creative management consultants - london
Know where you
really make (and lose) money
Do you really know how your organisation is actually performing financially? In real time, by project, by stage of project, by market, by client, by team? We never cease to be surprised by how many project based organisations do not.
There can be many reasons for organisations not knowing, or not wanting to know. Sometimes the systems are not in place. Information may be gathered but not analysed. There can be an aversion to time sheets. It may be considered sufficient that overall end of year financial performance is satisfactory, any poorly performing projects being lost within the aggregate. Politically it can be easier not to point the finger. There may be a fear that gathering such information will be counter-productive and lead to a harsh, results driven culture. Or it may be simply considered best to offer a quality of service that will retain a client or sponsor, regardless of profitability.
But it can be sobering to point out to the senior team just how much better off an organisation (and those benefiting from its improved performance) could have been, had it been just averagely profitable on those projects where it lost money. In some larger organisations we have seen this amount to millions.
Sometimes a key issue is deciding which performance indicators to be looking at. Profitability of project, type of project, stages of projects, clients, market sectors? Revenues generated per head? per technical head? per £ of salary? per £ of technical salary? Percentage of time billable? … Which you use may depend on your culture and your available systems, but in highly competitive markets monitoring the right indicators is likely to be critical for an organisations effectiveness, and sometimes its survival.
We therefore consider it good practice to know the facts about how an organisation is actually performing across of variety of measures and to ensure that relevant information is made available, in real time where appropriate, to all those who need it to do their jobs well. This may raise issues about how performance and profitability is assessed and how costs are assigned. Cashflow is also likely to be as important an issue as profit or loss. Sometimes the information may be disturbing. Major clients or whole 'sectors' of work can be found to be 'unprofitable' or untenable. But knowing this can force an organisation to address the issue, and to review whether it should continue to take on such work - or whether it needs to undertake it in a different manner.
The challenge is also knowing how to use the information to make it 'fit' with the organisation's underlying culture. For most creative organisations this means avoiding using it simply as a rod with which to beat 'under-performers'.
Critically, only when an organisation really understands how it is actually performing can it ensure that the team is also safely allocating resources to those other, non-directly revenue generating activities that can be equally important to its well-being.