- Using Technology to Create Visibility in a Consulting Organization
Using Technology to Create Visibility in a Consulting Organization
A partner at Oliver Wyman with many years experience managing consulting businesses, Chris DeBrusk discusses how technology can be used to meet the challenge of “trying to monitor the business while doing the work.”
Many managers find themselves “looking in the rearview mirror” because the information they are drawing out of the business is delayed – it comes out only after month-end close or after quarter-end close.
Actively managing the business means looking forward at what is happening in one month’s time or six month’s time. To do that requires good forecasts, based on a strong understanding of the pipeline and of the resource requirements.
When the organization is running a large number of projects senior managers don’t have time to intervene in them all so they need to look at those where there are risks and opportunities. In this podcast, Chris explains what metrics to use to identify those projects, and how to best use your PSA technology to focus on the metrics that matter.
Chris DeBrusk – Using technology to create visibility
Doug D’Argenio: Welcome to the PS Insights podcast series sponsored by Kimble Applications. Professional services organizations strive for efficiency, success, and growth. This series is intended to provide key insights on how to achieve this from industry leaders.
Ian Murphy: My name is Ian Murphy, and today I’m talking to Chris DeBrusk about the challenges of financial reporting for the business, and financial reporting on business operations.
Chris has been in the consulting industry for over 25 years, working in a number of small and big firms, and small companies who became big companies, in senior leadership roles, both client-facing and operational. He is currently a partner with Oliver Wyman, a global management consulting firm.
Chris DeBrusk: I’m currently a partner with Oliver Wyman, but I’ve had the pleasure of joining a number of smaller consulting firms, that grew into big consulting firms and also starting two of my own over the last several years. I’ve sat in a number of operational roles and had the challenge of how do you monitor the business while also doing the work?
Ian Murphy: You often talk about the problem of professional service organizations running their business in the rear-view mirror, can you explain what that means?
Chris DeBrusk: One of the challenges with the consulting business specifically, and most professional services business, is that getting forward looking visibility’s quite hard. It’s hard to understand what deals will close, and when they’ll close. It’s hard to get a good feel for your future resource requirements. There’s a lot of pipeline turns over the course of the year, and you refresh your pipeline a number of times at most of these businesses, so predictability is a key challenge.
What that means is that most firms start looking in the rear-view mirror, and only looking at past data, and usually data that’s quite delayed: data that they’re getting after they do their month-end close, or their quarter-end close, and that really isn’t effective in managing the business. So, in the business, in those circumstances, you end up with a lot of surprises: revenue that doesn’t quite meet, extra people on the bench that you didn’t plan, deals that disappear out of your pipeline, at a moment’s notice, that you didn’t expect.
In order to actively manage the business, you’ve got to start looking forward, which means getting access to the information and thinking about it in a way that can be predictive, and give you insight into what’s likely to happen a month a month in the future, a quarter in the future, six months in the future.
Ian Murphy: How do companies change the way they do reporting in order to get that forward looking information?
Chris DeBrusk: There’s a number of things you can do. First of all, you have to get good, up-to-date data, on what’s going on in your resources, and how you’re deploying them, and how they’re billing. More importantly, though, you have to have good predictability in what’s going to happen in the future. If you have contract that’s six months and you have a team that’s working on it, you need a way of loading that team into your systems, so that you can predict what kind of revenue that team’s going to drive. So, that’s one way to do it, is just simply get your resource plans out into the future.
Another is to integrate in risk, and delivery risk, into the way you look at your data moving forward. If you’re measuring risk on a project, and that project risk is climbing, there’s a fairly good chance it’s either going to slip, or you’re going to have to deploy new resources to it. Including that in a risk-adjusted view going forward also helps you predict your cost and your revenue.
Ian Murphy: Where do companies find people capable of calculating, assessing, and actually putting real numbers on those risks?
Chris DeBrusk: Consulting, when you look at it, a lot of it is project related programmes. You’ve got a commitment to a client to deliver a set of deliverables, a set of impact, at some point in the future. Any good project manager understands how to evaluate and measure the risk of their delivery. They know when they’re not on-track on their project plan, they know when they’re starting to see issues in the metrics that they’re monitoring on their project, they know these things. The problem is when you get a consulting firm at scale, all that information is lost, and as a senior executive sitting on the top, you don’t have any visibility to it.
You can infer it out of certain things. One of my favorite metrics, that I used to always watch very closely when I was running businesses, was the difference between the sold-as margin versus the current margin. If you actually store and track your predicted sold-as margin, the amount of cost, and the revenue you’re going to drive out of a programme, and then you watch it over time, what happens is you start to see additional resources being added. Additional expenses, non-billable expenses being added, those types of things, that start to drop the effective margin of that project.
