Managing Non-Billable Work Effectively, Part 4 of 5

Well, it took a while to get back into the swing of things as Q4 ended and the holidays rapped up, but I'm back on track, and here is part four of my article on Non-billable work.

In parts 1-3, we defined the different types of non-billable work, who often "gives away" this type of PS work, and some of the challenges the PSO experiences when work is given away without the PS team's involvement. In this and the final post on this subject, I will discuss some of the ways in which non-billable work - and the chance that it will occur - can be managed.

How to Manage Non-Billable Projects and Commitments?
As I mentioned in earlier posts, most PSO managers with whom I have talked have, at one point in his or her career, had to find the balance between meeting revenue, bookings, and profitability targets with the need to support product sales or generate customer goodwill by providing customers with non-billable projects. While non-billable work can be managed in such a way to avoid the pain associated with missed expectations and missed KPIs, it often isn’t. My research shows problems arise most often when:

1. The PSO is not viewed as a profit center.
2. Sales does not truly understand the value the PSO provided
3. There is no agreement at an executive level of the amount of non-billable work that can be given away in a given quarter or year

So, how do you ensure that your non-billable workload does not become a problem for you or your customers? To start, there needs to be agreement at all levels of the organization that all projects are created equal. The PSO should be involved early to scope any PS project, even when a decision is made to deliver the project at no cost to the customer. In order to treat all projects equally, the following rules should apply:

• Non-billable projects need to be properly scoped by the PS team, just like billable projects.
• Even when a project is a no-cost project, an SOW is required - the customer and the PSO must sign the SOW representing the agreement. (This is the only way of which I know to effectively manage scope.)
• Customers only value those things for which they pay. If a decision is made to give work away, the value must be spelled out. The true cost of the project must be spelled out in the SOW as well as the discounted price and percent. (The value of this project is $50,000 USD, discounted 100% for a cost to Customer of $0.00 USD.) Showing the discount rate up front makes it clear what the customer is likely to pay next time.
• No scheduling of billable resources is confirmed until the SOW is signed.

This is all great on paper, but this process still has gaps. It says nothing with regard to how much no-cost work can be given away each quarter or year. It also says nothing with regard to who can agree to non-billable work or how non-billable work is approved. While it does, however, indicate that scheduling does not happen until the SOW is signed and that the PS team is responsible for scoping the work, it does not prevent individuals from outside the PSO from making commitments on schedules, even when they have no real sense of how much time is needed and when resources are available to begin work. Lastly, it does not provide a provision for the PS team to get “credit” for this work against key metrics like revenue, bookings, and profit margins. (The PSO's ability to achieve annual goals and get compensated for doing so is diminished without such provisions.)

I'll talk next week about how to close the gaps and what the eight (8) other components of a "give away work" process should be.

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.