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 anticipate when people might be coming to the bench
• Determining the appropriate size for the bench resource pool to facilitate 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 million dollars in revenue per year:
• January: A large project run by 20 of your organization’s billable resources 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 partially 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 recruiters are telling you that it will take more than six weeks to find, secure, 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 progress 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
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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 people 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 aggregate 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
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effectively. Chapters 4 and 5 address the issues surrounding business development 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 spreadsheet 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”
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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” requiring 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 themselves (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). Having 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 managed can be detrimental to a professional services organization.
To effectively manage the backlog, regularly review delivery progress relative to commitments to clients. An effective way to do this is another simple spreadsheet that lists:
• Client name
• Assignment type
• Expected revenue
• Assignment start date
• Status/action
• The name of the person leading the engagement
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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 execution. 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 documenting valuable communication with your existing clients and reviewing this information periodically, you can minimize, if not altogether avoid, devastating 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)