• What are the core activities that you want your resources in particular roles to focus on in order to contribute to key company goals?
Ronald A. Gunn, a managing director of Strategic Futures and a specialist in strategic management and human resource development issues, provides a very simple formula that helps us to answer the first question.7 According to Gunn, the optimal goal of a professional services organization relative to billable resources should be to realize a return equal to somewhere between 2.5 and 3.0 times the employee’s fully burdened salary. For example, let’s assume you have a billable employee who earns $4,200 per month and your average burden rate is 30 percent. Based on Gunn’s formula, you should be securing a monthly revenue yield ranging between $13,650 per month
($4,200 × 1.3 × 2.5) and $16,380 per month ($4,200 × 1.3 × 3).
“If you have an employee who on a monthly basis is producing three times his or her burdened salary, you may have a disaster in the making,” states Gunn. “I think of this metric as being the indicator of engine performance on a tachometer. If I see someone remaining at the top of performance for an extended period of time without throttling back a bit, I know I am ready to burn oil.”8 Gunn advises managers to aim for the sustainable middle ground of 2.7 and 2.8 as an annual average. (These metrics, according to Gunn, are applicable to any professional services organization.)
If you consider the preceding rule together with the concept of billable hours, it will give you a basic idea of how to set adequate billing rates for your resources, so you can meet financial targets without burning out your billable team. For example, assuming a 40-hour workweek, two weeks’ vacation, one week for training, 10 personal days, and 10 holidays, an organization would have 1,800 potential billable hours (2,080 − 80 vacation hours − 40 training hours − 80 holiday hours − 80 personal hours = 1,800). Using the $4,200 a month salary example, which translates into $50,400 per year, to attain a goal of, for example, 2.8 times salary as a revenue figure within the confines of your projected utilization availability, you would need to set a rate of $101.92
per hour (50,400 × 1.30 × 2.8 divided by 1,800 = $101.92). In actual practice, you would set your rates for a pool of resources, with some individual billing higher and others lower. You would also round out the rate to a whole dollar figure (e.g., $102). Essentially, your goal would be to achieve a billing rate of
Resource Management
295
2.7 to 2.8 across the entire pool. Competition and other business factors beyond available work hours and yield targets will inf luence your rates. The key message here is to make sure you keep all of these factors in mind when setting rates and expectations.
As for individuals who are in nonbillable positions, one tool I’ve developed specifically for the IT space, but which has global application and can be used by any professional services organization, is the Sustainable Workload Tool chart. To create this chart:
• Create a four-column, two-row table with your word processor.
• Across the top row, label the columns from left to right:
—Company Objectives
—Team Goals
—Weekly Activity
—Time Required
• Populate the “Company Objectives” and “Team Goals” columns with
your alignment chart company objectives and team goals.
• In the next column to the right, list the person’s weekly or monthly activities.
• Finally, in the rightmost column, list the amount of time spent on each activity.
• At the bottom of your one-page chart, outside the table grid, note how many hours a week you can reasonably expect a resource to operate optimally based on the intensity of the type of work.
• Beneath the targeted weekly time allotment, note the actual time utilized resulting from the tabulation of the results in the rightmost column of your chart.
Exhibits 13.5 and 13.6 contain examples of this tool and examples of how you can use it to assess an individual’s current workload and determine whether it is business-focused and sustainable.
A careful look at these two exhibits reveals that sales rep 1 is overutilized.
Perhaps, he or she:
• Has too many accounts.
• Needs help to reduce the amount of time it takes to prepare the
weekly pipeline presentations, or maybe this meeting should be made
biweekly.
• Perhaps, if the sales manager has more bandwidth, the salesperson
should not be helping the manager with the regional presentation. (This may be something the manager can do alone.)
296
Services Delivery: Taking Care of Business
COMPANY
TEAM WEEKLY
TIME
OBJECTIVES
GOALS
ACTIVITY
REQUIRED
5 percent increase in
Increase new business
Prospecting
15 hours
market share
5 percent
New customer meetings
10 hours
30 percent gross mar-
Close only high margin
5 hours
Presentation prepara-
gin (up 3 percent)
business
10 hours
tion for weekly internal
15 hours
10 percent increase in
Go deeper into clients
sales pipeline meeting
2 hours
overall revenue
(combined with new
Reviewing account
Establish niche brand
clients results in 10 per-
financials
value
cent revenue increase)
Relationship building
Gain trusted advisor
meetings with existing
status
clients
Helping sales manager
prepare for her monthly
call with the regional
management
Notes: Target utilization = 45 hours per week; Actual utilization = 57 hours per week.
Exhibit 13.5
Workload Chart for Sales Professional—Rep 1
Sales rep number 2, on the other hand, appears to be:
• On the surface, balanced in terms of total work time, but
• Spending more time on internal work than sales rep number 1.
• Perhaps able to handle more accounts, but might need more training.
• Taking longer to perform back office account work as compared to sales rep number 1.
Surfacing the type of data displayed on the Sustainable Workload Tool will help you get a clear picture of what firm resources are individually capable of doing within various roles on a sustainable level. The next step is to set up the means by which you can effectively manage the aggregate activity and workload balances among your various teams to ensure that resources are collectively maintained at optimum levels of operation. For example, in the case of XYZ Company, assuming they have 20 salespeople, the goal would be to keep them each working no more and no less than 45 hours per week on a steady basis.
In summary, by tracking and managing the revenue generation of your
billable resources within the established levels of expectation as well as the amount of time both billable and nonbillable resources invest in the organization using the Sustainable Workload Tool, you can maintain a high-performance, well-tuned operation.
Resource Management
297
COMPANY
TEAM WEEKLY
TIME
OBJECTIVES
GOALS
ACTIVITY
REQUIRED
5 percent increase in
Increase new business
Prospecting
5 hours
market share
5 percent
New customer meetings
5 hours
30 percent gross mar-
Close only high margin
10 hours
Presentation prepara-
gin (up 3 percent)
business
tion for weekly internal
15 hours
10 percent increase in
Go deeper into clients
sales pipeline meeting
10 hours
overall revenue
(combined with new
5 Hours
Reviewing account
Establish niche brand
clients results in 10 per-
financials
value
cent revenue increase)
Relationship building
Gain trusted advisor
meetings with existing
status
clients
Helping sales manager
prepare for her monthly
call with the regional
management
Notes: Target utilization = 45 hours per week; Actual utilization = 45 hours per week.
Exhibit 13.6
Workload Chart for Sales Professional—Rep 2
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 primarily on how you manage this special group of resources.
Manage Your Aggregate Billable Resources
Your billable resources are the revenue generators in your professional services 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 assignments 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 engaged 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 significant 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.