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Of all the resources you have in your professional services organization,
the effective aggregate management of your billable resources will have the
biggest impact on your profitability. Appropriately, our next step focuses pri-
marily on how you manage this special group of resources.


Manage Your Aggregate Billable Resources
Your billable resources are the revenue generators in your professional ser-
vices organization. When these resources are working for your client, they
are generating positive cash f low into your organization. Your goal in this
area is simple. Have the right number of people engaged in billable assign-
ments at the maximum sustainable level of utilization for the longest period
of time. The more people you have performing billable work for your clients,
the more revenue you generate and, based on absorption of your overhead
expenses, the more profitable you are as an organization.
Benched billable resources, on the other hand, have the opposite impact
on your profitability. Many industries use the term benched or on the bench
to refer to a potentially billable resource (professional staff ) who is not en-
gaged in doing work for a client for which the professional services firm is
billing. Also referred to as downtime, this is a state dreaded by managers and
consulting resources alike. When resources move out of a billable project and
onto the bench, they cease to be revenue generating and become overhead
298 Services Delivery: Taking Care of Business

cost to the company. A short time on the bench can quickly erode a signifi-
cant amount of gross margin. If, for instance, you pay a resource $75/hour,
and when billable they generate a margin of $25/hour, then one hour on the
bench will negate the effect of three hours of billability.
On the plus side, resources on the bench also represent an opportunity for
the company to quickly fill a client™s demand for service. Challenges often
faced by professional services organization are:

• Estimating the end of billable engagements properly to be able to antic-
ipate when people might be coming to the bench
• Determining the appropriate size for the bench resource pool to facili-
tate response to demand from new and existing clients
• Finding optimal strategies for properly funding and maintaining the
needed bench strength

To illustrate the challenges of managing the f low of billable resources to
the bench as well as the need for some bench strength, we™ll look at a few
phases of a year in the life of a fictitious professional services organization.
For this example, we focus on an IT software consulting organization resid-
ing within an IT consulting company that generates approximately $50 mil-
lion dollars in revenue per year:

• January: A large project run by 20 of your organization™s billable re-
sources comes to an abrupt and unexpected end and instantly increases
your company™s overhead costs. After carrying these resources on the
bench for three months in hopes of closing another deal, you find par-
tially billable work for two of them and decide to release the other 18
and pay them the appropriate severance based on industry practice.
• May: A prospect who represents potentially the biggest client your
company will ever have for the next decade calls to tell you that they™ve
decided to engage your company. The catch is that you must be up and
running in 45 days. You currently have no one on the bench, and re-
cruiters are telling you that it will take more than six weeks to find, se-
cure, and orient the 50 people you need (the 18 people whom you
released have moved on to other organizations). Four weeks into the
process, the client becomes impatient because they don™t see the prog-
ress they expected. (After all, they feel you are in this business and
should be able to produce the people they need immediately and they
did give you a generous 45 days.) They decide to give you only half the
business and the other half to your competitor.
• September: You start the new program with only 20 of the 25 people
you hired for the program because your new client decided to down-
scale a bit more, and five of your new hires went to the bench. You™ve
299
Resource Management

also started the project later than planned, so you™ve lost some of the
projected revenue.
• October: Not being able to find billable work for the five extra people
you hired, you release them.
• November: The client where you placed the two partially billable peo-
ple tells you they want to increase to seven full time but gives you only
two weeks to fill all the spots.

All of these activities represent the typical ebb and f low of resources
faced by project-based professional services firms.


What Is the Cost to the Firm?
Cost factors impacting the firm in this example include:

• The cost of the period during which the company carried the people on
the bench from the project that ended in January
• The cost of severance as well as the administrative costs associated
with preparing and executing the release of employees
• The opportunity loss from failing to land the entire assignment with the
new client
• The cost of hiring people for the new client assignment
• The revenue loss due to not being able to start the assignment on time
• The cost of having five newly hired resources land on the bench

Taking just this example and multiplying it by the countless projects being
managed by a professional services organization, you will see the necessity
and huge potential for fine-tuning this process to achieve more profitability
and competitive advantages.


Steps to Take to Fine-Tune Your Organization
There are four basic areas that must be closely monitored to manage aggre-
gate billable resources more effectively:

1. Business pipeline
2. Work backlog
3. Current business portfolio of contracts
4. Bench strength requirements

In the reminder of this section, we examine each of these in more detail
and offer suggestions and models for managing these key components more
300 Services Delivery: Taking Care of Business

effectively. Chapters 4 and 5 address the issues surrounding business devel-
opment in more detail and are dedicated to the sales process.

BUSINESS PIPELINE. A business pipeline is the collection of future op-
portunities that are in various stages of the sales process. In many cases,
these can be tracked with nothing more sophisticated than a simple spread-
sheet that lists:

• Prospective client name
• Opportunity type (e.g., network security implementation)
• Expected revenue
• Probability of closing, based on current status of the sales process
(more on this follows)
• Estimated engagement start date
• The name of the person leading the pursuit team (may be the sales rep or
partner, depending on how the sales area is organized within the firm).

