Managing Non-Billable Work Effectively, Part 3 of 5

Last week (and the week before) I talked about work given away by project managers and work given away by PSO management. Those types of non-billable work are, in the grand scheme of things, easy to manage.

In the next couple of weeks, I will share my views on the purpose and challenges associated with work given away by non-PS resources, such as Sales, Sales Management, and Executives. Additionally, I will share many of the ways a PSO manager can manage the often unexpected give-away work that gets promised.

This week, I'll start with a summary of what give away work - given away by non-PS resources, managers, and executives - looks like. Next week, I will start to delve into how you can manage non-billable work more effectively.

Work Given Away by Sales, Sales Management, and Executives
The nature of give-away work from Sales, Sales Managers, and Executives are really the same. So while I called them out separately in Part 1 of this blog series, it makes more sense to discuss the nature of this work from all these sources as one.

In talking with my peers on the PS Village forum, it is clear that embedded PSOs often struggle with managing the non-billable commitments made by individuals outside the PSO. The nature of these commitments tends to fall into two categories:

1. Using PS efforts to “sweeten” a product deal
2. Using PS efforts to gain goodwill with a customer when things go wrong
   

While I agree that there are legitimate reasons for providing PS services to a customer at no additional costs, my research shows that, like non-billable work agreed to by the project team or PS Management, these non-billable commitments are most successful when the PS team is brought in early to conduct proper discovery and scoping just like they would for a billable project. When the PSO is involved in the early discussions, applying their best practices for scoping and delivering a project just like they would for a for-fee project, the customer needs are met at a lower cost to the company and with higher-levels of customer satisfaction.

Problems do arise when commitments are made without the knowledge of the experts who need to deliver against the commitments. Often times, what seems like a "simple" project to a sales manager or executive is really a project measured in months and hundreds of dollars. When these commitments are made "unexpectedly" the disruptions can cause pain to other projects, the sales pipeline, and the moral of the team.

Additionally, without a proper SOW, managing scope is nearly impossible.

Tune in next week for my thoughts on how to manage give-away work more effectively.

Happy Holidays!!

Managing Non-Billable Work Effectively, Part 2 of 5

Last week, I talked about work given away by the project team and the various situations when it might make sense to do so. Also, I talked a bit about how to manage non-billable change requests (CR) from within the project team.

As a reminder, non-billable CRs are often issued by the project team as mea culpa when a mistake is made by the team. The non-billable CR can help get the team back in good graces with the client. Additionally, project managers may use the non-billable CR to build goodwill with a customer when s/he knows a hard discussion or larger CR is about to present themselves.

In this post, I will talk about work that is given away by the PSO management

Work Given Away by PSO Management
While it is rare, there are times when the PSO delivers complete engagements at no cost to the customer. Admittedly, most times these no-cost projects are usually initiated by sales and executive management, but there are times when PSO management agrees to a no-cost SOW.

In the case when one of the PSO's primary objectives is to support product sales, PSO management may defined small, promotional projects designed to highlight the benefits of the product while also promoting the value of the consulting team. For instance, I recently put together a program that I called (internally) the "Golden Ticket" program.

Each account manager is given one (1) Golden Ticket. S/he has the option to give away a single two-day engagement during which the PS team will audit the customer’s use of our products. The client deliverable is a 30-40 slide Power Point presentation that summarizes gaps in the customer’s methodology and a summary of apparent Web Application performance issues. Our analysis is limited by time, and we do not talk directly with the client until the analysis was complete. This allows us to complete the engagement quickly, highlighting the value of our best practices (the value proposition being: “We saw all of this without even talking to you”), and indicating where we could go deeper in a "real" engagement.

As a result of this offering, the PSO has engaged in a handful of these projects. In one case, the Account Manager was able to grow the size of the account with the customer in the same quarter the Golden Ticket was delivered. We are also in early discussions with this customer about a potential larger (billable) PS engagement down the road.

These programs tend to be well defined and well managed because they are driven by PS management, who understands best what it takes to do the work. That said, there should be close collaboration with sales management to ensure that the program is designed to meet the objectives – help the sales reps sell more product and services.

Managing Non-Billable Work Effectively, Part 1 of 5

In my experience, non-billable work can be categorized in four ways:

1. Work given away by the project team
2. Work given away by PSO management
3. Work given away by the sales team and/or sales management
4. Work given away by the executive team

Regardless of where the ‘give away’ originates, a PSO must have policies and processes for managing and tracking what work is given away (and in what situations) and how the non-billable work is managed with the client.

