fair bit of detail out of the picture. There’s no real way of knowing the true amount of billable hours without 100% visibility into your organization’s business operations. Because of this, billable hours actually end up being only a small portion of the hours used to represent all meaningful time in a company – and relying on them alone makes total time virtually undefinable. Missing information abounds, and discredits the data the entire company references for total time.
Our clients later realized that there was actually an answer: it’s not just billable time that counts, it’s visibility into every minute the employees perform. If it isn’t being tracked, it isn’t being billed.
2. Every Day/Week/Month Is the Same
Eight hours a day, 40 hours a week, four weeks a month – sound familiar? In the real world, there are far too many variants to define exactly what hours your company functions, year in and year out. With differing hours between employees, differing holidays, operating in different countries spread across the world, neglecting these factors only results in an oversimplified view of a complex system.
When minute variables between region, department, and resources can be accounted for, true insights arise. Many found that one week at two different offices were far from interchangeable. To gain true visibility, clients required a solution flexible enough to meet variable compliance regulations and contractual requirements across contracts, departments, and countries.
3. Dependable Internal Cost Rate:
Every team has a basic method to describe how much a resource is costing them, but not without leaving out a few important details. Calculated job costs can seem hopeless because of the difference between these very details. The location, the level of expertise involved, and many other complexities are ignored in order to give one simple answer that managers want to hear.
Learning to estimate costs by referencing historical info has helped clients forecast the price of projects better. A solution unifying any and all methods used also provides some of the only real relief from revenue leakage.
4. Utilization is Universal:
The mistake here is taking utilization at face value. Every company resource and team has their own methodology for measuring utilization, and as a result there is no centralized approach for assessing this metric. What happens exactly when there are holidays, vacations, or simply different points of view? You don’t get an accurate sum of its parts.
Taking control of all company time is the key to real resource visibility, but it still needs to capture the authenticity of each department’s unique approach to utilization. The ability to account for these imbalances in time between region, department, and resources with one consensus on the metrics is the solution.
5. Metrics Mean the Same to Everyone:
You may be noting a common theme among these busted myths – and that’s acknowledging that realistically, every team works according to their own specific process. When everyone has their own excel sheet and set of filters informing their metrics, the result is disorderly, flawed information. There is no one formalized way to measure and convey anything; and as a result, any supervisor or project manager can manipulate their information to portray whatever picture they’re trying to paint.
A flexible, centralized method for measuring metrics ultimately provides the full picture. This enables organizations to understand the discrepancies between what they estimate and later on what they actually find, as they deliver and bill for services.
6. 100% Customer Alignment at Launch:
Performance metrics at launch don’t always reflect a perfect customer relationship, but it’s a conversation many avoid until months down the line. Prior to execution, customer alignment for forecast, cost, profit, etc. was on an even keel. But afterwards, with no consistent discussion between the organization and customer, the disconnect snowballs and affects billing when it comes up.
Availability of real time information is a critical element in this process. Without this avenue for open communication, the customer is still left at square one, assuming everything is proceeding exactly as planned. Promoting real time data transmission shines a light on total time, work completed, billing, profitability and transparency for everyone involved.
7. All Projects Are Above Average Profitability:
Ask most project or delivery managers how their projects are progressing, and they will confirm that everything is performing satisfactorily, or perhaps above average in profitability – even if it’s one percent above what was predicted. When using a limited picture, it isn’t difficult to miss the specific details that may indicate profit is otherwise.
Only when overhead and other necessary elements were fully tracked did clients find the actual profitability revealed. True profit was only measured when relying on an estimated average, each specific metric was measured.
Professional services is no longer a static industry; it’s evolving and dynamic, which requires adaptation – and C-Suite executives can lead their company to success with this understanding.
Improving profitability actually has a simple solution: account for 100% of the time in your organization. Own the intelligence around every minute your employees are spending, and consequently understand the outcomes. Be truly intelligent about your business by being intelligent about your time.
With over 20 years of industry leadership, Replicon is pioneering a new approach to achieve this, aptly titled Time Intelligence™. By elevating time as a strategic asset within a professional services organization, they can improve operational productivity, performance, and profitability. Replicon’s PSA solution, based on the Time Intelligence platform, was designed to provide the flexibility and configurability needed for professional services organizations to account for 100% of resource time, and manage services profitability with ease.
Original Source: Enterprise Times
Author: Raj Narayanaswamy