Full Sail Partners Blog | Ryan Felkel (18)

My momma was always full of advice. Some I took with great results, but others … well let’s just say I had to learn the lesson the hard way. At this stage in our lives, we’ve all moved on from those tender years where momma was our greatest guide, but we are all still attuned to receiving advice from those more experienced. Or at least we should be. Take for example, the ERP Implementation process:

Most savvy business professionals know the ERP acronym, but not all have taken the advice.  But why?  What’s keeping some companies from “pulling the trigger” and bringing this all important piece to their success puzzle – especially when their competitors are?  In my years talking and working with a variety of firms, I have gathered the top five fears why companies, like yours, haven’t completed an ERP Implementation. 

1)      You say: “It’s going to cost too much.”

We hear:  Fear of Being Out of Control

We solve: An ERP system will address this fear by managing costs and stopping       financial leaks.

Problem:  The industry says that ERP implementation can be expensive and many companies wonder where the money is coming from. Many function under the notion that it’s easier to just do the quick fix and move on.

Solution:  The right ERP system, implemented correctly with the aid of the right consultants, will fix those expensive leaks in processes. Furthermore, with a detailed IT growth plan and the information from the new ERP, the initial costs will be recouped and you’ll be well on your way to a better financial and technologically focused picture.

2)      You say: “I don’t have the time to research an ERP.”

We hear:  Fear of Where to Start

We solve:  Taking the first step with an ERP and controlling your future will eliminate this fear.

Problem:  It can be daunting to think about the work it will require to research and discover the right consulting firm who will help find and implement the right ERP. But, in this scenario, consumers are being reactive rather than proactive - spending days living those old clichés “with your head in the sand putting out fires.” 

Solution:  It’s time to take action - focus on goals and the future. An ERP is a planning, forward-looking mechanism designed to give control over an organization’s future. If the research and work is done at the beginning of the ERP implementation, energy will be focused on the future. 

3)      You say:  “It’s going to take too long to implement.”

We hear:  Fear of Failure

We solve:  An ERP system helps you succeed by pulling together all your information for a clear picture of your newly improved organization.

Problem:  When you run a lean organization, all internal resources are at full capacity unable to see the big picture which makes for silo’d company data inhibiting the ability to see the big picture. Not having a clear picture serves only to stunt a firm’s growth:  it’s this lack of encompassing visibility which keeps a firm from being able to make intelligent decisions or to understand trends, because they are lacking departments and systems that are connected to each other.

Solution:  A good ERP system will pull together all this disparate data giving users the clear picture they need to move forward and giving everyone the gift of time. Yes, ERP implementations require some work and time to evaluate and establish new processes, establish goals, and get everything running smoothly, but the more attention is focused on the consultants and the implementation, the faster you will reap the benefits and feel the relief.

4)      You say:  “It’s going to require too much change in my current processes.”

We hear:  Fear of Change

We solve:  An ERP consultant will guide you through change.

Problem:  Even a bad process can feel comfortable, familiar. And in the fast-paced business world, we all have to find comfort where we can. It’s understandable to want to avoid the work, unfamiliarity, and making changes to numerous business processes. But what’s more important is that your competitors are already using their ERP systems. They will be on “the latest and greatest” while you are still floundering with “this is the way we’ve always done it.”

Solution:  Here’s where the right consultant can really help. Someone who knows their way through the maze of settings; who knows the latest and most relevant business processes; and who, most of all, knows YOUR business and YOUR industry. Once the consultant tailors the ERP implementation to what are now highly efficient business processes, you’ll be able to appreciate the value of the phrase, “change is good.”

5)      You say:  “No one will use the system, anyway.”

We hear:  Fear of Unknown

We solve:  An ERP is such a supportive tool, it will quickly become a familiar part of your world.

Problem:  So after all the trouble of researching and implementing and ERP; the real fear is, “Will I really use it or just revert back to our old ways?”  Once the shine wears off of a new ERP system, there will be some effort every person will have to make to make the changes permanent. HuffPost Healthy article, “How Long Does It Actually Take to Form a New Habit? (Backed by Science)” tells us that, “On average, it takes more than two months before a new behavior becomes automatic -- 66 days to be exact.” 

