One of the biggest unknowns for many Professional Services organisations is the extent to which they are over-servicing their clients. For some firms, trying to measure over-servicing is difficult or impossible and is exasperated by having disparate systems within your firm and limited reporting technology.
Within Professional Services firms, the assumption tends to be that over-servicing larger clients is a given, and for big contracts, the impact on the margin is minimal. In reality however, larger clients can often be over-serviced to such an extent that your margin becomes greatly reduced.
How can you prevent over-servicing and maintain margin?
There are three key components for ensuring an accurate view of client servicing levels:
- Client Approved Estimate – The value and effort expected and quoted to the Client provides the baseline for any project. In a perfect world all projects would be completed exactly as quoted or with less effort to ensure maximum profitability.
- Working Estimate – Often a proportion of under or over-servicing is done consciously. We may have quoted the client a number of hours but realistically the project will take a little longer due to internal factors. This is the realistic estimate of what your team will actually do to complete a project.
- Actuals – Time and Costs are recorded against projects as tasks are performed. These figures become your project actuals.
What are the benefits of measuring this information?
Capturing information on each of the three key components above ensures that your actual project performance can be compared to estimated performance throughout the life of the project. This can be used to evaluate work actually undertaken across clients compared to external and internal estimates. This comparison ensures that under or over-servicing of clients is easily measured and helps to inform estimates and change control as the project moves forward and enables you to make more accurate forecasts for future projects based on historical and factual information within your business.
How does an ERP system help to reduce over-servicing?
Fully integrated ERP systems ensure that estimates and actuals are stored in one central location and enable you to analyse the actual work undertaken for particular clients compared to what was planned. Using an ERP system within your Professional Services firm you can easily see where over servicing is happening and where this is having the greatest impact on your margin.
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