A Little Background
2007 was a busy year at Newfangled. So busy, in fact, that it put to the test just about every aspect of our operation. Our positioning, our process, our team's role breakdown, our scheduling, and our pricing were all examined closely (see Mark's blog on our new Project Anatomy). Needless to say, we made it through and learned quite a bit about how we can improve and be an even better company than we were before. Instrumental in this process was the consulting we received from David Baker, owner of ReCourses, Inc. David is an expert in consulting companies like ours and helping them to solidify positioning, management, and process. One of his recommendations was to introduce a new role to our team: Resourcing. I've taken on that role (in addition to Strategy, something I'll probably talk more about at some point), while Katie Jamison has done a great job already of taking over as Project Manager for my clients.
Resourcing and Measuring Utilization
The primary goal of Resourcing is to ensure that your company is properly utilized. Utilization, according to Max's Project Management Glossary, is the "extent to which something is turned to practical use or account." I like David Baker's definition better, which is essentially that a company's utilization is the percentage of possible billable hours actually billed as reflected in your revenue. Given that definition, many professional services companies, especially creative agencies, may quickly and rightly suspect that their utilization is low. Depending upon the number of employees that you consider primarily overhead, a reasonable utilization goal could be anywhere from 55 to 70%.
Once you have measured your company's utilization, you can set a goal for improvement. It might be easy to jump to the conclusion that the way to achieve your goal is to simply raise your rates. However, David challenged us to really evaluate why our utilization was low. Was it due to under charging, or was it due to over servicing? As it turns out, it's actually a subtle combination of the two, but what was important was acknowledging that over servicing was even possible! We even determined later that, contrary to most agencies, we weren't struggling with staying within implementation budgets but were not accounting for the time spent actually managing the project. For a typical project, we've found that Strategy, Project Management, QA, and Support actually account for over 50% of the total time spent, with the remaining 50% to be divided among implementation of Prototyping, Design and Development. That means that a major amount of work, and a significant value, resides with the way things are delivered, not just the implementation. As you might imagine, getting these budget ratios wrong will significantly affect your utilization.
Adjusting how you plan your production schedule is another way to improve utilization. When we were at our busiest in 2007, it was mostly due to a major traffic jam in our schedule- one we could have prevented. Since our schedule is divided between two different kinds of work - new projects and upgrades to existing client sites - it's difficult to predict when things are going to be tight. We can plan out new projects, but we never know when an existing client might call. This has historically caused us to attempt to schedule more work in a week than there are hours to work! This kind of scheduling is partly due to the fear that not being able to give immediate service is somehow a bad thing. However, we've realized that doing a subpar job quickly is far worse than doing a great job slowly. As one participant in a recent ReCourses seminar rightly put it, "they'll never remember that you did it fast." She is completely right. What they will remember are all the mistakes made trying to rush a project through. The fact is that we are in demand- so much so that we now are scheduled out months in advance- and we're not willing to rush projects at the expense of quality. Sure, some projects have to wait to get started, but we believe they are worth waiting for.
The Nitty Gritty
A lot of things need to be in place in order to evaluate and maintain proper utilization. First, there needs to be as much data on hand as possible to ensure that Resourcing is not a wasted effort. We get this data from our timekeeping system being integrated with our project management, scheduling and billing tools. With this data on hand, Resourcing can evaluate profitability for completed projects and determine pricing for future projects, recommend realistic workloads for the development staff, monitor quality, anticipate over and under-utilization due to various factors, maintain timesheet and project management systems, etc. Yes, there is much to do! This is why Resourcing needed to be a new role for us, not just something else that existing delivering staff does in addition to everything else they already do. In my next post, I'll talk more about why Delivering (account management, or as we call it, project management) and Resourcing cannot be shared by the same team members.
A Little Background