In the heavily service based economy forecasting is more important than ever. Professional service firms are in a dynamic business sector, which is quick to adapt to the new economy by becoming more agile and competitive in their respective fields. Understanding their customers, growth and purchasing patterns, and making better business decisions overall is crucial for their success. Accurate financial projections already were a challenge for traditional businesses, but services forecasting has become even more complex with the rise of this field.
It is crucial for professional services firms to help management make good business decisions, basing them on past and current data trends, which in a fluctuating market requires the use of sophisticated forecasting tools.
Similarly to traditional forecasting, where sales projections are used, professional services forecasting starts with the analysis of the work that is yet to be performed and the revenue that this work is going to bring. This estimated sales revenue then becomes the basis for the financial professional to project cash flows coming in, receivables and estimated available vs required cash to cover expenses.
This type of professional services forecast makes it easier for management to schedule, staff, plan, and report on project churn rate and overall helps to better understand business requirements at hand. Not to mention, the benefits to the growth planning of the business.
There are two things to keep in mind when planning professional services projections. In order to run a solid forecast, one needs to track utilisations, it is important to establish target utilisation and available utilisation for professional services. Where target utilisation is the target billable hours over the standard hours in the work week, and available utilisation is a function of all available hours, minus the benefit hours.
But, don’t use target utilisation and available utilisation as the same function. These are good KPIs to track, however, 100 percent utilisation is not always possible. Think of Brook’s law here, while it takes one woman nine months to make one baby, nine women can’t make a baby in one month.
Next, establish accurate and sustainable tracking of scheduled hours by an employee. It helps to choose a reporting interval that provides management enough lead time to make decisions about staffing and scheduling. This way, a firm has enough time to make informed decisions about current availability, future requirements and allows for flexible changes.
Furthermore, review your current availability. Look at your current projects and utilisation required to achieve it. Then, going back to your sales forecasts, review the hours required on your current proposals, it helps if you consider estimated start dates on the projects as well, as this will influence your workflow. Also, don’t forget to review the likelihood of an award of these proposals, as chances are, you are not going to get all of them. It helps to use traditional forecasting methods to objectively calculate your estimated likelihood of award. This process will help you to better understand the total hours required to complete your projects.
In addition to time tracking and utilisation, your forecasts may need to account for any other goods and services that form a part of service delivery, which could either be direct or indirect costs.
Acquiring this data, putting it into the forecasts and continuously monitoring it, management will be able to see the most important factors for the firm; how far out projects are scheduled, do they need to adjust staff, do you need to move project timeliness and how to increase project throughput. Labour cost is the single most influential impact on the firm’s bottom line, therefore forecasting empowers business leaders and allows them to keep an eye on utilisation.
Additionally, professional services forecasting enables firms to look at unscheduled work which has been awarded but not yet had hours allocated, and any staffing requirements necessary to meet the demand of the impending work, which intrinsically helps to stage clients, their expectations, project delivery dates as well as any estimate any hiring in the horizon.
If you are looking to run a professional services forecast, give ProForecast a try. And if you are interested in looking at this feature in action or would like to purchase a ProForecast package, get in touch and to learn more about features on our packages!