Budgeting season is beginning for professional services organizations. Sales are rolling in & each month you have to prepare for the next–increasing your sales, generating profit. New projects are starting, old projects are continuing on. Making sure your organization’s headcount is in balance with your backlog and projected pipeline is a constant challenge. To over or under staff your organization affects profitability with poor utilizations or project delays. You need the right tool to help you see far enough into the future to understand your organizations staffing needs.
If you are a professional services organization, how do you make sure you’re not spending too little on project staffing or too much? Are you wasting time, resources, your hard earned cash by frantically assigning projects?
A top-down approach is driven on market demand. An understanding of the market through historical trending data and/or the sales pipeline to gauge expected revenue is necessary. Then, align your organization’s expenses. The challenge is whether or not the business is structured to capitalize on market demand–a high market demand means you may be losing opportunity if you don’t have the necessary resources aligned internally.
A bottom-up approach is driven on resource supply. It answers questions like “how many hours of work can I bill?,” “how many widgets can I get produced?” and “how much crop will my fields yield?” Estimate potential sales revenue of a product in order to establish the total sales figure.
Your organization’s need is unique based on its industry & market conditions. Having the ability to compare both models with ease will give you a competitive advantage. That extra component, the gap analysis, is just what you need to maximize utilization & profitability. With only the top-down or bottom-up, there is no comparison and it can be misleading with revenue or supply. Gap analysis allows for a more holistic view of the business. Viewing the difference between a Top-down and bottom-up can give you actionable intelligence. For example, more market demand means you can safely hire more people, or a constraint on resource supply could determine the possibility of raising prices to increase margins.
You can check this out to gain competitive advantage for 2017!