Mastering Financial Forecasts for Service-Based Companies

According to the SPI Research report "2012 Professional Services Maturity Benchmark," most services firms still report at least 10 percent variance between quarterly billings forecasts and actual results. [SPI report page 174] If missing forecast targets simply meant a little belt-tightening, it would be easy enough to cope. Inaccurate forecasts ripple throughout the entire organization, from agitating shareholders to disrupting future project availability and even professional development schedules. Simply put, the more components you have out of place this quarter, the more work you have to do next quarter to realign your organization to meet the new expectations.

Consistently successful forecasting is built on a foundation laid across the entire organization. Simply building more slack into project proposals won't do. Proper financial forecasting requires the ability to understand where your projects and resources will intersect in the future. That requires the ability to analyze resource deployment over time, and across both current and expected projects. Once that is done, companies can become more precise about resource allocation, not only by understanding exactly which skillsets will be available in the future, but also tightening up personnel transfer from one project to the next.

Getting there requires more than a desire to close milestones faster or cut down on bench time. Services firms must commit to building closer organizational and technological links between sales, service delivery and the back office. Today, forecasts and reality are so far out of sync because the sales force and service delivery teams have no meaningful communication. In a typical company, sales management assigns probabilities to bids and project managers—if they have access to these forecasts at all—are left to fend for themselves to decide how to reallocate or hire in order to meet the potential contract. By the same token, delivery teams with limited insight into scheduling and skill availability often give only the vaguest assurances to sales that the professionals are in place to meet the terms of a pending bid. This approach will be unsustainable for laggards, as forward-thinking services firms continue to distinguish themselves by on-time and on-budget delivery.

When the entire company is not only committed but enabled to allocate the best available resources to meet client needs on a consistent and contracted basis, then and only then will forecast variance shrink and provide both employees and customers with accurate insights into the future. SRP makes it possible to conduct detailed analysis of each pending deal, each in-progress contract, and each available resource and understand how margins and milestones will be affected by any number of possible decisions, including hiring new staff or reallocating existing professionals to meet another client's key needs.

Good forecasting isn't just a benefit to the back office. Reliable forecasts make it possible to understand the utilization, margin and billings of any project and any professional, over time and in the aggregate. This in turn makes project proposals more accurate, increasing your chances of making winning bids that deliver as promised. Moreover, firms that can master forecasting create an environment of stronger professional development and higher retention. In short, they become the kind of company shareholders want to own, and top-level talent wants to be part of.

Ed Marshall - General Manager, Services Vertical

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