Profit Based Management Environment (PBME)
Presented by ReCourses
Explanation
Many firms suffer from a management environment that has been shaped more by client demand than by careful planning. Ultimately client demands are an inevitable force in shaping the delivery of services, but even clients are not well served with lack of planning, in spite of the appearance (and sometimes reality) that the client is running the firm from the outside.
The management environment at most firms is deadline-based rather than profit-based (or budget-based). In other words, more attention is paid to when something is due than to keeping the project on budget (internally) so that it yields a profit.
As the components of the project move through the firm, what pushes it is an upcoming meeting, deadline, or delivery date. For example, an employee is handed a job and told: "I need this for a meeting at 9:30am tomorrow." In a profit-based environment the same hand-off would be phrased: "I need this for a meeting at 9:30am tomorrow. By the way, we've estimated about 3.5 hours for this section. Keep track of your time and we'll look at it once this project is done. I want to make sure we are estimating correctly, you have the training and tools you need, and I'm not over - promising to the client. " Having a profit-based management environment relates directly to quality of life issues, too. Without one, a) details will frequently slip through the cracks, disappointing clients; b) no one will be able to do a "mind dump" of those details that are slipping through the cracks; and c) your firm will not achieve the level of profitability it could.
Does your firm suffer from this malady? There are two ways to quickly gauge the extent to which your firm is suffering from the lack of a PBME. The first is to check your billable efficiency (choose the appropriate test at
www.recourses.com) by answering six simple questions. The second is to hand everyone in your shop a slip of paper with one question: "Who is responsible for keeping projects on budget" If the answer is not consistent (and preferably a production traffic manager). you have a problem.
The Basis for a Project Based Management Environment
If you want to transition your firm to a PBME, there are several components that will be critical to making that transition successful.
First, and most important, you will need a strong motivator. This is usually anger at the fact that you have been "subsidizing" clients at personal expense to your quality of life. It's accompanied by overwork, underpay, and the realization that client loyalty is thin indeed. Clients are not the enemies, but they are also not friends.
Second, you will need confidence that you are worth every penny of the hourly rate you have set. Though everyone agrees with this verbally, in reality they don't believe it. How else can we explain our charging practices? Confident people get paid for what they do.
Third, you will need to move from denial of the problem to actual measurement of your progress (see the appropriate test at
www.recourses.com).
Fourth, you will need to create a common language - a common vision to keep this quest a corporate priority. Without involvement from all quarters, change will not be as deep or lasting as it could be. For example, communicate the purpose/program very clearly. Build consensus. And consider offering incentives to the entire staff, or at least those most in a position to affect the outcome.
Components of a Project Based Management Environment
A PBME is woven through the fabric of any particular management environment. None of the individual threads are critical, but together they form a strong, flexible, lasting system that brings profit to your company:
- The parameters of every project need to be described in writing. The client should see this description and agree to it (even if by default).
- Determine a budget that addresses all the components that will factor into the project. Do this by asking those involved how long they think their portion will take. Then adjust this based on how accurate their input has been in the past.
- After you've arrived at a total figure, step back and look at the big picture. The component parts may add up to 400 hours, but you know it won't take that long. Usually you'll need to adjust the time back down.
- Compare this figure with historical figures from your timekeeping archives. Additionally, compare it with trade industry surveys for similar projects.
- After arriving at a final number, provide the client with a budget in which most of the categories have been collapsed into a few general categories. Include, of course, the parameters that have been agreed to.
- Once the client signs off on a project (whether it's part of a retainer or not), use the expanded budget to allocate time to specific components of the project.
- After the project is complete, bill the client "to estimate," using the same few categories. If they have asked for (and agreed to) additional work outside the parameters of the project, list those charges separately.
- Those are the basics of estimating, though each step is important. Without an estimate that will compensate your firm for the real hours expended, there is no hope of creating a profit-based management environment. It starts here.
- But assume, then, that the client has accepted your price. How do you ensure that the project is indeed done within the budget and contributes profit to the bottom line?
- Make sure that your definition of "billable" time is sufficiently broad. i.e., any time specifically tied to a project is billable. That includes travel time, meeting time, planning time, and coordination time.
- All employee time should be entered, whether billable or not. In other words, (in broad categories) employees should account for their time. The total time entered should roughly match the total time they are in the office.
- This time must be recorded as it happens, preferably in 15 minute increments, in some fashion that is easy for the employee. Time is either entered into a database directly or turned in on paper before they leave the office. The goal is daily compliance, not weekly reconstruction.
- Yes, principals must comply in the same fashion. No one will take the process seriously unless everyone participates. For those employees who resist, try positive or negative reinforcement. For example, you might buy pizza once a week if everyone turns in their sheets. Those that don't might get penalized for every day they miss the deadline.
- All timekeeping entries should truly reflect the time spent, even if it seems inordinate by the person who records the time. In other words, there should be no discounting of time at the entry stage. If discounting is to take place, it should be a management decision, and should take place at the invoicing stage. If a computer crashes, record that time with a note of explanation.
- After all, computers typically slow up every project. On the other hand, they also speed up most projects. Consider it a cost of doing business. If there are unusual slowdowns, then still record the time with a more complete definition. But if employees discount their time at the entry stage, you will never know how long projects are taking. They discount it then (without telling you), and then you discount it again when the project is invoiced. We have found that most principals think this isn't taking place, when in fact it is.
- The data should be managed in a software application specifically designed for this purpose (see other article on management software at
www.recourses.com).
- Responsibility for monitoring project budgets on a daily basis should be centralized, even if it is not a full-time job. This is usually done through a production manager or traffic coordinator.
- Responsibility should not be distributed among several individuals who "traffic their own jobs."
- At each hand-off, as much attention is given to budget for that segment as the impending deadline.
- Don't allow the person interfacing with the client to make on-site promises. For one thing, they have no way of knowing how to balance capacity as different people make promises for a larger labor pool. For another thing, promises made on-site, in front of the client, are more likely to be in the client's favor, at the expense of your firm. Finally, the very same promise is more readily accepted if everyone has a part in making it. Employees rightfully don't appreciate commitments being made on their behalf, particularly if it impinges on their personal life.
- If the client strays outside the original parameters of the budget, say: "I think we can do that, but before I can say for sure I need to check with the office. As soon as I know how much longer it will take and how much more it will cost, I'II call you." Document their acceptance, and then have those doing the work note the time spent as a "change order" that will be invoiced beyond the estimate.
- Always invoice promptly. The only thing worse than a late invoice is a late invoice with unexplained charges. The best time to acquire client approval is when they desperately need something, and then again when they are thrilled to have received it in time.
- If you don't think you can ask the client for all the time you spent on a project, show it on the invoice anyway to begin informing them of the true cost - they'll be prepared to see a higher cost next time around. Plus, if you've done the work, you need to get the credit for "contributing" it to the project.
- After every project, have a 5 minute debrief with everyone who worked on the project. Explain what was estimated, how much time it actually took, and ask for suggestions to improve the project next time.
- This may seem like the antithesis of an environment conducive to creativity. In our experience, though, good management contributes to creativity. It also allows you to do better work, achieve consistent profitability, and generate respect for the creative process.
This article has been provided by ReCourses. For more information, please visit their web site at
www.recourses.com.