Solution:  That’s great news, because in a little over two months, with a focused effort, everyone, including you, will have turned these new processes into automatic actions. What’s more, the new processes will have included regular reviews of data giving a clear picture of the entire organization allowing responsible action for your future. We also recommend understanding more about the 8 key ways to make your implementation a success. 

ERP Implementation Fears Laid To Rest!

Some (or all) of these fears may have indeed been on your mind as you contemplated your company’s future success. To learn more about ERP implementation, the benefits and the return on the financial and time investment, check out Full Sail Partners’ whitepaper, “Could Your Firm Benefit from an Enterprise Resource Planning System?”

In the end, while momma’s advice may not have included an ERP implementation, her wise words still resonate and are perfectly applicable to this journey “Nothing tried, nothing gained!” Obstacles are just opportunities waiting to be discovered!

We have reached it, the exciting conclusion to our series on Management of Change.  It is here where we will reiterate our most important change messages and send you on your way to successful changes in your organization. 

We started our series defining crucial concepts, i.e. change includes anything that takes a company from its current state to a new, desired state and that it takes the buy-in and adoption of the people in the company in order for change to be successful.

This statement encompasses several ideas and focused areas, each of which we explored during this series.   

• The executive piece focused on the leadership required as company change agents – establishing goals, creating clear direction and modeling the new, desired behaviors.
• Our financial commentary focused on the numbers of change: establishing numerical baselines, checkpoints, and the financial ranges indicating success.
• The project management information recognized your company’s project managers as those best suited to manage and evaluate the change process, since that’s what they already do for your clients.
• The marketing article acknowledged the multifaceted role marketing plays: the industry researcher who sees the need for change; the communicator/positioner for your company, your clients and your employees; and an area that needs to embrace the change themselves.
• Our final focused blog piece from the human resources perspective really explored the people – the most important part – of change.  If the people in your company aren’t clear on change, all the spreadsheets and tools in the world won’t make it work.  

You are the authority on finance:  You speak in numbers using  words like “return on investment,” “profit,” “revenue,” and, of course “results.”  In this third installment of our Management of Change Series, we explore change management through the eyes of the financial experts who prove the attainment of goals with reliable, empirical evidence … bottom line numbers.  

But how?

Many professionals are capable of creating and clearly defining goals, not the least of whom are the executives in your company, as we explored in our Management of Change – Executive.  But as the financial wizard, your job is to establish clear, numerically defined, indicators of success which start with a distinct baseline.   After all, to know where you are on the journey, you need to know where you have been.

So, back to our initial question:  How do you prove goal attainment once goals have been clearly established?  It is best to use a defined, multi-step program.

1. Establish a baseline – This is not about finding bottom line numbers, somewhere, as some sort of false starting point.  Your baseline must include the numbers which clearly support the defined objectives. 
    
2. Define financial checkpoints – Change is a time intensive process and must therefore be managed as meticulously as the most important project, since implementing change is, in fact, a project.  Your firm’s success is dependent upon this project.  Financial objectives must be managed throughout the change process, through project status reports, so that there are no financial surprises at the end.
    
3. Determine final success numbers – We certainly know that success isn’t always defined by dollars but also by numbers indicating things like percentage increases or decreases.  But, and this is important, don’t be tied to a specific number, instead determine a tolerance range as your indicator of success, your ROI.  Remember, that management of change is not just about processes but also about the people in your organization, and, as we all know, change in people is difficult.  This speaks to user adoption, i.e. how your employees adopt, accept and embrace the changes being proposed. According to “The ‘harder’ side of change.  The What, Why and Ho of change management’” The consequence of not managing the people side of change, i.e. employees and customers, has “tangible and real financial impact on the health of the organization and the project.” Therefore, set an acceptable level of success and celebrate when you’re within a good range of your numbers.
    

Here is your softare toolbox for managing the above steps.

