Top 3 Professional Services Metrics
What gets measured gets done. I’m sure all you project managers (well all managers really) who work at an organization that relies on performance indicators have heard that saying once or twice. Before the collective groan comes out I want to take some time this week to talk about what I feel are the top three metrics that every Professional Services organization should be measuring and why.
Profit Margin % by Project
This is probably a no-brainer for most of you but I still want to include it here. As a PS organization relies on their services to make revenue, it’s important to know what kind of margins your group is pulling in. Are you breaking even? Are you losing money? Are you seeing huge margins? All these questions play a part in management decisions on pricing projects. Perhaps T&M may not be the way to go if projects are coming in under budget all the time. With a certainty of project delivery times, perhaps a fixed price project can help increase those margins. By looking at the costs to your project including staff wages, overhead and loadings as well as any non-reimbursable expenses lined up against the revenue that the project is bringing in, management can examine the profitability of a project and determine what makes this project desirable (or not desirable) in terms of trying to repeat the same project again.
This is a contentious one at best. When staff hear the word ‘Utilization’ they instantly get a fear of ‘I have to be 100% billable all the time or they’ll let me go’. In well-run organizations this couldn’t be further from the truth. Organizations that truly understand the value of utilization realize that expecting 100% utilization from your staff is not only unrealistic, it’s detrimental to the morale of your staff. There also has to be considerations given to internal initiatives which are often not considered billable or utilized. This is a very valuable metric however that provides management and staff alike with a good understanding of how team members are spending their time. Used in conjunction with other metrics such as overall revenue trends, it allows management to make decisions on priorities within the organization. Perhaps that new internal system gets put on the shelf in favor of taking on more billable work? Individuals can be reviewed and coached to see if they can improve their utilization or if there is something that management can do to help them become more effective and achieve a higher utilization. Whatever the targets are set at, they need to be reasonable, attainable but still provide a (positive) challenge to your team members.
Margin Per Person
The whole purpose of a Professional Services group is to generate revenue for the organization. Wouldn’t it be nice to know how profitable each individual team member is? This is a valuable metric in trying to understand who your most efficient team members are when it comes to generating revenue. By understanding the loaded cost for your team members against the revenue they bring in (all calculations should be done on an hourly basis taking) management can identify those team members who are bringing in a high % of revenue relative to their cost. This aids in determining project team rosters, especially if there are varying revenues from project to project.
Metrics is only one piece of the puzzle when managing a Professional Services group however it is a vital set of information that can be used to help drive strategic decisions about how work is conducted, how project teams are formed and even staffing decisions. Happy calculating!
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