Work Given Away by the Project Team

Project teams rely on the Project Manager to manage scope. Technical leads, business analysts, and other team members should never have sideline agreements with members of the client team to do work that is not clearly specified in the SOW. While the SOW defines the guiding principles – or project charter - for the project team, it is unlikely that every detail of every requirement will be uncovered during the pre-sales process. Therefore, an effective change control process should be implemented to allow the consulting and client teams to work together to change the scope of work as needed.

Many change requests are designed to increase or reduce scope, requiring the project budget to increase or decrease in kind. The consulting team needs to evaluate the change request and inform the client of the effect that the change will have on the project schedule and cost. (In my experience, many change requests that must be added to the project, are not so important when the customer learns what the added cost will be.)

At my core, I believe that all work performed by the consulting team should be paid for by the customer. However, having spent the majority of my career in project management roles, I have learned that the no-charge Change Request (CR) is a very powerful tool – allowing the team to give a little to get a little (or a lot). The no-charge CR allows the consulting team to develop goodwill with the customer. Issuing these change requests allows the team to approach the relationship with the client from the position of “partnership.”

So, there are times when a Project Manager may chose to write a no-charge CR. In addition to the opportunity to develop goodwill, as discussed above, there are times when the change does not add any additional consulting time to the project. This can be the case when the customer wants to change a requirement on which the consulting team has not worked and the change represents the same level of effort as the original requirement. Even when there is no change in the level of effort or cost to the project, the Project Manager should issue a Change Request to document the new agreement between teams, allowing all parties to understand the differences between the original agreement and the ultimate deliverable.

However, Project Managers should also be empowered to issue a no-charge change even when the change requires more work. This may happen if the consulting team has made a mistake that caused some amount of pain on the part of the customer. The no-charge CR may rebuild a, potentially, damaged relationship. It may also be advantageous to issue a no-charge CR when the project team knows of a larger request that is coming down the road - bigger changes result in larger bookings and revenues. The smaller no-charge CR may leave customers feeling like “this” team is willing to work with me. The customer doesn’t feel “nickelled and dimed” and the larger, billable CR, may be easier to get executed. A good project manager understands when it is appropriate to issue a no-charge CR versus one for which the client must pay.

That said, PSO management must provide project managers with a process for managing give away work:

1. All changes must be documented, even when the change will not result in additional charges for the customer.

2. Only the project manager can agree to a change, although s/he should solicit input from the rest of the team.

3. Only small changes can be provided as non-billable. Anything that puts the schedule at risk should be billable.

4. You may want to set a cap on the size of the non-billable CR to which a project manager can agree without management approval.

5. A Change Request Board (CRB) must approve all CRs, even the non-billable CRs. The CRB includes representatives from the client and consulting teams. You may want to have PS management on the board, particularly when your less senior project managers are running projects.

The next post will discuss non-billable work given away by PSO management.

Data-driven Decisions & the World-class PSO

Flipping through the November 16, 2009 edition of InformationWeek, I came across an article called "From Gut to Facts" by Doug Henschen (pages 6-10). The thesis of the article is that executives who make decisions based on data and "the facts" make better and smarter decisions than those who make decisions based on instinct and "gut feelings."

In away, I had a bit of a "duh!" moment while reading the article. Of course, it makes sense to make decisions based on facts rather than on instinct. Yet, as I read the article, I thought..."How many of us actually do that?" How many of us have the time or access to the data to make smart decisions based on the facts? When was the last time you conducted market research and revamped your offerings based on the facts?

As I talk to more and more PSO managers, particularly those who work in a SaaS business model, the data that is increasingly more important to me are:

• Product consumption metrics - do customers who work with the PSO use more of what they have purchased?
  
• Renewal and growth metrics - do customers who work with the PSO purchase more or additional products?
  
• Customer Support metics - do customers who work with the PSO require less support from our service desk?
• Customer Performance Goals - do customers who work with the PSO achieve the goals they had in mind when they purchased our product?
  
• Project profitability - are we delivering projects in away that allows us to cover or exceed our costs depending on the corporate expectations?
  
• Team Utlization - is the team sized properly to meet the demand of the market?
  
• Customer Satisfaction - are we delivering effective and valued consulting engagements in a professional manner?

Now...it's time to develop a means for accessing and reviewing this data...

My First PS Village Boston Executive Breakfast

I had a chance to attend my first PSVillage Boston Executive breakfast last week. This session, so I have been told, is the groups fifth session since its inception. Approximately 25 directors and VPs of PS from the Boston area attended.

