How Should Professional Services Organizations Measure Profitability?

By Raj Narayanaswamy | July 12, 2018

The 5 pillars of success

HR professionals are well aware that resource time accounts for nearly 80% of operating expenses in professional services organizations – so a clear and accurate picture of every hour they spend, and where they spend it, is critical. While every services business operates by their own specific methodology, there appears to be an overarching, near-unanimous philosophy: billable hours equal total resource time.

Unfortunately, this shortcut leaves a fair bit of detail out of the picture. It doesn’t account for under reported time, those working off-the-clock to make deadlines, unbalanced skill sets among team members, or other projects competing for attention. Ultimately, it’s not billable time alone that counts – it’s insight into every minute the employees work. If it isn’t being tracked, it isn’t being measured or managed.

This results in misunderstood revenue leakage, or even profitable organizations overlooking more opportunities for even better results. Without a complete picture of how all time in an organization is used, it is easy to make incorrect conclusions about profitability based on partial data from siloed systems. Failing to account for all time, and consequently all expenses in an organization, creates and perpetuates the Profitability Myth.

To bust this myth once and for all, it’s necessary for HR executives to make sure services leaders have 100% visibility into an organization’s project resources’ time and work. The same way ERP came into existence to unify and automate back-end office functions, professional services automation needs an upgrade to offer the same real-time, integrated, single source of truth across an organization.

These five pillars need to be cultivated on a foundation of resource time for PSOs to be successful:

1. Service Delivery Management

Top-of-the-line project or program managers are able to orchestrate and gain visibility into their unique service delivery workflows and processes by collaborating on a single source of truth for time, instead of focusing on numerous different workgroups. They can then more effectively manage resource allocation, skills, utilization, and more.

2. Revenue Management

When project, billing, and finance managers have real insight into resource time, they can optimize their operations in profitability, progress, billing status, budgets, revenue recognition and maintain compliance with accounting standards.

3. Resource Utilization

The ability to set productivity targets and accurately measure resource utilization is critical to run a profitable service delivery business. Setting these targets at individual resource levels enables PSOs of all sizes to effectively utilize resources by measuring against them. Further financial performance and productivity can be driven by collating individual, project, group, or company level productivity and utilization metrics.

4. Growth Management

To continue managing resource cost, bench capacity, and overhead effectively, don’t stop at current resource utilization – look forward as well. Use historical information from service delivery pipelines to improve your estimates, plan for profitability, and forecast the skill sets and future resource utilization needed for your hiring and training needs.

5. Project Accounting

Project managers and finance teams can gain full visibility into their projects’ financial health by collaborating on these key metrics: budgets, estimates, costs, margins, WIP, billings, bookings etc. Look for a platform that offers real-time data availability.

HR individuals working in a PSO must enable services leaders with a complete view of resource time and availability, based on a configurable framework that supports an organization’s unique business workflows. A sophisticated and comprehensive PSA solution not only automates critical tasks such as resource and project management, but also provides deeper insights into areas such as resource utilization and project profitability. This builds a time-focused system of record based on the way individual organizations work, rather than forcing them to adapt to a solution-dictated process.

No less valuable than money, people, or intellectual property, time must be acknowledged as a vital business asset. When all projects and time can be tracked and tied to outcomes produced, you can get the whole picture on profitability.

Original Source: HR.com
Author: Raj Narayanaswamy

Get started today.
Set up a free trial based on your business needs. Start Free Trial

A Brief History of Project Management (Infographic)

You will agree that project management plays a vital role in streamlining projects and delivering results that impact the bottom line. Without proper project management, teams and clients are exposed…Read More

What Does it Take to Become a Data-driven Organization?

As today’s world is becoming increasingly digitized, all types of organizations across the globe are generating large volumes of data. And even though organizations are acknowledging the value of that…Read More

Global Compliance Desk – Germany

Germany: Federal Labor Court decides in favor of Recording Working Time The Working Time Directive 2003 of the European Union, contains no time recording or record-keeping obligations per se but…Read More

5 Ways to Improve Service Delivery in Your Organization

In a highly competitive market, service-based businesses need to capitalize on any opportunity to set themselves apart from their (often very similar) competitors. While implementation, system details, and service management…Read More

Will AI replace consultants?

The onset of AI and smart machines automating formerly-human jobs has been discussed at length as of late -- often in relation to manufacturing and manual labor jobs. And yet,…Read More

Demystifying the millennial workforce: 5 tips from Trunk Club’s Andrew Anderson Devine

Time magazine labels the millennial generation the “most threatening and exciting generation,” infamous for “narcissism [and] its effect: entitlement.” In the workplace, the perception of the millennial workforce is no…Read More
  • Polaris
  • Time & Project Insights
  • Time & Projects Solutions
  • Replicon Products
  • Replicon Users
  • Enterprise Time Tracking
  • Thought Leadership
  • Cloud
  • Corporate
  • Professional Services Management
  • Shared Services Management
  • Time and Attendance Management
  • Customer Feature
  • Time Intelligence
  • Industry News
  • Global Compliance Updates
  • Others