Two Birds, One Stone: Optimizing Capacity Planning and Revenue Forecasting Through a Holistic Approach

In the intricate ecosystem of professional services, where every project demands a unique blend of talent, the significance of accurate forecasting cannot be overstated. Imagine a firm with a 20-person resource pool endeavoring to staff two projects with seven open roles. That doesn’t sound that daunting at first glance, right? But the permutations for resourcing models soar beyond imagination, eclipsing a staggering 300 million possibilities! 

But where do you start in the journey toward building more confident forecasts while maintaining resourcing flexibility and agility? This article explores how a coherent view of not just skills but also incoming demand and key financial data can drive consistent performance in unpredictable times.

The Monthly Forecasting Rollercoaster

Forecasting within the realm of professional services is fraught with uncertainties—project delays, unexpected client cancellations, currency volatility, and organizational changes, among others. These elements introduce a continuous cycle of forecasting adjustments, causing operational disruptions and negatively impacting financial outcomes.

The result is that the rhythm of monthly forecasting in services-based businesses typically oscillates between optimism and reality. This is marked by alternating peaks and troughs in a company’s performance and outlook, including:

1. The Inflated Forecast: Things start out looking great going into the month, but this rosy outlook is unrealistic – resources are double-booked, open demands haven’t been resourced, and opportunities haven’t been moved out so some of the revenue from this forecast will not be realized as planned.

2. The Surprise Dip: Unexpected cancellations, lost deals, and project adjustments lead to dips in forecast and unexpectedly benched resources that don’t align with your forecast expectations.

3. The Nice Surprise: Fixed price projects concluding early (realizing more margin), project extensions, or urgent client demands enhance the month’s revenue prospects as resources become busy once again on new work that is quick to close.

4. The Delivery Shift: A frenzied push towards month-end means delivery teams consolidate work with accurate progress updates and chase all time and estimates to complete for project reporting.

5. The Scramble: Eleventh-hour efforts are launched to hit targets, often relying on reactive, less-than-ideal measures to close the month on target, with last-minute deals pushing the numbers over the line.

Sound familiar? It doesn’t have to be this way! Reliable, data-driven resource and profit forecasting cuts a straight line through these peaks and troughs, helping businesses understand their true future demands and avoid the many complications that come from the forecasting rollercoaster.

The Evolution of Resource Forecasting: A Holistic Approach

When forecasts aren’t reliable, professional services organizations suffer from project delays or overrunning projects that hit bench costs and services margins hard. The number of days it takes to try to piece together a reliable resource and revenue forecast undermines confidence in planning and often leads to more conversation about the reliability of the data than meaningful dialogue about how to use the data effectively. Delays and inaccuracies in the data put resource managers on the back foot. Unsure about what to believe, they are unable to plan which teams to hire into, leading to an overreliance on tactical staffing that pushes resource managers to reach out to local subcontractor resources rather than sharing resources from other internal teams. This creates a double hit of additional third party cost as well as internal bench costs.

Gone are the days when resourcing decisions in professional services firms were solely based on the availability of skills and the management of capacity. Resource forecasts, after all, are never constant and ever-fluctuating supply and demand alongside shifting client expectations drive continuous updates in services commercials from the perspective of utilization, cost, and revenue. Navigating the ups and downs of resource utilization is a glaring challenge. When resources are stretched thin, it not only becomes tough to explain project delays to your customers, but this ongoing scramble significantly hampers your ability to accurately predict growth and profitability. 

Solving this problem requires a holistic view of the entire professional services lifecycle – from sales to resourcing to delivery. To get this holistic view, organizations need to see incoming demand from sales early, allocate resources in an agile way, and have an accurate view of delivery progress

Pursuing Granular Margin Optimization

At the core of effective resource management is the quest for optimized profit margins. This extends well beyond simple skill matching and instead manages intricate scenarios that strategically enhance financial performance. For instance, exploring the commercial implications of different staffing configurations, such as the trade-offs between assigning Senior Consultants or Junior Consultants to specific tasks, can lead to significant profitability, especially when done at volume and when things like promotion planning and multiple currencies are added into the mix.

Margin optimization becomes exponentially more complex for large services organizations operating across multiple regions, currencies, calendars, and commercial models. In such environments, the absence of real time, reliable and accurate forecast data can lead to bottlenecks in decision-making. This is how senior leaders end up unnecessarily involved in the resourcing process, trying to piece together a workable plan, often without full access to real time data they need to inform these decisions. In many cases, once information has been pulled together, it has already become out of date, forcing decision-makers to plan using inaccurate data.

Forging a Path to Future Success

So the question for professional services businesses is, how do you get off the rollercoaster and create more reliable forecasting, predictable utilization, and more robust project margins? The following processes can help create a better way forward for your company.

• Holistic Forecasting: Effective resource management necessitates a panoramic understanding of the enterprise, including the intricate interplay between resource dynamics and financial outcomes.
• Margin Optimization: A symbiotic relationship between forecasting and resourcing solutions can safeguard against margin dilution and foster revenue integrity, thereby safeguarding profitability.
• Financially-Driven Decisions: The heart of sustainable growth and competitive advantage lies in basing resourcing strategies on financial insights, with a keen eye on their impact on EBITDA.
• Tangible Benefits: Moving beyond a simplistic, skills-centric approach to one that emphasizes profitability and margin enhancements offers more strategic, tangible returns on investment.

Together, resource and financial forecasting are the backbone of enduring success in professional services. Navigating the uncertain landscape of professional services forecasting requires a holistic strategy that prioritizes real-time insights, coherent processes and careful consideration of the financial implications of every decision. 

To get there, you’ll need a purpose-built solution specifically designed for the unique forecasting needs of professional services organizations – with automation across an operational structure of time periods, standardized commercial models, and a real time job framework all working in tandem to update data continuously. 

The Kantata Professional Services Cloud is the top resource management software solution on G2 because it does so much more than resource management – by taking a holistic approach to the professional services project lifecycle, Kantata drives more accurate forecasts that elevate decision-making capabilities and promote sustainable growth. With this powerful software, businesses can stay ahead of the curve and remain agile and resilient in the face of evolving challenges. Learn how Kantata can empower your team and strengthen your forecasting efforts.