Even more numbers

Management of change for “finance types” is unquestionably about the numbers.  But all good number crunchers know that numbers reflect all sorts of things:  More than just bottom line profit/loss, percentage increase, or improved customer satisfaction numbers. Financial repercussions also must be measured for change that doesn’t occur to account for potential adverse effect of not making a necessary change.  Therefore, numbers have to be analyzed reflecting the “opportunity and efficiency costs of NOT making the change both of which also directly impact ROI” as we discussed in our introductory piece to this series.   

Bottom line

The financial side of the management of change is really where cold numbers meet the warmth of the human ability to accept and adapt to change.  The purpose of this piece is not to immerse you in ROI calculations, number projections, or columns of dollars – all of which you’re thoroughly aware – but, instead, to ensure that all involved in the change management process are aware of the steps to proving the financial effect of change as well as to speak to the financial ramifications NOT making changes.  Those numeric bottom line steps are the solid evidence of change management success.  Our next installment features project managing your change.

Project based ERP.  You’re probably wondering to yourself, “what is this anyway?”  We’ve all heard of Enterprise Resource Planning (ERP) systems, but now the industry added the words “project based.”  It probably feels like they are just layering more words … and difficulty.  So let me make some sense out of this for you. 

Project Based ERP Straight Talk

Traditionally, ERP’s have primarily been associated with companies manufacturing products: a key factor in ERP is the merging of IT, HR, Finance, and Marketing data with product operations and inventory management. 

In services firms and consulting businesses like yours, however, some alterations must be made for the ERP system to show the data they need to achieve their goal – high profit and high revenue in a skills based environment – hence the addition of “project based” to our discussion about ERP systems.  Your services business deals with a model where intellectual property is what you produce.  You don’t have the evils of shelf life, production lines, or parts departments.  Instead, your lives are geared toward a consistent evaluation of process, of skill, and of running the perfect project.   

Get Down to Business

Project based firms are exceedingly good at running projects.  They can create a GANNT chart that’s a thing of beauty, they can set achievable deliverables, and they meet or exceed every deadline.  But finding an ERP system that’s attuned especially to services and not manufacturing – now that’s tougher.  It takes dedication, knowledge and the focused energy of the right team to get it all together.  

• An ERP Consultant whose job is to master-mind all the necessary pieces to banish redundant, useless old processes and make your project’s business goals a realty.

• A Project Manager focused solely on gathering and maneuvering all the professionals to make achieving your project goals a success.

• Your IT, HR, Marketing/Sales, Finance as the true heroes to making things happen.

So What Are You Going To Get Out Of It?

I know, I know.  “It’s expensive to add new software.”  “It’s a lot of work and we’re already pretty busy.”  I’ve heard this and more.  But let me tell you – you can’t afford NOT to add a project based ERP system!  The table below details those differences:

Brass Tacks

Still need more?  Here’s the slam-dunk.  According to “Managing Your Consulting Firm for Growth,” an IDC Info-doc, ERP systems built from the ground up with projects as a core process give firms the tools to make the most effective decisions in these critical areas:

• Lifecycle process across customers, projects and employees.

• Details on projects that help optimize profitability and lower risks.

• Manage and optimize an integrated portfolio of services – using data to learn how to do more of what “works” and eliminate what isn’t “working” (i.e. what’s not profitable).

• Find the “right” customers and have the data to eliminate unprofitable customers.

• Manage the future by understanding the past and using data to make fast, accurate course corrections.

A project based ERP system will combine the
strengths of Marketing/Sales, IT, HR, Finance together with
project management software to help eliminate project waste.

Bottom Line

Your dedicated employees joined with the support of organizations like Full Sail Partners, Inc.  will make your project based firm as successful as possible by using your greatest resource – a specifically designed project based ERP system.  And while it’s rad here in California to just “ride the waves,” when it comes to running your project based firm, using a project based ERP is your best choice.  Dude. 

Not all business buzzwords are created equal. For example, “collaboration” is red-hot among buzzwords today — but unlike other momentarily popular topics, the concept has been around a long time, but is now being addressed via technology designed to leverage the Internet. Collaboration apps and platforms typically take advantage of the Internet to enable the sharing of documents, ideas, calendars and more with colleagues. In fact, the more one embraces collaboration, the more implications one can find for teamwork, innovation and growth.