I have to admit, I wasn't sure of what to expect. I hoped that a lot of smart PS managers would attend and that we'd have a lot of dynamic discussions. Frankly, though, I have been to other sessions like these that turned out to be more like sales and marketing pitches than discussion groups and netowrking sessions. So I was very please to find that the session was what I hoped it would be.

The agenda called for discussions of two topics: SaaS and Agile Development Models. As a whole, SaaS was the topic most top of mind for the group. Some of the participants were, like me, individuals managing a SaaS-based PSO, while others managed Enterprise-based PSOs in companies moving to (or adding) a SaaS model.

As I conduct my research pertaining to the similarities and differences of Saas-based PSOs versus non-SaaS-based PSO, the one consistent theme that I encounter is that everyone is struggling with the same questions. This is true of my fellow PS Village members as well as the many non-PS Village members with whom I have talked as part of my research. The big questions we struggle with are:

1. How do we measure our success and contribution to our customers and company?
2. How do we deliver services to customers who need them while remaining small in the eyes of executive management?
3. How do we scale our practice profitably, and what role can contractors and partners play?
4. How do we address revenue recognition concerns?
5. How do we support the custom applications we build for our customers when we do not have the "service desk" type people and systems needed? What role can the service desk play?

As I said, the Boston PS Village session was attended by managers of SaaS businesses and non-SaaS business alike. The five questions listed above were asked as often and as loudly by the non-SaaS managers as they were by the SaaS managers. In a nutshell, we are all asking the same questions. However, the answers aren't always the same. For instance, enterprise software companies expect that the PSO revenue will be much smaller than product revenue (30% of the total revenues, for instance). This allows those managers a much greater ability to grow the practice and service more customers than those of us who are managing PSOs within a SaaS company, where non-recurring revenue (i.e., PS revenue) is expected to be between 3-10% of total revenues.

Additionally, while both groups (SaaS and non-SaaS) seem to rely heavily on the traditional, operational metrics (see previous posts), the SaaS managers seem more inclined to believe that those metrics provide limited insight into the success of the practice from a corporate-contribution and customer-value perspective. Revenue growth, profit margin, and utilization still seems to be where it's at for non-SaaS companies, while SaaS-based PSO are questioning the value of those metrics for much other than capacity planning and resourcing.

I look forward to more discussions with the members of PS Village and other PSO managers.

How do you thank your customers for their business?

I'm reading The Business of Consulting by Elaine Biech. She suggests sending handwritten thank you notes and creative gifts to customers to thank them for their business and keep you top of mind. So it got me thinking...How do other PSO managers thank their customers? If you are doing anything unique, funny, or generally effective in reinforcing your team's value proposition, please share. We'll all benefit. Thanks in advance.

What do you think about KPIs for PSOs?

As you know, I am conducting research to allow me (and, ultimately, you) to better understand the similarities and differences between stand-alone PSOs, SaaS-based PSOs, and Licensed Software-based PSO. I have interviewed a dozen or so Directors and VPs of PSOs, and I have at least 5 more interviews to conduct. However, I'd like to hear from those of you who don't have time to meet with me in person or over the phone for an hour or so.

So, I have created this survey of 25 questions (included a place for you to provide your contact information). I just took it, and it can be completed in less than 15 minutes. If you provide your contact information, I will be happy to share the survey results with you.

To complete the survey, please visit:

World-class PSO Survey

Thanks in advance for your interest and help.

Critical KPIs for a SaaS-Based PSO - Update on My Research

I'm back...after a busy week followed by a busy vacation...and I'm ready to share my thoughts once again about a SaaS-based PSO.

As I mentioned in my very first post, I am actively conducting research designed to better understand how many SaaS-based PSOs are measuring their success vs. how they should be measuring their success. I have talked to PS Directors and VPs from large and small companies at various points in their evolution (see SPI's Professional Services Maturity Model at www.SPIresearch.com). When it comes right down to it, most are using the standard PSO metrics (Bookings, Revenue, Profit Margin, Utilization, etc.) to measure the health of the practice, but few feel those metrics are hitting the mark.

One of the biggest challenges we face as managers of SaaS-based PSOs is defining how our contribution should be measured. It is natural for us to gravitate toward the traditional metrics. They are easily quantifiable, and we are comfortable with them given our experiences in the non-SaaS world, but the fact is, all but only one firm I have encountered in my research is structured in such a way for the traditional metrics to make sense when the question one is trying to answer pertains to measuring the contribution the PSO is making to the organization. Most of the SaaS companies with whom I have talked have revenues smaller than 10% of corporate revenues. There is tremendous pressure in many cases to "keep the PSO small," and while the metrics would indicate a focus in selling profitable projects, the 'give away work' is refelctive of the need to keep customers happy, protect those renewals, and enable the sales teams to grow the size of the subscriptions.

