In the ideal world of the Professional Services Organization, clients pay for every second we spend on their behalf, and without demur. And fixed-price contracts are delivered (on time) in perfect conformity with our estimates of effort.
How we wish it were so.
The truth is that very often we can’t charge every precious second of our time, even when we’re not engaged on fixed-price contracts. These are some of the reasons:
- We make mistakes that cannot reasonably be charged
- We work more slowly than is reasonable, perhaps because we place inexperienced staff on the assignment
- We spend more supervisory time than expected, directing the work of inexperienced junior staff
- We spend time on ‘account management’ with the client, which cannot reasonably be charged, especially if this time involves the resolution of disputes
- We have agreed to give time free of charge as part of commercial negotiations
- We have placed junior staff free of charge on the project to accelerate their training
- We spend time in preparation for the assignment that cannot reasonably be charged
And, when we’re engaged on fixed-price contracts, we very often overrun the estimates on which profitability is built.
- We incorrectly estimate the time it takes to deliver each stage of the project for reasons including inexperience, inaccurate estimation, and insufficient comparable historical data on which to base estimates.
- We allow the project to spill beyond its original scope, without complaint.
- Scope is so poorly defined that we find ourselves in dispute with the client as to what constitutes delivery.
- We manage the project badly and must redo work because of poor communication between and within both parties to the contract.
- We incorrectly estimate the costs of skills we require for the project.
- We spend unexpectedly large amounts of time on commercial negotiations and other ‘account management’ activities.
- We lose key staff and must introduce new staff to the project at our own expense.
Looking at it another way, and this way makes it all the more obvious why perfection is unattainable, this is what we must get right in order to realize 100% of the value of our work:
- We must have perfect professional knowledge, or at least sufficiently excellent, so that the quality of our work is never challenged and so that we are not forced to spend time in research and training in preparation for the project.
- We must all work at a speed and level of efficiency acceptable to our client, with no one working challengably more slowly than others.
- We must communicate perfectly with our clients so that there are no misunderstandings as to scope and the appropriateness of what we do.
- We must communicate perfectly with each other so that there are no misunderstandings between us that lead to incorrect or wasted work.
- We must retain the loyalty of all those involved in the project so that we don’t have to waste time introducing new staff at our own expense.
- We must estimate well (and overestimate plausibly if we are to build contingency into our plans)
- We must have a keen understanding of the project’s likely costs
- We must have the skills to avoid protracted negotiation and account management work beyond what we might reasonably expect
- We must avoid giving time free of charge as part of the deal.
- We must retain fee rates at target rates or above.
- We must understand and manage dependencies in the project with perfect fluency.
If all of these conditions apply then you can plan for 100% realization on time and materials based projects, and even greater than 100% realization on fixed price projects. You might also apply for accelerated canonization by the Roman Catholic Church, because you would deserve to dwell amongst the Saints.
In the mundane, imperfect world, you must assume a certain level of loss, for some of the reasons given above, perhaps for all. Realization is a measure of what is not lost.
Realization can be defined in this way:
Realization, usually expressed in percentage terms, is the extent to which work in progress value is realized in invoicing.
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- Eight Measures for Professional Services Organizations – No. 4 – Realization - September 21, 2016