Beyond Resource Utilization: Why Project Profitability Matters in Professional Services
Monitoring and managing billable resources is a critical business process for any professional services organization (PSO)—but it’s only one piece of the puzzle. In fact, tracking resource utilization alone can be misleading and mask critical business problems.
Focusing on additional metrics, such as project profitability, can help you gain a complete, end-to-end view of your PSO’s performance. Looking beyond a single statistic is essential for a PSO to maximize agility, identify opportunities and improve competitive position.
Now I’m not suggesting that you stop managing resources or looking at resource utilization. But tracking profitability metrics as well can help ensure that your most expensive consultants are utilized and billed out at their target billable rate as much as possible. That helps you minimize the risk of low rate realizations, and the risk of subpar project revenues and margins.
If you focus strictly on utilization, your project managers may make it their priority to simply keep consultants busy. They can overlook maximum rate billings and you could end up accepting lower-value projects just to improve resource utilization—at the expense of revenue and profit. On top of that, blindly managing by utilization can result in assigning specialized resources to non-specialized projects, which can contribute to consultant burnout and employee attrition.
The need to broaden PS metrics measurement beyond utilization has been hot topic for the Technology Services Industry Association (TSIA). By itself, utilization can vary from company to company based on a number of factors, such as type of technology services offered and types of labor pools, making it risky to rely strictly on that one metric.
The best approach is a strategy that looks beyond a single metric to see the “big picture” of departmental operations, including profitability, and leverages innovative technology to provide sophisticated reporting, including profitability dashboards.
Want to learn more about project profitability and continue the conversation? Watch the webinar on the topic, presented by TSIA and NetSuite.
Posted on Tue, January 18, 2011
by Kelly Paszamant filed under