Click to edit Master title style Managing Profitability through the Recession Sami Ibrahim Principal and Co-founder September 30, 2010

Click to edit Master title style

Managing Profitability through the Recession

Sami IbrahimPrincipal and Co-founder

September 30, 2010


© 2010 Agility Solutions LLC. All Rights Reserved.

Evaluate the Market and Your Practice Business spending will return. Take an objective look at your long-term opportunities. Manage for long-term profitability

Understand your costs. Make cost-effective investments. Set your practice for future revenue growth.

The Opportunity Companies are sitting on RECORD amounts of cash. The firms who can manage through the short term and improve their

practices are in a position to significantly disrupt the established players when spending returns.

Executive Summary

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Key Statistics Founded 5 years ago, now one of Denver's top consulting

practices with over 35 local professionals. Leadership team from Big-4 and other global consulting firms. Our Service Lines

Revenue and Margin Assurance. IT Assurance Compliance Business Consulting

Client base is primarily public and emerging public companies.

About Agility Solutions

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Growth Amid the Downturn Doubled headcount each year for 4 consecutive years. Tripled revenues each year for 4 consecutive years. Strong tier-2 consulting presence – significant pricing pressure.

Fee Structures Contingent/success-based – Currently our largest revenue

source. Usually calculated as a percentage of

Improved revenues. Reduced costs.

Rate card/time and materials – growing as discretionary spending returns.

About Agility Solutions (Cont’d)

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This Too, Shall Pass The world is not going to end. At some point, companies will

start working on the issues they’ve delayed addressing, not to mention new problems created by short term resource cuts.

In fact, it was recently reported that collectively, companies are sitting on RECORD amounts of cash.

Decide Your Destiny Look down the Road

What issues are businesses struggling with? Are you in a position to solve these issues? If you like what you see, then prepare for it. If not, then get out!

Don’t worry about budgets when you do this – focus on the inherent opportunity.

Sales cycles are long – when do you start?

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The Opportunity



The Risks to Your Practice As your lower your expectations on revenue and profit, are these

expectations transferring to other areas? Engagement quality and performance Professionalism

Lower expectations can extend to areas that should not only be help level, but in fact, improved.

The Risks of Idle Time As you evaluate how to manage your resources, keep in mind the

costs of an idle practice. Morale, motivation and pride Skills and discipline

Although project economics may keep you from accepting certain projects, it is important to understand the pervasive and negative impact that low utilization can have on your practice.

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Ratcheting Down Your Practice



What Are Your Competitors Doing? The natural tendency is for consulting companies to adjust to the

economic environment by cutting discretionary costs – marketing, training and development, PR, events, etc.

If you have the capital to support it, this is the BEST time to spend on these activities. Training companies and other vendors are offering great deals. Marketing efforts are less expensive, and your message will likely

command greater attention. Firms that wait for the recovery may find it difficult to meet client

demands.

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Ratcheting Down Your Practice (Cont’d)



What Are Your Clients Doing? Although companies are not spending, it doesn’t mean that your

clients aren’t eager to fix problems. Buyers are already evaluating vendors so that they can move quickly

once the budges are approved. Without hard budgets and formal procurement processes, this pre-

evaluation is often done informally, meaning relationships, marketing and other soft factors may drive decisions.

By the time you see an RFP, the decision may already be made! Position your practice accordingly.

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Ratcheting Down Your Practice (Cont’d)



What Does Profitability Mean? Firms measure profitability in many ways

By Resource By Project By Service Line By Practice

What costs do you include? Direct payroll Indirect payroll Allocated overhead Selling, general and administrative

Depending on your objective, your view of profitability may not include all (or even any) of these costs.

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Understanding ‘Profitability’



Understanding and Avoiding Costs A helpful way to think about your costs is to focus on which costs

you can avoid, rather than the costs you will incur, over different periods of time.

What costs can you avoid over the following time horizons? 2 weeks 2 months 1 year

Do your answers change if you expect to have excess capacity? Standard cost models often ignore these distinctions and overstate

‘costs’.

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Managing Costs



Calculating Profitability Many ‘job profitability’ models will incorrectly lead to decisions to

price above market rates or decline work. Including costs you cannot avoid. Under estimating the qualitative impacts of low utilization. Assuming that resources can be deployed elsewhere.

When evaluating short-term decisions, be careful in using these models – know how to adjust them.

Try building your own model that calculates each point on the P&L: After subtracting only direct payroll costs. After other direct labor costs. After overhead allocations. After allocating SG&A.

If you can’t avoid the costs at a particular step, then consider ignoring them in your decision.

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Managing Costs



Cost-effective Ways to Develop Your Practice Even in periods of lowered demand, it is critical to maintain and

enhance your practice. There are many ways to enhance your skills without external costs.

Shadowing on existing engagements Peer review of a past or current project Consult on internal processes Codify training and development activities Creating mock engagements (including proposal, contract and reporting)

Treat ‘internal’ projects just as you would a real engagement. Practice makes permanent – short cuts can come habitual. Perfect practice makes perfect – set the bar high.

As you consider these investments, remember the costs of an idle practice.

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Investing in Your Practice



Holding the Line on Rates Despite what the future holds, there is no escape from immediate

competitive pressures. Remain competitive in the short-term, while setting yourself up for

increased future rates. Demonstrating commitment to clients by sharing costs of start-up time:

Initial start-up hours credited back to client. 50% credit on start-up hours.

Temporarily billing senior resources at a junior rate. These allow you to provide a more competitive rate in the near term, while

preparing clients for a return to your normal rate structure

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Managing Revenues



Investing in Future Revenue Growth Include extra components at no charge to develop your practice

Focus on areas that will benefit your practice: Develop inexperienced resources. Pilot new service areas. Develop relationships in new areas of client’s business.

Make sure there will be tangible benefits to the client. To prevent cannibalizing future revenues, avoid areas the client may

already have, or expects to have budget for.

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Managing Revenues (Cont’d)



Manage Your Practice for the Long Term Business spending will return. Take an objective look at your long-term opportunities. Manage for long-term profitability

Understand your costs. Distinguish between short-term and long-term profitability. Make cost-effective investments. Set your practice for future revenue growth.

Take Advantage of Your Competitors’ Inaction Companies are sitting on RECORD amounts of cash. The firms who can manage through the short term and improve their

practices are in a position to significantly disrupt the established players when spending returns.

Conclusions

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Contact the Speaker Sami Ibrahim Principal and Co-founder of Agility Solutions

[email protected]

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Contact Information

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Click to edit Master title style Managing Profitability through the Recession Sami Ibrahim Principal and Co-founder September 30, 2010