October 10, 2017
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 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:
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:
If professional services was an industry being started today, is this how it would forecast?
~99% of professional services companies use spreadsheets for forecasting. We can do better.
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.
Organizational capabilities that technology services businesses must master
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