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Forecasting in professional services has never matched the maturity of other industries. However, this is becoming a bigger problem as technology projects become shorter in duration and narrower in scope. Revenue backlog simply doesn’t stretch as far into the future as it once did. Faced with a less certain revenue and resource demand outlook, a “wait until you win, then react” operating style prevails. This puts pressure on margins, strains delivery teams, limits agility, and makes business models vulnerable to more progressive approaches. Yet, most of the industry is still forecasting in spreadsheets. It’s time for professional services to match other industries in forecasting innovation by deploying modern technology, more comprehensive methods, and real-time data.

“We Have CRM and PSA, But We Still Use Spreadsheets”

We hear this from professional services teams every day. The truth is that CRM (customer relationship management) and PSA (professional services automation) are fully capable in their respective functions, but they are incapable of delivering a comprehensive forecasting solution. Our interaction with many professional service teams confirms our assertion. For example, CRM provides total sales bookings (revenue) and expected close dates. However, what PS teams need for forecasting, CRM cannot provide:

  • Revenue Timeline: Over what period will revenue be earned?
  • Margin Timeline: Over what period will margin be earned?
  • Resource Demand: Required roles, skills, certifications, duration, start dates, location, language, travel, visa?
  • Accuracy: CRM accuracy depends on the sales person manually updating it.

They also tell us that their PSA applications help with forecasting backlog revenue, but not much else. The reason is that PSA applications are transactional accounting systems that are not designed as forecasting solutions. Many of us remember when big enterprise resource planning (ERP) companies like Oracle, SAP, etc., asked companies to use their ERP applications for forecasting. Their customers declined, and instead, used dedicated forecasting software. The same dynamic is playing out in professional services today. The requirements of forecasting are simply too specific to be baked into an accounting platform.

As a result of the forecasting gap, we estimate that 99% of professional services teams use spreadsheets for forecasting. It’s incredibly inefficient and ineffective, in addition to having other disadvantages:

  • Expensive: A lot of expensive manual labor is required to prepare forecasts.
  • Slow: Many hours or days to prepare forecasts.
  • Stale Data: The data is obsolete by the time it’s reported.
  • Siloed Data: Revenue and resource forecasting often disconnected efforts.
  • Limited Data: Active sales opportunities are often excluded when forecasting revenue and resources.

If professional services was an industry being started today, is this how it would forecast?

Forecasting Should Easily Answer 4 Questions

  1. How much revenue and margin will be earned for any period of time?
  2. What skills are needed, how many of each skill, for which clients, starting on what date, and for how long?
  3. How would the forecast for revenue, margin, skill set demand or supply change in different scenarios?
  4. What do sales and delivery need to do to achieve revenue and margin goals?

What Modern Forecasting Looks Like

  1. It’s based on all sources of revenue: opportunities (from CRM), approved sales quotes (from spreadsheets or quoting applications like Zimit), backlog and actuals (from PSA/ERP).
  2. It’s real-time, requiring no effort to prepare or distribute.
  3. It’s scenario-driven (It answers “what if?” questions).
  4. It’s available for any level or organization within the company: global, regional, practice, industry, sales team/person, client, project, sales opportunity, etc.
  5. It fully communicates detailed resource demand, including skill set, certifications, client, duration, and other relevant points.
  6. It’s mobile.
  7. It’s a single forecast, which should put sales, delivery, finance, and management all on the same page.

What the Future Has in Store for Professional Services and Forecasting

Every industry experiences change, and professional services is no exception. The unforgiving march of progress always makes the same demand: business model adaptation and efficiency gains. The current approach to forecasting in professional services originated during a time when revenue backlog stretched further and business models were not threatened by paradigm shifting technologies and changing customer expectations.

Professional services teams are responding by adapting their business models and becoming more efficient, but current industry shifts will demand more. As executives survey their business looking for easy advantages, one area will stand out: forecasting. As more companies seize this opportunity, the industry will reach a tipping point, where efficient forecasting becomes widespread. We can’t imagine a professional services company without a CRM application. In the future, forecasting in spreadsheets will seem equally unimaginable.

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James Cramer

About Author James Cramer

James Cramer works for Zimit, the leading provider of Services CPQ. Other popular blog posts of his include: “CPQ for Services: The Spreadsheet Killer” and “How to (Actually) Automate Services Proposals.”