In assigning a “probability of closing,” set up a standard set of metrics
that is clearly defined. For example, you may wish to use the following:


Percentage Status
0 A placeholder for a suspect.
10 A new referral.
20 An unqualified opportunity.
30 A qualified opportunity.
40 Prospect has requested a proposal.
50 Initial meeting has successfully occurred.
60 Proposal has been received and favorably reviewed by the
prospect.
70 Firm has been selected as a finalist.
80 Client has given a verbal “yes.”
90 Initial assessment team is now billing their time.
100 Contract has been signed and engagement has started.


By closely monitoring the progress of business through this pipeline on a
regular basis, you can anticipate the need to ramp up or hold your position on
resources (Exhibit 13.7).
If the firm is in a business where the f low through the pipeline is relatively
slow and predictable, it is easier to schedule the ramping up of resources to
coincide with when they are needed. Such a pattern allows the firm to
achieve very high utilization rates and to manage toward a “just-in-time”
301
Resource Management

ESTIMATED
PROSPECT OPPORTUNITY REVENUE ($K) PROBABILITY (%) START PURSUIT LEAD

Akron Alum Network 250 90 Jan XX L. Doe

Beta Biz Supply Chain 750 90 Jan XX J. Smith

Capricorn LLC Web Services 500 80 Mar XX M. Cooper

Delta LLC Security 800 70 May XX J. Smith

Europa Ltd Supply Chain 750 70 May XX J. Smith

Finch & Co Refresh 1,000 0 Aug XX M. Cooper

Gregorian Inc Web Services 500 60 Jun XX L. Doe

Exhibit 13.7 Pipeline Management Chart



ramp-up process. Some business models, however, do not allow for this.
There are instances where businesses may operate in an environment where
opportunities may suddenly appear with a “short potential shelf life” requir-
ing rapid sales and delivery execution. If this is the case, the firm may need
to finance the cost of maintaining a bench of resources. Here the best course
of action is to analyze the cost /benefit of running a “reserve resources”
model by estimating the probability of these opportunities presenting them-
selves (note whether there are any seasonal or other key inf luencing factors)
and the cost of maintaining the “reserve resources” bench.

WORK BACKLOG. The firm™s work backlog is composed of those projects
where the client has signed the contract but the assignment has not begun due
to the client™s preference (they™ve picked a future start date) or your inability
to start (e.g., the firm does not have the appropriate resources available). Hav-
ing a well-managed backlog for the right reasons can be a good thing. On the
other hand, having a backlog for the wrong reasons and one that is poorly man-
aged can be detrimental to a professional services organization.
To effectively manage the backlog, regularly review delivery progress rel-
ative to commitments to clients. An effective way to do this is another sim-
ple spreadsheet that lists:

• Client name
• Assignment type
• Expected revenue
• Assignment start date
• Status/action
• The name of the person leading the engagement
302 Services Delivery: Taking Care of Business

Make sure that your actions and status are where they should be as you
progress through the engagement from the signed contract to the start of ex-
ecution. This analysis, coupled with your pipeline data, will help you decide
how to manage your resource pool. Exhibit 13.8 is an example of a work
backlog management tool.

CURRENT BUSINESS PORTFOLIO OF CONTRACTS. You need to antici-
pate growth as well as potential erosion in your current book of business so
that you can effectively manage your resource pool. By maintaining and doc-
umenting valuable communication with your existing clients and reviewing
this information periodically, you can minimize, if not altogether avoid, dev-
astating surprises.
Again, an effective way to do this is a simple spreadsheet that lists:

• Client name
• Assignment type
• Annual revenue
• Assignment end date (more on this follows)
• Status/action firm is taking to obtain work extension, more business, or
prepare to disengage
• The name of the person handling the client relationship

(Note: Some professional services firms may have engagements that are
per diem and therefore do not have a stated end of contract date. While
these projects do not have a specific end-date, clearly they should be care-
fully managed as well.)
Exhibit 13.9 is an example of a current business portfolio management tool.



REVENUE ENGAGEMENT
PROSPECT ASSIGNMENT ($K) START STATUS LEAD

Akron Alum Network 250 Jan XX Staffed/ready L. Doe

Beta Biz Supply Chain 750 Jan XX Staffed/ready J. Smith

Capricorn LLC Web Services 500 Mar XX Recruiting/sourcing M. Cooper

Delta LLC Security 800 May XX Planning J. Smith

Europa Ltd Supply Chain 750 May XX Planning J. Smith

Gregorian Inc Web Services 500 Jun XX Planning L. Doe

Note: Future start date of December of the year before the dates listed.

Exhibit 13.8 Work Backlog Management Chart
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Resource Management

REVENUE RELATIONSHIP
CLIENT ENGAGEMENT ($K) END DATE STATUS LEAD
Akron Alum Network 250 Jan XX Disengaging in L. Doe
90 days

Beta Biz Supply Chain 750 Jan XX Renewal with a J. Smith
few changes to

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