Here’s a quick look at the 5 best collaboration tools available today.

Kona

Kona is a cloud-based social collaboration/productivity platform for individuals and groups that enables file sharing, task/event management, and comments and conversations via Skype and instant messaging. It also integrates easily with other collaboration platforms and products, including Dropbox, iCloud, Google Docs and even SharePoint (if that’s your collaborative bag). 

In addition, Kona includes templates to expedite repeatable projects and processes, and can function as a company’s Private Social Network and shared calendar. Even better, Kona’s mobile app compliments its desktop functionalities, letting users track work from anywhere. Take it for a test drive by checking out the free trial version.

join.me

JoinMe is an elegantly simple (at least, simple to the end user) solution that allows you to share screens with anyone anywhere over an Internet connection. JoinMe can accommodate up to 10 meeting participants, and allows the meeting initiator to choose which items to share with whom, and enables chatting with one participant at a time or all at once. Keep in mind that these features are all in the free version — a fact that helped it land on our list of the 5 best collaboration tools.

Doodle

Doodle is a handy meeting scheduling/tracking tool for Android device users. Designed to integrate seamlessly with Google Calendar, Doodle makes it easy to find the right date and time for a group of people to meet. You can use the basic service for free at doodle.com, without the need to register or install software. With easy-to-use polling capabilities and real-time commenting tools, it’s also available as a low cost app for Android devices.

Dropbox

Currently in use by over 200 million people, Dropbox is a cloud-based platform for file sharing and accessing. Users designate a special folder on their computer that Dropbox synchronizes with similar folders the user creates on their other computers and devices. Any files that the user places in the Dropbox folder also are accessible through a website and mobile phone applications. Available for Windows, Macintosh and Linux desktop operating systems, Dropbox also offers apps for iPhone, iPad, Android, and BlackBerry devices. Options range from a free version to DropBox for Business ($15/user/month).

Skype

Skype enables free video and voice calling to anyone else using Skype, as well as instant messaging and file sharing. Alternatively, a modestly-priced version of Skype includes low rates on calls to mobile devices and landlines worldwide, text messaging and group video calls for up to 10 people. Users can take part in Skype calls using a wide variety of devices, from desktop computers and mobile devices to home phones, certain TVs, and even devices you might not think of as collaboration tools, such as PlayStations Vitas and iPod Touches.

Join the collaborative world

As you can see from the 5 best collaboration tools mentioned above, the world of collaboration choices and tools is exploding. But before you jump in and start rubbing virtual elbows with colleagues on the other side of the world, keep in mind two bits of advice:

1. As attractive as their price tags may be, the free versions of all of these apps and platforms have limitations. For example, you may be limited in the number of participants you can accommodate and the amount of data you can share — and you may have to endure the occasional advertisement as well.
2. Remember that integration with your existing apps (especially your calendar) as well as other collaboration apps is critical. Some of these apps, such as Kona, play well with almost all of the apps mentioned above; others, not so much. The more seamless the integration between your various collaboration apps, the bigger the impact on productivity and ease of use.

Despite those caveats, each of these tools can truly transform aspects of the way you work with colleagues. The result could be better ideas, more effective teams, and possibly even a better quality of life. Just imagine how nice it would be to cut down the time you spend setting up, going to and from, and sitting in meetings — not to mention, take part in them from the comfort of your own home, cubicle, or coffee shop! 

Guest blog written by Lee W. Frederiksen, Ph.D.

It’s old news that technology has changed the way we interact – and that includes the way we purchase goods and services. But the professional services industry has largely lagged behind other sectors in reacting to this change, continuing to rely on traditional forms of marketing that are both more expensive and less effective. The small percentage of firms that have embraced online marketing, however, have seen marked success. In our recent study on online marketing, we learned that professional services firms employing online marketing techniques grow 4X faster, and are 2X more profitable than other firms. Why is this so? What is it about online marketing that is so effective? To understand why online marketing works, we need to understand today’s buyers. 

