Professional services firms have long had trouble measuring the abstract labor inputs that contribute to their business. It isn’t easy to quantify skilled talent or knowledge workers. But technology has evolved and is now allowing firms to track data in ways that haven’t been possible previously. Now medium and midsize businesses that provide professional services have the tools to see how each employee impacts revenues and profits.
Using applications that improve visibility and automate calculations, firms can get more granular data from key performance indicators (KPIs) and measure KPIs from multiple points of view: individuals, customers, business units, or practice areas. Getting this data into a regular cadence of review can help professional services firms gain more financial control because they can more clearly see how each person drives value.
1. Modify variable compensation plans for individuals and teams based on ongoing performance reviews.
Firms can now see detailed visualizations of how individuals and teams are performing and what they’re contributing so they can be more strategically rewarded. The deepened visibility could include details on projects they’ve worked on, start dates, hours they worked on those projects, and the revenue they drive. This creates a picture of what they contribute to the firm’s top and bottom lines.
Automated and cadenced review helps you to pick out patterns that you may not have previously seen. When you look at utilization rates, for example, you may find your superstars are carrying most of the workload. This data gives you the information you need not only to identify who to put on key projects, but also how to structure rewards to encourage better performance where needed.
2. Adjust human resources planning to avoid burnout, build pipeline, and better control labor costs.
When you see who’s carrying the workload for your firm and where people are struggling, you can act to reduce stress and turnover. You’ll have the data you need to work with HR to make a move or a change. This will also help balance the workload across the organization. And, as you monitor individuals, teams, and business units, you can act quickly if additional adjustments are needed to proactively address burnout.
Another advantage: Use the data to build a talent pipeline. Identify gaps and then work with HR on a plan, i.e, call out hot skills needed for project completion and skills that are making the firm money; begin planning for junior resources, such as intern and fresher programs; and use your data to charge a rate that allows you to pay younger talent.
3. Improve reporting to customers so they can see hours billed and the value-adds of non-billed work.
Customers want to know where they are in the process, so being able to improve reporting will drive successful projects and lay the groundwork for repeat business.
By having data—such as projects in progress, start and end dates, and hours worked—you can share accurate information with customers of the work being done and status. This real-time access into each engagement also gives you visibility into potential problems, so you can quickly take action to fix them and make necessary mid-course corrections.
You’re also able to improve your value messaging by being able to show not only what customers paid for, but for non-billable work that was done to move the project forward. This helps you drive home a message of the value you bring to the customer.
4. Adjust rates based on customer-profitability data and even rationalize the customer base.
Because you have access to a complete engagement history for customers, including revenues from individual projects, you can see which customers are most profitable for the firm. This data helps you answer questions like: Who should we continue working with? And where are there opportunities to improve our engagements so other customers can become profitable?
Having those answers will be critical when it’s time to discuss future project planning and budget discussions about where to focus resources.
5. Improve SOW language to better specify customer responsibilities and project impact when/if there are delays/failures.
Finally, you can use this data to understand cost overruns, see where projects go off the rails, and identify where delays most often happen. This knowledge helps you rewrite statements of work (SOWs) and contracts with more specific language about the work that’ll be done, for how much, and in what timeframe. The accuracy in these SOWs will help you eliminate any potential customer misunderstandings at project go-live time.
Professional services firms now have access to technology that allows them to track costs and value in ways that weren’t previously possible. By having access to more granular data that allows them to measure KPIs from multiple points of view, firms can gain more financial control and grow their revenues and profits.