Don't get me wrong, the traditional metrics have their place. Most Directors and VPs with whom I have talked agree that utilization, for instance, is an important operational metric used to understand available PS capacity and hiring needs. It is also important for evaluating your staff's competency in terms of on-time/on-budget delivery or the sales team's ability to properly scope and size an engagement. (I only talked to one firm that does not measure utilization at all.) That said, does high utilization really inform the company of the contribution the PSO is making to the organization. Is it at all refective of customer satisfaction or the value the customers realize from the product or services?

I heard, loud and clear, from most interview candidates that, for a SaaS customer, it's all about customer satisfaction and value realization. As my manager, Matt Poepsel, says...it's about making happy customers. However, only one company had a quantifiable method for measuring the value a customer realized (not just from the PSO, but from the firm as a whole) and their level of satisfaction. This firm used what appears to be a fairly sophisticated statistical approach by identifying a number of attributes that were measurable and that provide insight into customer-satisfaction levels.

Customers who hirer a general contract for their home are, for instance, buying a new kitchen or a new den. Customers who buy marketing tools are buying higher lead generation results and conversion rates. Customers who purchase web performance management software are buying performance improvement and the benefits of that improvement.

Customers have needs and wants that cause them to make a purchase. It's the company's responsibility to ensure that the customer's needs and/or wants are met, and it's the PSO's role to assist the customer in achieving that value. Therefore, there should be metrics that measure a PSO's ability to fill that role for customers and the company.

For instance, a customer purchases Gomez products to improve the performance of their web application. Therefore, a performance trend could be used as an attribute in the statistical model to determine if a customer is getting the value from their purchase. If performance is improving over time (and other metrics are also improving) one could draw the conclusion that the customer is achieving value and they are at a low-level of risk for cancelling their subscription.

As I continue with my research, I will be looking to determine what some of the standard KPIs should be for SaaS-based PSO and understanding how each company can identify its own, unique, metrics for their business. If you are doing anything non-traditional within your company or practice, I'd love to hear about it.

Never Too Small for a PMO

Why is it that only large corporations have a PMO ? What is a PMO anyway?

PMO stands for Project Management Office. Typically, the PMO is responsible for setting standards and developing process for delivering projects. They are responsible for defining the project management methodology, including the tools to use, metrics to capture, and workflow steps to follow. They are also responsible for ensuring that project delivery is repeatable and of high quality across all projects and business units.

One key to a successful consulting practice is a repeatable delivery model. (See last week's post on the subject.) Another key is clear expectation setting and project management. Whether you are a large enterprise managing numerous, simultaneous, and large-scale projects or a small, boutique consulting firm, both of these 'keys' are critical and will benefit your practice.

Still, I have never run across a PMO in a small- or medium-sized business. Some SMBs claim (as I have in the past) that "our projects are too small to warrant the same project management diligence as a larger project." Others are moving too quickly to even think that there is a better way. Still, others know there is a better way but suspect that implementing a PMO will be a bit like changing the tires while the car is moving.

Sure, it is not necessarily feasible to hire a dedicated team of project management professionals who manage the process of managing projects and ensure consistency across all projects. It is feasible, though, for a smaller business to assign a small number of senior consultants to a task force responsible for developing project management standards, tools, and metrics and ensuring that all consultants who manage projects do so in a consistant manner.

You don't have to boil the ocean, either. Pick one of the five components of a project (see last week's post on repeatable Delivery Frameworks) and define the project management activities, tools, and metrics required (and those that are optional). Once everyone is following that process well, move on to the next stage in the project lifecycle.

Being smaller doesn't mean there is less to do. Having a repeatable project management process will improve your on-time/on-budget delivery, which will improve your profit margins, resource scheduling, and customer satisfaction.

It Sometimes Takes Mistakes to Evolve Your Practice

It's a beautiful, sunny, and dry summer day in Boston, and after a long day, I have decided to give props to my team and to a consultant we recently brought in to train my team on the Fundamentals of Consulting. The consultant, Jean DiGiovanna of ThinkPeople, did a fantastic job of reinforcing messages I have been delivering to the team about what it means to be a consulting professional, and I am thrilled to see my team incorporating what Jean taught us in her three-day workshop.

So I said I'd give some props to my team, too.

First, the team has responded with a genuine interest in putting the lessons learned to work and practice. They have asked that we spend time every other week practicing the skills and best practices we learned in the training. They are, for the most part, committed to being a World-class Professional Services Organization.