How Buyers Choose Professional Services Firms 

Technology has changed the way that buyers search for and evaluate professional services firms. Based on our research, we know that 71% of buyers still ask their friends and colleagues first when they search for a new professional services firm. At first glance, this seems like the old way of doing business. What’s changed is that, after receiving the referral, these buyers can now go online to do their own research on the firms that were recommended. 

The Internet has allowed buyers to take much more control of their purchasing process. In fact, in their recent study of over 1,400 B2B consumers, the Corporate Executive Board found that 57% of a typical purchasing decision occurs before the buyer ever has a conversation with a service provider. This represents a drastic break from the past. 

Even more notable, the third largest group in our study—11% of professional service buyers—said they skip the referral process altogether, going directly online to search for firms. Combined with the first group of buyers who use the Internet to check up on firms referred from their network, this means that altogether 82% of professional services buyers go online at some point in their buying process to evaluate a firm. 

The Digital Generation 

The Internet has drastically changed the marketing landscape for professional services firms, and we expect that landscape to continue changing. Consider that most workers under the age of 35 have never worked in an office without Internet access. Research shows that for this rising category of leaders, using online resources to evaluate and communicate with firms is second nature. And, as this digital generation ages and takes on increasingly senior leadership positions, they will give technology an expanding role in their buying and decision-making process. 

Putting It All Together 

Technology has forever changed the way that consumers interact with, and purchase, professional services. Those firms that learn to embrace the advantages offered by these new technologies will continue to grow and profit, widening the gap that already exists between technology adopters and non-adopters. For professional services firms, ignoring online marketing means living in the past. 

Read more about the way professional services marketing is changing in Hinge’s new coauthored book, Professional Services Marketing 

About the Author:

Lee W. Frederiksen, Ph.D., is Managing Partner at Hinge, a marketing firm that specializes in branding and marketing for professional services. Hinge is a leader in rebranding firms to help them grow faster and maximize value. Lee can be reached at LFrederiksen@hingemarketing.com or 703-391-8870. 

Interested in implementing an holistic solution to help your marketing team better manage your efforts? Check out Deltek Vision CRM and get a leg up on your competition.

What is forecasting? Forecasting is a tool that many professional services firms use to help management make decisions based on past and current data trends. 

There are two types of forecasting we will focus on in this article: 

1. Utilization forecasting
2. Cash flow forecasting

For professional services firms, forecasting starts with the analysis of the work that is yet to be performed and equating that to overall firm revenue. The revenue then becomes the basis for the accountant to project cash flows coming in, considering average day’s receivables, to drive what cash is available versus the cash required to cover current expenses.

Without these forecasts, it makes it much more difficult for management to schedule, staff, plan or perform the work in production that is necessary without them sitting up in bed at night on a regular basis. 

So let’s break the process down into steps and then focus on the key benefits of what is forecasting. 

1. To properly track utilizations, it is important to establish two budgeted figures, target utilization and available utilization. Both should be established for every staff person and documented by employee in your system.
   Definitions:

• Target Utilization is a function of the targeted billable hours over the standard hours in the work week.
• Available Utilization is a function of all available hours minus just the benefit hours.

One engineering firm we are working with used to post the labor utilization “curves” on their message board in their lunch room and it was measured against budgeted utilization for the year as a constant.  This singular graph showed what the firm was projecting for scheduled utilization against target and available which kept staff cognizant of both the need to schedule fully.  The graph also served as a tool for staff to promote billable hours against project deadlines.

From this data, management was able to see the most important single factor for the firm, how far out they were scheduled, and if they needed to adjust staff or move project timelines to increase project throughput.  Since labor costs against labor revenue is the single most influential impact on a firm’s bottom line, forecasting in this way had this firm’s management sleeping better, while it also empowered the firm’s staff to keep an eye on utilization. 

Since this level of tracking was in place at this particular firm, it also allowed their senior financial person to produce informative forecasts of revenue, which in turn, promoted the morale of everyone in the firm. 

To note, when the firm had many proposals out with the results tracking per the graph above, and the firm had the ability to look at un-scheduled but awarded professional service hours as well, they knew when staffing could not meet the demand of the impending work and were able to stage clients expectation with delivery dates or let HR know that hiring was needed on the horizon. 

