Understand who is making a financial contribution to your business

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    Written by HarmonyPSA on 2014-04-29 Last updated 2018-06-27 - 3 minute read

Technology and professional services businesses spend over 70% of their fixed budget on staff.  However, the connection between their revenue streams and employment spend are often very hard to analyse and even harder to optimise.

The Problem

It should be easy. If you implement a timesheet system, you will have total clarity over what people are doing, how much they are earning and where the money is going, right?

Unfortunately, timesheet systems alone don't always give the full picture:

  • Timesheet project and task codes do not easily map to clear revenue streams.  Of course, or simple cases they can map directly, but in the general case for technology companies, there are many points of indirection that confuse the picture.
  • Timesheet booking granularity is very hard to manage evenly across the entire organisation.  You will find examples of people who book in 10 minute slots and others who book to the same code all week.  And everything in between.
  • Fixed price work is tough to analyse.  Of course, at the project level, once it’s complete, you can derive some idea of the overall cost vs revenue, but that will not be at the employee level, only the project level.
  • If you book in hours and charge in days (a very common arrangement) how do you, systemically, decide what costs and revenue numbers are attached to individual time bookings where overtime is worked?

And this all assumes that you have provided the timesheet system with all your rate information including details of your support revenue.  Most systems do not get implemented in this manner.

If you really want to know what’s going on, you need to be able to answer “Yes” to the following eight questions:

  • Do you model each support contract as a project (or task) and then ensure that the budget on that project is adjusted with each change to the services definition provided for under the contract?
  • Do you adjust the earning rate on fixed price projects based upon the earned value of the work on a continuous basis?
  • Do you enforce ticket level bookings, managing the granularity down to measurable work elements?
  • Do you apply consistent employee cost rates that fully account for non-time based overhead cost recovery (rent and rates etc)?
  • Do you only use non-client specific booking codes on tasks where the costs are recovered by client specific activity?
  • Do you include consistent product code mapping in your project and task definitions?
  • Do you apply consistent algorithms to day-rate based work to ensure that the treatment of revenue and costs are accurate and not over or under-stated?
  • Do you do all this in a single system that provides accurate analysis on demand?

This is the vast majority of your fixed costs we are talking about and with this data gap, you actually have little clue about the relationship between spend and earnings, except at the highest overall level.  How can you manage let alone optimise performance without this knowledge?

The solution

The solution to this problem lies in two simple concepts:

  1. Every single time booking has to acquire a cost and an earning value, using consistent time measures. However, the true trick is that the earning value has to allow for the overall performance of the project and be able to automatically re-baseline historical values when things go well or wrong
  1. These values must be indexed against the employee, the project, the customer, the product area, and all relevant attributes of this list that you wish to use to analyse your business.

Plus, if you operate in multiple currencies, it also needs to handle conversions consistently, saving values in both transaction and company base currency using rates applicable at the time.

This can only be achieved if the timesheet record knows everything about the commercial model of the contract, seamlessly taking into account any changes that affect the value earned from the work.  This is something a pure timesheet system will never be able to achieve.

Implementing this approach will deliver the holy grail of professional services based businesses, a true contribution analysis by product area, customer and employee, at all times.  Do this and for the first time you will really know who is earning the money and why.  Now you can optimise your business performance from a position of knowledge, not hearsay or gut feeling.  You might even be in a position to review your pricing with customers who don’t pay enough to cover the costs of the service they are getting.

HarmonyPSA has the most advanced cost and revenue attribution engine in the market today.  It records all these values without you needing to think about it or do manual data manipulation.  If employee and customer contribution analysis matters to you, contact us and we will show you how you can use this data to optimise your business.

 

About the Author: Harmony Business Systems Ltd (HBS) is the company behind HarmonyPSA, the most complete cloud PSA software on the market. Developed with functionality to cater for even the most complex needs of MSPs, VARs, ISVs and Professional Services organisations, HarmonyPSA truly is the next generation of PSA systems. HBS is an independent company based in the UK. Follow HarmonyPSA on or LinkedIn


Tags: Business, employee financial contribution, financial contribution, HarmonyPSA, MSP Business, Professional Services Automation, General PSA, Software Business, Timesheets

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