Why KPIs Are Just As Important As Budgets In Professional Services Firms

Posted by Neil Davidson on December 16, 2014

Why KPIs are just as important as budgets in Professional Services firms

Find out why your existing metrics may no longer be enough to determine the success of your business and how business KPI management should come to the fore.

How valuable is your organisation? What is your company worth? To most people, these are fairly straightforward financial questions. To find the answer, you would go back to budgets and profits.

However, this isn’t the only way to track value. Business KPI management is becoming an increasingly important indicator of a business’ value. There are many KPIs that need to be taken into account for Professional Services organisations.

Key metrics

A study by IDC - Managing your Consulting Firm for Growth - suggests four specific metrics on which a Professional Services business should focus:


  • Customer lifetime value
  • Net profit
  • Customer retention
  • Revenue growth

It’s notable that checking budgets and performances accordingly focuses on the here and now, whereas the above metrics point to a much healthier long-term future for a business.


Why KPIs over budgets?

The IDC report tells us that, by understanding your key metrics and business drivers, you can capitalise on them to outpace your competition:

“To maximize profits, the consulting business model requires constant diligence through proactive management of a long list of key metrics including utilization, project profitability, realization, etc.”

By focusing on your business’ finances alone, you miss the three-dimensional understanding that KPIs can give to your company. Enterprise resource planning software can help you to see the status of each project, client and staff member at the same time which is invaluable when setting and measuring KPIs. By setting a value for customer lifetime value, net profit, customer retention and revenue growth, you can ensure that your projects are geared towards achieving those goals, rather than just staying within budget.

Business KPI management is an important distinction for growth. How you measure those metrics is just as important a consideration.


How to measure your metrics

The change in attitude and technology required for business KPI management is brought about by adding project-based metrics to the mix. These can be monitored efficiently through the right enterprise resource planning software.

As many as 80% of professional consulting firms use generic rather than industry-specific systems which are built around manufacturing and process management. These generic enterprise resource planning software systems can’t show the performance of individual projects. Project-based ERP software makes the monitoring of KPIs in a Professional Services business more straightforward.

Better data is fundamental for making better business decisions at every part of the project life cycle. The reporting and analytics functions within a project-based ERP system will enable you to focus on growing the “right” areas of the business, using your defined KPIs to build a realistic growth plan.

In other words, project-based enterprise resource planning software makes it apparent which projects and services are most profitable and where the most effort should be allocated, which will then be reflected within your business KPI management.


Takeaways


  • Measuring KPIs as well as budgets is the best way to achieve sustainable business growth.

  • The top four metrics for Professional Services firms to measure are:
    1. Customer lifetime value
    2. Net profit
    3. Customer retention
    4. Revenue growth

  • Ensuring you have the right enterprise resource planning software to give you full visibility of your business’ performance against your KPIs is absolutely key.

Make sure your Professional Services company is measuring the right KPIs for business success by downloading our free eGuide below.