One of the organizations that I ran, we had a report that showed us any project that was more than three percent off its predicted margin, or its starting margin, was something that we put on a red flag report and we started looking at.
You can create those kind of metrics that, when you’re looking hundreds, many hundreds of projects, or even thousands of projects, the ones that you need to pay attention to pop to the top.
Ian Murphy: Where do companies start looking to build those metrics? Is there a set of guidelines across the industry? Do they have to build those per project or per business?
Chris DeBrusk: I’ve never seen, in all the books on how to run a consulting or professional services firm. I’ve never seen anybody actually get practical on the series of metrics that you need in order to measure the effectiveness of the firm. That being said, I think there are organizations out there that have done a pretty good job. The one that I just talked about is a great metric that some people pay attention to. Daily project rate, or the amount of money that you’re making on average, per resource, per project is another one. There’s these types of metrics that you just kind of think about.
One of the most interesting things we did, in one of the firms I worked for, was we stared predicting future revenue based on past revenue. We had graph that showed, for that month, for that quarter, over the last four years, at what point in the month we hit our pipeline projections and how were we tracking against our pipeline and our revenue projections.
Then we started measuring current performance, month to month, forward looking pipeline against historical, which is really interesting because, in this business, you get a lot of cyclical things. There’s typically a reduction of revenue over the course of the summer, fewer project starts. You lose billing days around Thanksgiving in the United States, around the holidays at the end of the year, and certain other times of the year.
By running these forward-looking predictions, based on historical trend, but also on the pipeline you can get a real good feel, are we ahead or behind our historical performance for revenue in that particular month? If you have the data and you sit down and you think about, “What are the questions I have about my business?” You can often, very quickly, come up with a metric that you can measure, and then apply that metric across range of projects and understand how you’re performing as a company.
Ian Murphy: Is there a risk of getting too bogged down in the metrics?
Chris DeBrusk: More information’s always better. You could manage simply by the metrics, and not spend any time talking to your teams. But, in the end things like margin degradation, or margin erosion, expense increase, utilization numbers dropping off are critical. The firms that I’ve worked for, where we’ve installed a high-end professional services automation platform, it’s been Kimble twice for me, we had two things that we almost discovered immediately. This is, I think, fascinating.
The first was that we were leaving revenue on the table. There was revenue that we could have billed to clients, under our contracts, and under our relationships, that we were not billing, for various reasons. But we couldn’t even understand what that quantity was. And when we discovered what it was, we could dig in and understand, “Well, is this this for good reasons? Or are we doing this for no reason that we can establish?” So, we were able to recapture missed revenue. That was one thing.
The other thing that we immediately spotted was utilization, people hiding utilization. In large professional services organizations, it’s relatively easy for somebody to hide people. Those people typically aren’t generating revenue but they’re adding some value to somebody’s project, or somebody’s account. There’s lot of project codes in other places you can plant them. When you start digging into that data, and starting to think about it more holistically at the project and the account level, you discover all these people are hiding. Some of those people are hiding for a completely valid reason and it’s just a matter of re-booking cost but, in some cases, people are hiding because they aren’t very good, they can’t get themselves billable or they don’t really want to work very hard anymore. Those are the kind of people you need to highlight, and then you need to decide what to do to with them.
Ian Murphy: Do you have any historical feel for how much money companies end up leaving on the table?
Chris DeBrusk: Every consulting firm I’ve worked for, at scale, not the small ones because it’s much easier to manage, but the big ones, millions of dollars. When you actually dig in, and analyze, and look, it’s millions of dollars, or tens of millions in a couple of cases that we found when we actually started looking at the amount of money, we were basically giving the clients. The client didn’t expect it; it wasn’t like we had a conversation and said, “We’re going to give you the following resources for free.” It’s just the efficiency in the process just wasn’t there.
Another area of leakage that I’ve seen in one firm, which I won’t name, but it was a bit of a surprise, we found in one audit, when we dug into it and looked at the data, well over $100,000 in unbilled expenses. So, another thing that happens in consulting firms is billing through expenses can be uncomfortable sometimes for project leads and account leads, because clients push back on them. It’s an area that they can dig into. So, in many cases, they will flip expenses to non-billable status and remove them from the invoice. Sometimes there’s valid reasons for doing that, if a team goes out and spends more than they’re supposed to on a dinner, under the client’s policy, that may be perfectly valid and allowed, but you want to know that. You don’t want it just to be flipped to non-billable status, so the client doesn’t push back on it. There’s just a lot of money that doesn’t flow.
