Planning and Forecasting for the Professional Services Firm of the Future

Wouldn’t it be nice to have a crystal ball that allows you to gaze into your firm’s future? Once you looked into it, you’d instantly know whether you’ll meet your annual revenue target. And if you don’t like what you see, you can change course and then take another look.

Economic uncertainty, new regulations, and changing business models are reshaping the professional services industry. These same forces are making it harder to accurately forecast financial performance, let alone improve it. Those operating in professional services are acutely aware that so much of your firm’s earning potential is tied to your people and their ability to bill, produce deliverables, and successfully engage with clients. So, how do you plan for and predict your firm’s financial performance in the face of uncertainty? Read on for our advice.

Plan Your Work, Then Work Your Plan

If people are the lifeline of a successful firm, then a plan is the rope that pulls in profit or breaks under strong pressure. With client projects directly impacting revenue, adopting a regimented planning approach is a must. Finance leaders should factor in resources, revenue streams, and project work into the firm’s financial plans.

“Planning for people costs at a detailed level should tie to financial plans and budgets for the overall organization. Even more importantly, in businesses where the production and customer service capacity of the business is highly dependent on people, workforce planning is essential to understand capacity constraints and enhance revenue predictability,” advises Paul D. Hamerman, former vice president, principal analyst at Forrester.

The foundation of strong planning lies in the availability of key data and systems across the enterprise. By managing resources, projects, and financial data comprehensively, a firm can get context into its client projects, skills gap, and the health of various service lines with immediate insight into whether it’ll meet its financial targets. With this approach in mind, professional services firms need to have planning processes that enable:

  • Headcount planning: Track the number of FTEs and contingent workers, as well as data on key worker attributes including industry, product, service line, key skills, and certifications.
  • Project and opportunity planning: Determine current and future resource needs, as well as revenue potential.
  • Capacity planning: Get an aggregated view of availability by worker attributes and schedule (so you don’t schedule someone who will be out on leave or vacation, for example).
  • Financial planning: Obtain a full view of revenue and margin across service lines driven from both financial and project data.

Plan More Strategically

The right forecasting technique can make all the difference in keeping your firm on track to meet its revenue goals. However, thinking too far ahead doesn’t account for changing market conditions, customer demands, and business models. The best approach is to create an active planning process and update your forecast on a regular (at least weekly or bi-weekly) basis.

Given the impact of client projects on headcount requirements and financial performance, evolve to a point where you can plan with a bottom-up approach.

Service Performance Insight’s “2018 Professional Services Maturity Benchmark” reports that “With the assistance of powerful planning and analysis tools, planning does not have to be a dreaded once-a-year, laborious process. It can become a fluid, collaborative, all-year-long process that facilitates input and cooperation across all functions and levels.”

For the most accurate forecasts, it’s also critical for key project leaders to update their forecasts to account for future resource and revenue plans. Consider tools that simplify or automate forecast entry on any device, even from individual project workers. Given the impact of client projects on headcount requirements and financial performance, you want to evolve to a point where you can plan with a bottom-up approach.

Collaborate Across the Firm

While financial planning is driven by the finance team, it impacts the entire organization and thus needs to be a cross-functional effort. Critical data impacting company performance resides with different teams and functions—finance, HR, resource management, project leadership—and each one needs a distinct view of the planning data as well as the ability to weigh in on the unknown.

To unlock actionable insights, look for a planning tool that has direct access to data on finance, HR, and client projects and provides key stakeholders with insight into key performance indicators. Tools that are secure and allow for real-time collaboration can bring together different functional areas into one view.

Every successful strategy starts with planning it, so you won’t get very far if you don’t know how to plan. With the proper business processes, measures, and systems in place, you can easily forecast which clients and services lines are expected to deliver the most revenue and allocate the budget and resources to support them—no crystal ball required.