So, is your firm enabling forecasting to better win work and deploy resources? If not, after reading this blog do you recognize the importance of implementing forecasting at your firm? I would forecast that the answer is “yes”!  

For firms in the project-driven Professional Services industry, managing a defined set of tactical project management metrics is key to meeting strategic objectives.

Although it might seem efficient to have a single indicator of project success that measures the firm’s profit growth — for example, project profitability — there are pitfalls with such an approach. A better solution is to measure across a finite and efficient set of indicators that together track whether the firm is meeting its objectives, whether the specific goal relates to market penetration, service offering penetration or key account growth.

Project Management Metrics — collectively known as the Project Management KPI — fall into six major categories. One way to remember these categories is to use the acronym TRACQS. 

Is your project on TRACQS?

Time - How is the project tracking against schedule plans?

Keeping projects on schedule increases profit growth by lowering overhead and increasing labor margins. For example, when a project is off schedule and staff is reallocated it increases overhead to readjust the schedule may reduce realized utilization.

Metric calculation: Schedule Performance Index (SPI) = Earned Value of the work performed ÷ Planned Value of the work performed (to date).

Resources – Are we within anticipated limits of staff-hours spent?

Using staff and labor multipliers as budgeted is essential to maintaining project margins. When evaluating which resources to use, it is sometimes argued to use a more skilled person that will use fewer hours than a less experienced person. The thought is the margin will ended up the same. However, when this decision is made business development and client relations to do the production work can result in the firm’s backlog and pipeline suffering.

Metric calculation: Total Hours variance for budget vs. spent AND Labor Multiplier
Budgeted versus Labor Multiplier Attained.

Actions – Do we have action items outstanding or past due?

It may seem obvious, but without a metric tracking action items (completed, missed, and planned), project performance cannot be corrected. Maintaining visibility and monitoring deliverables can increase client satisfaction and reduce inefficient cycles of “catching the project up”.

Metric calculation: Number of project collaboration tasks that are past due.

Cost – How are we doing against the budget?

Monitoring this project performance metric provides direct insight into a firm’s profit growth.

Metric calculation: Cost Performance Index (CPI) = Budgeted Cost of the work performed ÷ Actual Cost of the work performed.  

Quality – Does client feedback indicate project success, or the need for correction?

On a regular basis, survey clients about results and milestones, based on meeting the client’s expectations to the deliverables.  There is little to no change that can affect the project, if you wait until the end of the project to conduct a survey, there is little to no change that can affect the project. A satisfied client results in more work (client retention), reference-ability (more clients) which are essential to firm growth.  

Metric calculation: A rating greater than X means quality, and anything less requires attention.

Scope – Is the scope staying within budget? If not, do we have authorization for variances
of planned from baseline?

Clearly define an agreed upon scope, the client’s role or responsibilities, and qualifying what constitutes a change in scope is an essential first step. When the scope has changed, documenting “why” will allow for margins to remain intact for
client requested change orders and allow management to take corrective action when the scope creep is due to the firm’s lack of performance to the initial scope.

Metric calculation: Comparing where planned exceeds baseline, and ensuring that original scope plus authorizations equal or exceed the estimate at completion.

Clearly, a firm needs to have mechanisms in place to measure these project management metrics. Almost as important, however, is finding a way to indicate variance from expected (budgeted) results in an easy-to-reference graphical format — e.g., blue for good, red for bad. Doing so will ensure that staff, project managers, and executives are all on the same page for tracking firm growth and responding to any obstacles or problems that may appear.

As an executive in a professional services firm, you have many demands on your time.  Many times you are pulled into client conferences, HR issues, and day-to-day “how-to” decisions.  With all the distractions, how do you continue to monitor your business health?  There is a plethora of financial performance metrics to help you monitor your company’s financial health. 

