Finance managers excel at forecasting, but their financial systems often make it quite difficult for them to achieve a high level of predictive accuracy. This is especially true for generic, non-industry-specific ERP systems like Quickbooks. As the volume of data continues to grow, it’s harder to define which metrics to use, and where the appropriate data resides.
Metrics and Key Performance Indicators (KPIs) differ in every industry and may be measured differently where not industry standard exists. For example, financial KPIs for a professional services or consulting firm include:
- Success rates of each project
- On-time completion rates
- Completion rates within budget
- Efficient use of resources
A financial management software or ERP system that is built specifically for the professional services market can help you determine where you need to focus your finances and human resources in order to achieve higher levels of efficiency and profitability. As a finance manager you also need to consider the most appropriate financial KPIs
4 Financial KPIs for Professional Services Firms
- Days Sales Outstanding (DSO) determines how well your accounts receivables are being managed. Understanding your DSO will help you determine the length of time outstanding balances are carried in your receivables. It is simply the length of time it takes you to receive payment on an invoice.
- Sales revenue and sales conversion rates. You may refer to these as proposal ‘win rates’ as defined by completed sales transactions. At this stage you should also consider sales and project costs to determine the return on investment (ROI). Unsurprisingly, this metric is equally important to calculating ROI on marketing and business development expenditures.
- Availability, cost, placement and utilization of labor. Resource management will affect all aspects of your organization. After all, in the professional services industry where your billable resources are your most valuable assets, time is money. Resource utilization rates can also be indicators of being under or over-staffed.
- Projects at risk of failing or of becoming late. These projects could add increasing costs over an extended period which will reduce their profit margin. These days, how well a project is run directly impacts your bottom line. Not only that, but they could have a negative impact on your relationship with the client.
Once you’ve determined your firm metrics, you should set up the appropriate format within your ERP software’s dashboard to reflect what needs to be measured and forecast. Start by asking yourself the following questions:
- How can I give our executives the best and most accurate forecasting of our financial performance across the firm? Think about charts, tables and visualizations.
- How much detail is required? Make sure the dashboard is simple enough to give you the information you require. Too much information can lead to confusion and inaccurate forecasting.
- Do different stakeholders require different types of data? Establish a standardized and consistent format for all metrics and visual references.
- Is the information as up to date as it can be? The data needs to be constantly refreshed to gain any level of accuracy.
A project-based ERP system like Deltek Vision makes this simple and even allows you to set role-based KPIs on each employee’s individual dashboard. Regardless of whichever system you use to manage finances and track projects, you ERP software should offer dashboard and analytics capabilities that can help to answer these questions. This will allow you and your team to make increasingly accurate forecasts of where and how to spend budgets and effectively utilize resources. With some forethought about process and metrics, your system can make forecasting much simpler.