The other thing that we’ve seen the breakage in the process, is expenses that don’t get billed in time to actually be paid. So, the project will finish, client will pay the last invoice, close off the PO and be done with it. And then, several months later, suddenly these expenses, these flights and these meals, pop up and when you try and generate an invoice, the client very properly says, “I’m sorry, this PO’s closed. There’s no more money here. We’ve done it. We’re finished.” Most firms, at that point, will end up writing that off, and every firm I’ve worked for I’ve seen that happen.
These are the kind of things that just with really solid processes, a very quick turnaround on delivery of invoice to client, those types of things you can eliminate, but you can’t do that without a system that supports it, and the corresponding metrics to track what you’re not doing.
Ian Murphy: How does that align to the sales cycle? Are there ways to better align both the delivery and the sales side?
Chris DeBrusk: There are account managers who are very good at setting expectations with a client as to the financials of the project. Not only the delivery of the value as a result of the project, but the actual financials, so there’s no surprises. The key with the client is always don’t surprise them, and adhere to whatever agreements, or policies, or other procedures that they’ve asked you to adhere to. If you do all that you’re typically safe, and there’s strong alignment between the client and the firm.
It’s where you maybe sell things in a way that you haven’t been totally transparent as to the true cost. A classic would be the client’s expecting you have a local team assigned to their project, and while there’s an expenses clause in the contract, no-one set the expectation that a significant number of the people on the project are to be travelling in every week. So, they get a really big expenses bill and are confused as to why that happened.
A lot of it’s expectation management. Some teams are excellent at it and other teams are not. When you sit on top of a large organization, and you have lots of different levels of delivery skill and account management skill across your teams, your goal is to spot those things and go in and help the team. If you start to see there’s an issue, you can step in and remediate with all kinds of different things. But if you don’t see it, or you don’t see it until it’s too late, then it’s just frustrating cause then you’re just flushing money.
Ian Murphy: How does that impact resourcing? Is there a risk that you don’t bill back that resources because you’re worried about how the client will perceive it?
Chris DeBrusk: It depends on that contractual structure. There’s two challenges with that. One is, if you’re in a time and materials contractual structure for a project, even though you may contractually able to bill the resources that you add to a project, if it goes off the rails or is getting in trouble, the client may not be accepting of that, they may push back. So, you have to have visibility of that.
I had one situation, a number of years ago, where a client came and asked us for a huge scope increase, which we agreed that we do and we deployed the resources to do it. But the documentation that went into that agreement wasn’t particularly solid, and we never really agreed to what degree would we invest in achieving that scope, the value for money was never really figured out. As a result, when we sent the invoice for the excess work, we got push back and ended up having a negotiation about discounting the fees and a number of other things. So, again, it’s all about transparency.
The problem that I’ve experienced when you run these organizations, is it’s easy to be transparent, and to have that transparency when you have six project teams. Beyond six, you kind of lose track. When you’ve got 50, or 100, or 200 project teams running it’s absolutely impossible to have any transparency into what they’re doing. in fact, in many cases you don’t even know what they’re doing. They’re just a number on a spreadsheet to you, producing a certain revenue each month.
As much as you can surface the visibility and use metrics to do that, allows you to understand where to focus. If you can only focus on six to ten things, in any particular time, at least from a client delivery perspective, it’s well which ones? You would figure that out based on where are the potential risks, or where’s the opportunity.
Ian Murphy: How do we take all this and put this into the prediction side of the business?
Chris DeBrusk: The revenue prediction we sort of talked about a little bit. But having really strong pipeline management processes, supported by data, is probably the only way you can do that. Sales people across the board, are horrendous at managing pipelines. They don’t like it and if the tool set doesn’t make it easy for them, they definitely don’t do it. But even then, they are always optimistic, by definition. You can’t be a salesperson without being an optimist. They will keep something in the pipeline at a high percentage point until they’re 100% sure that it’s not going to happen and then they’ll pull it on you. You can see a lot of things dropping out of your pipeline.
It’s building really strong processes, and a culture around a pipeline management, and being open and honest about the actual probability of work happening is really critical. And then backing it up with a corresponding system that allows you to track it. People process and the technology is super critical.
On the resourcing side, it’s just a matter of being diligent in keeping your forward-looking projections in place. There’s two things that happen. One is, a project team might know that they’re going to need more resources at a certain point, but they don’t project it, so it’s a surprise. They needed it at the last minute and that’s often really hard. If you have visibility that a resource needs, then it’s easy to fulfil them. If you don’t, then you can get cut short, or get caught without the right people.