Most financial performance metrics are “lagging indicators”, with the exception of the backlog.  Meaning that they are a great indicator of how you performed (past tense). Unfortunately, you can’t control or affect change. The benefit of tracking lagging metrics is that it gives you the ability to change course to impact the future.  Since lagging indicators are based on actual performance, even if you haven’t been tracking these metrics, it is pretty easy to go back and get the information (accounting people everyone now hate me). In an upcoming article, we will discuss leading metrics. These metrics help your firm know where you are going therefore allowing you time to change course.  

When reviewing your financial performance metrics, it is important to understand how other firms in your industry compare.  If you consistently have a 3.00 direct labor multiplier, that may be good – and you may be profitable, but if everyone else in your industry consistently has a 3.75 multiplier, that would tell you that you need to review your bill rate structure.  Perhaps you can do even better in profits!  Several companies (PSMJ comes to mind) queries companies and publish trends on financial metrics.  Check out our past article: The Business Benchmarking Process: 4 Key Steps on this topic.

There isn’t one metric that is the “magic bullet” of reporting your company’s health (sorry to say).  Profit will tell you if you “made money” – right?  But it doesn’t tell you how you made that money and where your weaknesses are.  

Here are two examples to help illustrate:

1. Your production staff may have a 95% utilization (i.e. 95% of the time at work is spent on production projects), but if you do not have an effective multiplier high enough to cover your indirect and overhead expenses – that utilization will not translate into profits.
    
2. Your profits can be soaring but if the days your Accounts Receivable is outstanding is growing, you are not translating your profits into cash. 

Using a combination of metrics identified below can help determine if your firm is making money, but equally important, how you are making the money.

1. Profit – Well duh you say, however, you would be surprised at the number of business owners that watch their profit numbers dwindle while making excuses or “hoping” it will simply turn around.   Your profit is your way of ensuring that your revenues are exceeding your costs.   While one month of poor profit performance should not send you to the stratosphere of worry, a two to three months trend of poor performance should start you down the path of inquiry as to the cause and solutions.   Profits are tracked both as an amount and as a percentage of your revenues.  
    
2. Cash Flow – Cash is king as they say!  Profit on an accrual basis is a nice indicator of the work your staff has performed, but if it never translates into cash then you really are not ahead of the game.  If you are not collecting on your billings, then you aren’t really making money – regardless of what your financials say.  Cash inflow is what supports your ability to pay your bills – including your employees – timely.  Again, if you have one month of poor cash flow, then you probably don’t need to get too excited, but when you see this beginning to trend downward then you need to research.
    
3. Average Days outstanding – This is the indicator that you are collecting on what you bill which directly affects cash flow.  So if your profit is looking good, but your cash flow isn’t, this might be a good place to start looking.  As your AR ages, you are not putting that money back into your cash flow – keeping in mind you have typically already paid your employees.  Clients that usually pay on-time do not suddenly start paying late for no reason.   When your average days outstanding begins to grow, this could be indicative of your clients perceived service quality had decreased.  It is in your best interest to identify this issue and correct it immediately.
     
4. Utilization – For professional services firms, what you sell is your employee’s time.  So it is important to keep tabs on what your staff is doing.  If this number is steadily decreasing, then you can bet your profits are also decreasing.  This number is affected by the amount of non-production work that is being assigned to production staff.  If your production staff have billable work to do, and have also been assigned high priority non-production work, then utilization can be affected in the short term. However, as soon as the non-production work is complete, it should fall back into line.  If however, your staff is doing non-production work because they do not have production work to do that is also whole different story.  Anytime your utilization slips, it is worth an inquiry as to the reason and the finding a resolution.
    
5. Effective Multiplier – This is the ratio of your net revenue divided by your direct labor costs.  This lets you know how much money in revenue (and hopefully cash inflow) you can expect for every dollar of direct labor you spend.  This multiplier affects your ability to cover your indirect and overhead costs as well as meet profit goals.   This ratio can be a reasonable number, but if you do not have enough hours utilized on production projects, you may still not be profitable.
    
6. Annual Net Revenue in Backlog – Backlog is the dollar value (expressed as net revenue) you have contracted for, but not yet performed.  When you create a ratio of backlog over your 12 month net revenue, you can use that ratio to calculate how many days work you have under contract.  This is a forward-looking metric and the only one mentioned that looks to the future.   Focusing strictly on past financial performance won’t prepare your firm for if there is a downturn looming (i.e. low backlog) or more work than your existing staff can handle.

