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Many firms are either working with old systems or even using dozens of individual spreadsheets for compiling and analysing crucial resource data. Neil Davidson reports.
A lack of clear insight into people resources could threaten to hinder profitability for European engineering firms, according to an Ipsos Synovate research survey commissioned by Deltek.
A better insight into staff utilisation rates was ranked as one of the top business priorities for European engineering firms who are looking to increase margin growth.
Firms need one company wide, accurate, real-time capacity plan, to understand who’s billable and who is not and to what extent they should be using sub-contractors versus salaried staff. This will prevent idle resource in the long term, helping drive profitability and benefits to the bottom line.
The hunt for profitability
Outlining the profitability challenge, research respondents pointed to cuts in public spending on infrastructure, competitive pricing models, rising labour costs, which have eroded the old 10-15 per cent profit margins in European markets. The research findings indicate firms are preparing to meet the inevitable challenges to profitability with both flexibility and focus.
One area recognised as an opportunity to deliver improved margin by respondents is resource management. This means the ability to control the level of activity and number of people used to complete any project. With salaries constituting a significant proportion of operational costs for engineering firms, managing people resource effectively provides a real opportunity to maintain and grow margin in today’s tough environment. This explains why 53 per cent of research respondents reported ‘better insight into project and resource planning’ as one of the most important requirements in the hunt for project profitability.
Typically, companies lack clarity regarding their resourcing situation more than a month or two ahead, but without accurate visibility forecasting resource needs is a near-impossible task and the contract of idle resource much more likely.
To further add to the resource challenge, many firms are either working with old systems or even using dozens of individual spreadsheets for compiling and analysing crucial resource data. Spreadsheets need to be constantly updated and are unlikely to give an accurate overview of any resourcing scenario. This means that they risk making ‘guesttimates’ on project resourcing - the key driver to under or over utilisation.
Real-time capacity plan
Firms need one company wide, accurate, real-time capacity plan to highlight resource gaps and employee availability across the business as much as three months ahead. This allows them to focus on selling all of the hours of the salaried staff and get the mix between sub contractors vs salaried staff right, improving cash flow and profit margin.
For example, a typical PSO firm can save £115,000 per year for every 100 staff in their business by simply invoicing one hour more per week.
Project managers can use the capacity plan to balance internal and external resource needs with project plans and budgets. It should break resource information down by level and by day, helping project managers to pack more work into employees’ daily schedules if they have spare availability. This enables the company to deliver projects using the right people, at the right time, bringing projects in on budget and on time and increasing annual revenue per billable consultant. Ultimately, a capacity plan enables a business to be much more flexible with the resource and capacity it has to hand, target resources properly, reduce over spending and increase margins to improve the bottom line.
Busy does not mean billable
Visibility into capacity will allow firms to realise that there’s a very big difference between staff being busy and being billable. People may seem to be busy, yet their utilisation rates – and therefore their billable hours - are at an unsatisfactorily low level. There may also be a complete disparity across the resource pool, with some people overloaded, while others remain under-utilised.
By identifying resource gaps across the business organisations can ensure workloads are split evenly between the team. In doing so, they avoid unnaturally differing workloads that can develop into employee morale issues and staff churn. This is especially important for firms in Norway and Sweden where 88 per cent of survey respondents revealed that the challenge to retain good staff is one of the greatest threats to their business.
One of the biggest challenges to effective resourcing can be throwing too much resource at a client, effectively putting in time that is not actually billable. Given that research respondents listed customer satisfaction as the number one priority, it is not surprising that over service is often used as the default method to retain clients. However, this often leads to confusion over service deliverables, which can ultimately lead to client dissatisfaction.
A capacity plan will help managers chart planned resources against billables and deliverables. This can be used to educate the client as to what can and should be achieved and by which member of the team. Anything achieved that required using extra resource is recognised and remembered as a gesture of goodwill or the extra services are billed back to the customer.
No time like the present
Without a real-time view of staff utilisation and an ability to forecast resource requirements, engineering firms miss critical opportunities to target resources properly, reduce over spend and, importantly, improve profit margins. The time is now for engineering firms to stop making ‘guesstimates’ and start maximising resource planning and staff utilisation to ultimately increase profitability.
Neil Davidson is UK Managing Director at Deltek. For more information, visit www.deltek.co.uk