The other thing that happens is that you’ll end up with renewal fall off. It will look like you’ll have a huge bench three months, or four months, or six months out because you’re not properly tracking renewals when, in fact, the account teams, or the project teams, they know for sure, or fairly for sure, that that project’s going to extend, and those resources are going to continue to work on the next phase of the programme, or the extension of the programme. Having a really strong discipline about renewals, and understanding not only that we would need a team of six to continue, but we need this team of six, with these people, to continue.
The flip side is, being really, really good at managing, “Well, who’s going to roll off when? And when are we going to have new resources available for new work? Or for sales efforts, or for other types of things.” In some organizations, resources are fungible. You get 10,000 developers spread around the world, to a large degree they’re fungible. You know, a Jabber programmer’s a Jabber programmer is a Jabber programmer for the most part, but there’s a lot of resources in this business who are not fungible; they’re experts in specific areas and you need them. So, again, separating out your forward-looking resource requirements into fungible and non-fungible resources is also really critical, and you can’t do that unless you have good visibility into when people are going to be available, which, comes down to needing some sort of a system to manage all that.
Ian Murphy: How much of this is technology that the business must invest in, in advance and how much of this is purely and simply just about how the business functions, in terms of process?
Chris DeBrusk: It’s a bit chicken and egg. You can’t institute processes that are rigorous and aligned to the business need without the technology. But, if you put the technology in without also looking at the people, and organizational, and process aspects of it, you’ve wasted your investment. You’re not going to get any value out of it, you have to look at it holistically.
Having been through a couple of transformations where we took a hodgepodge of IT systems and revenue management systems and replaced it with a single holistic platform, 20 or 30% of our effort was in figuring out how to configure the technology to do what we wanted. Upwards of 70% was changing people’s behavior in order to leverage the platforms.
Classic problem was how do you get people to put in time cards weekly on time? If time cards are due every Monday morning for the past week, how do you ensure that by Monday at noon everybody’s got them in, and then by Tuesday all their managers have approved them and you can move into actually calculating your weekly P & L and your forward projections. Huge issue. But that’s a people problem, and a carrot and stick problem. Do you push back on them and they don’t do it? Or do you entice them to do it through some sort of a contest or a benefit? In often cases, you have to do both.
There’s a great example where you have to invest in the people, and the process, and the organizational aspects, in order to leverage the technology, because if you have the most amazing platform, that tracks all your P & L down to the letter, across all your projects, right down to the person, but they don’t put their time cards in, then the data’s wrong. Then you’re managing the business based on metrics that don’t actually work.
Ian Murphy: If I was to ask you for a tick list of things that companies could start to look at to see how good or how bad they are at the moment, what would you suggest?
Chris DeBrusk: When I look at an organization, in some cases, at my current role, we end up doing due diligence for investors on organizations. In some cases, those are professional services firms. The things I look for first of all, how many surprises exist in the forward-looking, year revenue projections? Are they fairly stable and predictable? Do they change in controlled ways? Or does the pipeline jerk around and have a lot of volatility into it? In some cases, that’s valid because the business has volatility, but most cases it’s not, it means that it’s bad processing.
Another metric, or another tick list, is hunt down utilization leakage. People who should be billing and the invoices should be flowing out, the revenue should be flowing in, but aren’t. So, utilization breakage.
Pipeline turns and pipeline quality. If something gets to 75% in a pipeline it occasionally drops out, but it shouldn’t. You shouldn’t see 60 or 70% of the deals that get to 75% not actually close. If you start to see those metrics it’s important.
From a tick list perspective, think through the metrics that you need to run the business, and there’s a range of them. They all are cost, and revenue, and expense management. Figure out what data you need to capture to do that. It’s probably just a few data points that just need to be rigorously captured. Think about the people and process aspects of capturing that information and how you should go about doing it, and enticing your organization to give you what you need. Then how to use the information. One of the challenges I’ve seen with putting in revenue management systems, and professional services automation systems, is people end up creating 300 reports. No human being’s going to look at 300 reports. Identify the six that you’re going to look at every day, design those correctly, implement them and make sure that you do look at them every day.
In my last role, where I was running quite a large organization, I had a set of reports that I looked at every morning over my coffee, and it was just a regular thing. Every morning I sat down, those were the reports I pulled up. There wasn’t very many, but they were a couple of key things that I wanted to watch from a business perspective, and that was how I ran the business.
Ian Murphy: Chris, thank you for your time today.
Chris DeBrusk: My pleasure.
Ian Murphy: You have been listening to one of a series of podcasts dedicated to sharing best practices for professional services organizations. These can be found on www.kimbleapps.com.