Remember, each of the metrics above is just one piece of the puzzle to your firm’s financial health.  You can’t take just one as your company gospel. They are interrelated and play on each other. 

Financial performance metrics are typically calculated monthly and reviewed.  However, they can also be reported only a quarterly basis.  Sometimes, people decide based on how things are trending.  If your metrics are trending up then focus on them quarterly.  If your metrics are instead trending downward then switch to monthly.  Work with your accounting staff to have these metric prepared for the past several months/years allows you to get an idea of past performance and decide how often you need to review. 

As you get to know the above metrics and understand their interrelation you will be able to quickly identify when your company is going ‘sideways’ and understand the action needed to adjust your course accordingly.  Check out this past webinar to see how your firm can become ‘Best In Class’.
 

There are shelves and shelves full of books — actually, entire libraries — that offer insights into business process management. There is a simple reason for this: it’s one of the most fundamental and effective ways to improve firm growth. 

So what areas are involved in a business process evaluation? At a very high level, it’s about answering the big questions needed to effectively guide your firm, such as: 

• Are business objectives appropriate?
• Are key policies and plans effective?
• Do results validate business strategy?

At a more granular level, this type of inquiry involves examining existing business processes to find pain points, bottlenecks and inefficiencies that could be improved. In this regard, it’s a process that every business can benefit from — but especially firms that are project-based, such as professional services firms. For these types of companies, the exercise can point to solutions for: 

• Streamlining business processes, minimizing redundancy and saving money
• Gaining insight into operational metrics you can’t currently see — such as work backlog, etc.
• Making better decisions on uses of internal resources, based on up-to-the-minute data

Choices in Approach

How you conduct this type of self-examination depends on your goals, resources and desired return on expense/effort. For example, it could be highly focused, with internal staff looking at one particular process in one section of your organization. Or it could involve examining complex processes spanning several separate parts of the organization, which might require using an external consultant. 

When Full Sail Partners begins any new engagement with a client, we typically start with a business process evaluation. Generally this involves understanding our client’s various front and back office processes — potentially, all processes along the project lifecycle, including: 

• Business development tracking
• Estimating and business capture
• Project management and project profitability
• Employee utilization and realization
• Billing, A/R and firm financial reporting
• TQM

To appreciate the impact of a business process evaluation, consider the case of one of our clients, Wiss, Janney, Elstner Associates (WJE), a 500-person firm based in Northbrook, Illinois. Along with the client’s initial concerns, our evaluation identified an inefficient paper-based process for initiating new projects that required anywhere from several hours to several days per project. Following our business process evaluation and implementation of a paperless process, (among other improvements), the client was able to reduce the required time to a few minutes per project. That efficiency gain, multiplied by the approximately 7,000 projects that WJE handles each year, resulted in $1.8 million annual savings, according to WJE’s Controller. 

There are other potential gains of a business process evaluation that are not directly tied to process efficiencies. For example, it can provide visibility to timely and accurate data that helps leadership make better business decisions. This was an additional gain from the project at WJE; principals were able to see clearly the potential conflicts of servicing a new client, allowing them to forego business development expenses and effort on a client that could not be serviced. 

Another example is gaining visibility into an organization’s work backlog — knowing exactly how much work is in the pipeline, and even more importantly, whether one has the staff on hand to do the work (and if not, specifically what type of staff are needed to fill the gaps). As a result, a firm can make better decisions about whom to hire (and when), and which projects to pursue. 

Evaluating ways to improve efficiency and effectiveness is an essential part of guiding an enterprise. Whether it’s performed internally in a very focused way, on a broader level by an external firm, or somewhere in between, it has the potential of allowing you to reexamine and reengineer your standard operating procedures and in turn, drive greater efficiency and visibility. Both capabilities are critical to consistently delivering value to your clients — and increasing profitability and firm growth.

Interested in a business process evaluation? Contact us to begin the process.