(2 minute read)
Its widely understood in good business management that if you don’t measure something, you can’t really drive its outcome.
Indeed, businesses these days recognise that good performance is more than simply having a healthy balance sheet and profit & loss statement; and the model of FESG (Financial, Economic, Social and Governance) is becoming more widespread as a basis for tracking.
Operationally, consulting leaders need something more to help drive day to day decision making about their business unit, and be transparent with their staff about business performance. And in this data driven age, leaders now tend to have metrics for everything at their fingertips, and I’ve seen organisations that seek to compile complex and sophisticated KPI frameworks, tied to individual remuneration, with high compliance obligations on data entry by staff. It can become unwieldly quickly.
In this context, its easy to lose sight of the fundamentals of a good performing consulting practice. In this article, we’ll explore seven operational Key Performance Indicators that really matter in the business of consulting.
Remember, in its purest form, consulting, like most professional services, is a simple business model: Clients have a need. Consultants offer to meet that need by providing staff with intellect and expertise under a contract. No clients, and no staff = no business. Consulting is often light on Intellectual Property because solutions are usually bespoke, and few assets are involved other than say a phone and a laptop.
So what do we really need to track?
1 – Utilisation
| What | Why | How |
| Time charged to a client as a proportion of total available time. | Unsold consulting hours represent un-realised revenue. Understanding utilisation means you know how much more work you can take on, i.e. capacity | Timesheeting is the key basis for capturing how consultants allocate their time |
| Comment | ||
| Utilisation tracks the productive capacity of the base unit of sale: the consultant hour. Ideally, a business strives for 90% utilisation for junior staff primarily involved in delivery. The ratio drops (maybe 60% to 80%) as more senior staff take on extra non-chargeable responsibility, such as business development. | ||
2 – Charge-Out Multiplier
| What | Why | How |
| Revenue charged for a consultant as a proportion of the total direct cost of employing that consultant. Often expressed as a multiple. | Proxy measure of profitability of a consultant hour for the relative charge-out rate (if properly calibrated) | Determined from financial reports and contract rate cards |
| Comment | ||
| Businesses must understand the profitability of chargeable work for the charge rates presented to a client. A multiplier is one way to do this as long as its properly calibrated from a corporate budget that accounts for all direct and indirect costs. | ||
3 – Pipeline Health
| What | Why | How |
| The ratio of forecast work to forward capacity to take on that work | Key measure of prospective sales, and therefore ongoing viability of the business. Understanding the forward profile is key to managing business development and sales priorities. | Projected revenue factored to reflect probability of success as determined from tracking spreadsheets or CRM systems. |
| Comment | ||
| While utilisation and multipliers help analysis current work profile, the concept of a measurable pipeline is critical to understanding forward work prospects. Factoring that pipeline by probability helps build up a realistic picture of incoming work. | ||
4 – Pipeline Balance
| What | Why | How |
| Assessment of market segment or service line variability of pipeline. | Too narrow a pipeline increases the “all eggs in one basket” risk. Too broad a pipeline undermines the ability to scale up for big opportunities | Projected revenue plotted against market segments or service lines as determined from tracking spreadsheets or CRM systems |
| Comment | ||
| Small business often find themselves overexposed to a single client under a single major contract. Diversification can have long lead times. Similarly, there needs to be a basis to screen out interesting opportunities that deflect resources away from successful core business. This indicator can help. | ||
5 – Staff Satisfaction
| What | Why | How |
| Qualitative assessment of overall staff satisfaction with their career journey in the company | In professional services, no staff = no business. Its critical to have a regular pulse on staff experience, both real and perceived. | Regular pulse checks and longitudinal surveys |
| Comment | ||
| Its too important to leave this to anecdotal evidence and top down perceptions. Similarly, no one measure will be adequate. Don’t make the mistake of assuming a simple annual survey will suffice. In a separate article, we’ll unpack a lot of the factors that reflect the key motivators for staff in consulting business. | ||
6 – Skills balance
| What | Why | How |
| Qualitative assessment of skills and capabilities across the business relative to current work needs and future pipeline. | While utilisation measures the capacity to take on new work, this indictor assesses the capability to take on new work | Gap analysis and mapping exercise |
| Comment | ||
| This indicator also assists in shaping the professional development priorities of the business. The more you seek to broaden your core offering to new areas of work, the better you need to be at balancing and mobilising | ||
7 – Corporate CV readiness
| What | Why | How |
| Qualitative assessment of state of readiness of Corporate CV | Critical in client selection processes, and hence ability to win new work. | Review of register or database of previous assignments adequately described to support tenders and proposals |
| Comment | ||
| While pipeline indicators are forward looking, the Corporate CV helps summarise the past. Previous experience is a critical selling point for taking on new work. Yet its too easy to forget to update the Corporate CV in the rush to finish one assignment and start another. | ||
Summary
The above list incorporates client factors and staff factors. It accounts for past, current and future business. It allows for quantitative and qualitative measures. While not exhaustive, it will help consulting leaders stay focussed on what’s really important in a successful business. An of course it’s a complement to, not a substitute for, prudent financial reporting and other aspects of good corporate governance.
Dr Nigel Nutt
Founder and Principal
Tabiya Services Pty Ltd
www.tabiya.com.au
The views and concepts presented in this article are the intellectual property of Tabiya Services Pty Ltd. All rights reserved. The article may be forwarded or recirculated as long as the article remains complete, and attribution to Tabiya Services is retained.