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Your Ultimate Guide to KPIs for a Project-Based...
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www.deltek.co.uk Your Ultimate Guide to KPIs for a Project-Based Business Discover which KPIs are needed for efficient business growth and how to measure them.
Transcript of Your Ultimate Guide to KPIs for a Project-Based...
www.deltek.co.uk
Your Ultimate Guide to KPIs for a Project-Based BusinessDiscover which KPIs are needed for efficient business growth and how to measure them.
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Your Ultimate Guide to KPIs for a Project-Based BusinessDiscover which KPIs are needed for efficient business growth and how to measure them.
As a Professional Services organisation, you already understand the importance of capturing and calculating the KPIs of your staff. However, it is just as important to monitor KPIs for your whole business too. Here are the top ten KPIs - as identified by the IDC 2014 Global Consulting Survey - that you should be monitoring so you can accurately assess business performance.
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1. Revenue Growth
What?Rated as the number one concern for professional services firms, revenue growth is a clear indicator of business performance. Obviously where revenue grows, your business is securing more work and operating efficiently. If revenue falls over consecutive reporting periods, it is an indication that something is amiss.
How?By analysing profit and loss data along with project specific metrics like days sales outstanding and project schedule variance, your team will be able to understand whether revenues really are increasing steadily or if current positive results are an aberration.
Who?Monitoring revenue is a finance function, thus calculating revenue growth will generally fall under the remit of the finance director. They will need access to information that not only shows the annual turnover, but allows them to report in more detail on per-project revenues and the like.
Rated as very important by 49% of consulting firms for managing business performance.
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2. Project schedule variance
What?Essentially a calculation that shows how closely projected deliverables match the actual deliverable. Factors involve billable time, costs and resources used. If the project schedule variance is significant, you have clear evidence of failures in planning or inefficient operations.
How?Taking the earned value (EV) and the projected value (PV) you can perform a simple calculation to return the actual variance: EV-PV = SV (schedule variance). Obviously you will need access to granular project figures to calculate this value.
Who?The project schedule variance can be calculated by the project manager responsible. However, to gain an understanding of company-wide trends, you may wish to have the KPI calculated and reported on by your COO.
Rated as very important by 47% of consulting firms for managing business performance.
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3. Backlog
What?How much billable work remains incomplete? This constitutes your “backlog”, a KPI which has a direct bearing on profitability. Without a manageable level of projects moving through the pipeline, your business will run out of work and cash.
How?Your project managers should already be keeping track of project milestones and schedules. If records are accurate, they should be able to report on backlogs per project. However, you also need to be able to calculate a backlog KPI for all projects to properly assess the impact on your business.
Who?Project managers can supply individual project backlog data to the COO. Ideally though, the COO should be able to gather this information through a centralised reporting system.
Rated as very important by 43% of consulting firms for managing business performance.
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4. Days Sales Outstanding - DSO
What?Days sales outstanding (DSO) is a measure of the time taken between invoicing and payment. The lower your DSO KPI, the better your cashflow. Knowing the DSO value will also help your project managers who need to build these costs into their estimates from the outset.
How?DSO values can usually be calculated from the accounts function in your ERP. This information does need to be communicated clearly to project estimators for maximum value.
Who?DSO is best calculated and shared by the CFO.
Rated as very important by 42% of consulting firms for managing business performance.
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5. Customer lifetime value
What?Deal close ratio is a customers are worth much more than the value of their current project. The Customer Lifetime Value (CLV) gives you an indication of exactly how profitable (and therefore valuable) each client really is.
How?The CLV is calculated by assessing:
• The cumulative profit earned from all of their projects.• Less the cost of acquiring the client.• Less the ongoing costs of managing the customer relationship.• Less any other costs associated with each customer.
Who?The CLV draws much of its basic data from the company ERP, so the CFO will need to coordinate data collection. The CFO will, however, need additional input from each account manager and the sales team to ensure he/she has the granularity required for an accurate calculation.
Rated as very important by 41% of consulting firms for managing business performance.
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6. Deal close ratio
What?A comparative figure that shows the number of deals quoted for, against the number of deals actually won. Where the number of lost quotes is high, you may uncover a problem with your sales or pricing processes.
How?A relatively simple KPI calculation – a count of the total number of quotes issued followed by a count of the quotes resulting in a sale. This deal close ratio can be calculated for any period – month, quarter or year to date for instance.
Who?The Sales Director has access to all of the information relating to quotes and deals, making him/her perfectly equipped to calculate the deal close ratio.
Rated as very important by 40% of consulting firms for managing business performance.
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7. Realisation
What?Occasionally there is a shortfall between the number of projected billable hours and the amount that were actually paid for, once the invoice was processed by your client. The higher the realisation value, the more accurate your quotation process and the more profitable the project.
How?Realisation is calculated by taking the number of billable hours quoted at the outset of the project and subtracting the amount of hours actually paid for. You can also calculate the realisation value for multiple projects across time periods to gain a better insight into your quotation and billing processes.
Who?In the absence of a unified project-based ERP system, project managers will need to liaise with the CFO to compare quotes, worklogs and invoice payments.
Rated as very important by 34% of consulting firms for managing business performance.
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8. Proposals submitted
What?A measure of the number of proposals or quotes sent out over the course of a defined period. This statistic will show you how many sales leads are being generated and how many have moved beyond the initial query phase.
How?Quote details will usually be stored in your company CRM or ERP system. Calculating the figure should be a relatively straightforward query that allows you to specify the period on which to report, before counting the number of proposals issued. You may also find it helpful to break the KPI into won/lost for additional insights.
Who?The sales manager is best equipped to provide data about proposals and quotes.
Rated as very important by 32% of consulting firms for managing business performance.
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9. Customer retention
What?Customers come and go. But where the customer attrition rate is high, your business will face problems generating new revenue. You will also incur greater costs acquiring new customers. This KPI is useful for identifying the rate of attrition so you can assign resources to manage customer accounts better if required.
How?First you need to define what constitutes a former customer – possibly anyone who you have not had a sale with in the previous 12 months. You then need to count how many customers reach this status during a given period. This can then be calculated as a percentage of your total customer base if desired.
Who?Account managers or the sales director will be able to provide the necessary customer account details to calculate this KPI.
Rated as very important by 32% of consulting firms for managing business performance.
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10. Market share
What?How much of the available market does your company currently occupy? Market share is a percentage value that shows how well your business is performing against your competition.
How?Calculating market share (MS) is a three stage process:
• Calculate your company’s total revenue (TR).• Calculate the total market value (MV) – you may need to refer to your industry trade associations to obtain this figure.• Divide your total revenue by the total market value: TR / MV = MS
This KPI will normally be calculated on a quarterly or annual basis.
Who?Again, a finance-based KPI, so best calculated by your CFO.
Rated as very important by 31% of consulting firms for managing business performance.
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How best to measure your KPIs Project-based ERP is the most efficient way for Professional Services companies to monitor and report on their KPIs. With the ability to take information from all projects across the business, project-based ERP allows for full transparency and more accurate reporting as data is drawn from one central repository.
Creating a dashboard within your project-based ERP allows you to set the amount and type of data that each person sees and what format they see it in. Using this system means your team is accountable for monitoring their own KPIs, making them more effective and easy to manage.
Download our free eGuide to learn more about the benefits of KPIs:
The Definitive Guide to Growing Your Profit Margin in a Project-Based Firm
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