There is arguably nothing more true in today’s professional services world than the old adage ‘knowledge is power’.
The trick is knowing what to look for though and being able to access real-time data and analytics within effective technology systems that will help consultancy firms understand their competitive advantage.
As firms delve deeper into their own data and gain more visibility into the operations of their business, it will become more apparent as to where the secret to profit lies and what is the most important KPI for growth.
This video blog from Deltek covers key points such as why it is important for consultancy firms to have key operating metrics in place, why it’s important to measure resource utilisation rates, how historical data can support future projects and more.
It also looks at what businesses can do to ensure consultants spend more time with customers and less time mucking around with administrative tasks, and whether firms have started to adopt new key performance indicators after migration to an ERP system.
Why should consultancy firms have key operating metrics in place?
Once you understand what your competitive advantage is, it’s extremely important to have operating metrics in place to measure utilisation, project and customer margins and growth so that you can focus on the areas of the business which will be most profitable. And a key component is to have an efficient business process support system in place that enables your consultants to spend maximum time in front of customers delivering value and as little time as possible on administrative things like keying in data or extracting information from a system.
Why is measuring your utilisation rate important?
The business model for consulting firms and professional services firms in general is very different from manufacturing and production companies. They sell expertise delivered by human resources instead of products. So if you don’t use a product today you can put it on the shelf and sell it tomorrow. However, the hours a consulting firm doesn’t deliver today cannot be sold tomorrow. So that’s why utilisation is such an important metric for any consulting firm. As most of the cost is tied up in people, the billable utilisation and the average hourly rate will instantly give you an indication of how profitable the consulting firm is.
Why do consultancy firms need to operate with real-time KPIs?
Consulting firms are certainly looking for real-time KPIs. Looking at retrospective actions; profit last quarter, utilisation last quarter is fine to see how well you’ve done but we really need to see what’s happening now. What is my current capacity? What is my effectiveness rate? What is my realisation? What can I be doing? What current issues to I have that need to be resolved before they become real problems? It’s only by understanding what’s real and happening today and what’s about to happen tomorrow that we can become more profitable.
How can data from past projects determine the future suitability of a client?
Looking at what it actually took to deliver a past project and the actual margin that you made on that project is one of the key ways you can understand if taking on a new piece of business is something that’s going to be profitable for your consulting firm. Another ways is to look at tools that use big data to analyse the percentage chance that the project schedule you’ve pulled together will be successful. And by applying industry best practice and industry benchmarks you’re able to revise your plan and give it a higher likelihood of success.
Are you seeing consultancy firms adopt new KPIs when they migrate to ERP?
Classic performance metrics for consulting firms are still in play. Utilisation, realisation, invoicing rate. Where we see consulting firms looking at different metrics is around the mixture of work that they have. How much of work is low-risk, time and materials or expertise only work, where the governance needs to be one aspect and how much of it is fixed-fee work where the risk is much higher and you need a different process to ensure the very best profit margin.