Second, it will take time for the skills we learned to become second nature, and we will make mistakes along the way. The biggest difference between now and pre-Jean's training, though, is that the team recognizes when a mistake or misstep is made and is committed to avoiding that problem again.

Recently, we kicked-off a client project using our "usual" methods for kicking-off a project "like this." After the training, the team recognized what they could have done differently in the kick-off and made adjustments to what they could/should have done up front. Additionally, when they realized today that they could have done a better job of communicating expectations with the client, the conversation quickly turned to "how do we make this right" and "how do we avoid this next time."

Mistakes will be made; that is to be expected, but a truly world-class PSO uses the mistakes to the practice's advantage by using the lessons learned to further improve and evolve the practice.

As Jean DiGiovanna says, if you make a mistake, make it right. I am proud that my team understands that.

Thanks Jean, and Thanks Team!!

Repeatable Delivery Framework - Myth or Reality?

Search for the phrase "Repeatable Consulting Delivery Framework" in Google, and you get 45,000 results. After a quick review of the first 10, I determined that most had nothing useful to say about what a repeatable delivery framework (or model or methodology) really is, with the exception of this article by Andrew Cadwell, Principal Consultant at KickStart Alliance:

A Strategic Delivery Framework Sets the Stage for Success

How do you truly build and maintain a repeatable delivery model when each customer's needs and pains are different from the next and when the idea of a "packaged offering" is really just that...an idea. (How many times have you delivered an engagement exactly as specified in the data sheet? I know...that would be nice!)

While I am not a huge fan of the Project Management Institute (PMI) (I know too many PMI certified Project Managers who can't project manage themselves out of a box), I know they did get a few things right, such as their definition of required project phases:

• Initiation
• Planning
• Execution
• Monitoring
• Closing
  

The folks at Bright Hub have done a nice just describing each.

In my organization, we call these five phases:

• Presales and scoping
• Planning
• Execution
• Project Management
• Completion and Wrap-up

In each phase, we have defined (or are defining...it's a work in progress) the mandatory and optional steps (and associated tools) that should be used. Additionally, we are going through an analysis of our primary engagement formats and assessing the required and optional steps and tools of the Execution Phase, looking for similarities and clear differences.

We are using a knowledge base to capture the workflow through the various stages and store templates that must (or could) be used at each phase.

While the specific customer needs and projects dictate flexibility, the team has a clear understanding for how to navigate a project "like this." Additionally, we have build a feedback mechanism designed to capture lessons learned and customer feedback in to the process, allowing it to evolve and mature over time. It's a labor of love.

So What is the Role of a PSO at a Software as a Service (SaaS) Company, Anyway?

This article on PS Village, The Voice of the Village describes the role of a SaaS-based PS as one of providing transformational consulting services to its custo

Featured Article: So What is the Role of a PSO at a Software as a Service (SaaS) Company, Anyway?

I am interested in your thoughts about how this applies to your business.

Is measuring bookings, revenue, utlization, and billing rates enough for a PSO?

Traditional Professional Services Organizations (PSO) often measure between 10-30 metrics designed to allow management to evaluate the health of the consulting practice. Among these metrics are:

• Bookings
• Revenue
• Team and Individual Utilization Rates
• Gross and Net Profit Margin
• Revenue per Billable Head

...and the list goes on and on. While these metrics are great indicators of the operational efficiency of your practice, are they really providing you with the insights you need to know if your practice is delivering the right value to your customers and your company alike? Let's face it, these metrics are very inward looking metrics that indicate little, if anything, regarding the affect your practices is having on your customers’ success. Nor do they indicate in any way your practices affect on your company’s ability to grow customers and sell more products.

Shouldn't the role of any PSO be to help customers achieve goals and realize value as it pertains to your products and drive growing adoption of the products offered by your company? Wouldn't it stand to reason, then, that direct PSO bookings, revenue, and profit margin are less important to the evaluation of the practice than the team's ability to drive more adoption of the products, resulting in increased bookings and revenue at a corporate level?

With that said, how do you measure whether a customer is realizing the value they expected and having success with your products? How do you connect the dots between the efforts of the PSO and the bookings, revenue, and profit margin of the company?

Over the next two months, I am conducting research to try to answer those very questions. Essentially, the biggest question on my mind today is: What are the right KPIs and Critical Success Factors for measuring the effectiveness of a PSO. My research will focus on the differences between a SaaS-based PSO and an Enterprise Software-based PSO. One thing is certain from my initial research over the past month...there are a lot of people asking this very question, but few have come up with a quantifiable answer.