Resource forecasting for professional service organizations lets you balance staffing levels over time and match them to the pipeline of incoming work.
As a leader or resource manager of a service company, it becomes your responsibility to ensure that your team’s time is being used as productively as possible. Especially for more prominent organizations where each project has multiple components, various phases and several people and teams working on different elements, resource forecasting becomes critical for the projects to run well and finances to be allocated appropriately.
In addition, there are other factors like:
- Ensuring each resource’s time is utilized effectively and that not too much or too little work is allocated to anyone.
- Ensuring that each team member’s expertise is correctly applied. Matching the resource’s skill and interests to the project.
- Ensuring that tasks are allocated for an appropriate time. Resource optimization involves allocating and managing resources in the most efficient way possible.
- Tracking and reporting the utilization of each resource and ensuring that it is done accurately to avoid overspend.
- Ensuring that margins are optimized based on resource availability.
That said, every project requires some serious thought when it comes to resource forecasting, allocating and scheduling. Let’s think about the last time you took on a new project. Did you take into account everyone’s skills and capabilities? Were you able to distribute work fairly and evenly among all team members?
Research proves that many companies haven’t developed a thorough understanding of how to do resource forecasting the right way. Unfortunately, resource forecasting still remains a shot in the dark rather than a set of intelligent and informed decisions.
Yet, the need to learn resource forecasting for service companies is paramount to the success of your project and the company as a whole.
If you are looking for data-driven answers to questions related to resource forecasting using data from your business and making the best decisions about how to deploy your workforce, this guide is for you.
What is resource forecasting?
Resource forecasting for services companies involves anticipating the workforce needs of your company or forthcoming projects. In other words, it is about:
- Managing expectations and identifying potential bottlenecks
- Minimizing risks associated with poorly staffed teams
- Matching the supply and demand of resources to the workload
Now that you know the meaning of resource forecasting, let’s learn about its objectives. Accurate resource forecasting allows managers to know if they have a team in place to leverage and capitalize on upcoming projects and revenue opportunities.
In absence of this information, making budgets or quotes for new projects becomes difficult. You are left in the dark about hiring decisions, like whether you need to amp up your hiring.
The importance of forecasting resources
You could do all kinds of planning. However, without available resources, your timelines go for a toss. Your ability to deliver projects on time and budget would be a wild guess.
Resource forecasting creates transparency and visibility into your current workloads and capacity. An overview of resources helps you:
- Spot resource shortages
- Make the most of your team’s time
- Solve conflicts
We’re sure companies implementing resource forecasting have even more benefits as it gives them visibility into the bandwidth and enables them to make informed hiring decisions.
Challenges in resource forecasting
Two major factors responsible for disbalance in the project plan are:
- Market volatility
- Sudden changes in the project demand
In absence of proper resource forecasting, professional service companies are caught off-guard in case of sudden surprises.
Here are some of the challenges faced by professional service organizations when it comes to resource forecasting.
#1. Incorrect forecasting due to the use of spreadsheets
What happens when you use multiple spreadsheets for both resource forecasting and management?
The answer is that there are high chances of human error.
That’s because the silos of spreadsheets fail to give complete visibility into all resource demands for the project-related activities. Nor can spreadsheets forecast workload estimates.
As a result, you are forced to resort to unplanned hiring and firing cycles which in turn negatively impact your bottom line.
#2. Inability to forecast enterprise-wide demand vs capacity
The limitation of legacy tools is that you don’t get visibility into the existing resource capacity across the company. Lack of foresight into future project demands makes planning processes inefficient. Hence, resource managers cannot forecast resource shortfalls or excesses.
The inability to predict project vacancies leads to the wastage of excess capacity. Even worse, it could end up in costly hiring and firing cycles.
#3. No foresight into strategic utilization
To maintain profitability, every business needs to ensure that resources are utilized on billable and strategic work. Resource managers are unable to track or mobilize resources from non-billable to billable work and strategic work. Lack of resources causes under or overutilization of resources as well as unplanned attrition.
In absence of resource forecasting, enterprise managers cannot predict workforce utilization across the organization.
#4. Inability to predict pipeline projects
Without clear visibility into pipeline project demands, resource managers cannot plan fulfillment activities before time. Delivery delays and cost escalations are frequently known to put projects at risk.
Resource managers typically resort to last-minute hiring activities to meet project requirements when they are unable to plan in advance, and compromising on resource quality is also common.
An even worse scenario is when there is a demand for niche skills to start a project. Hiring the same at the end moment without visibility of pipeline projects is not a situation you’d want to be in.
#5. Financial estimations going off-target
A critical aspect of successfully delivering a project is controlling the project budget. How do you do this? By periodically tracking critical project financial indicators.
But, without resource forecasting software, controlling project costs in advance becomes a challenging task. What helps here is comparing the actual spending with estimated costs. In case of a mismatch, resource managers can quickly mitigate billing loss and take remedial steps for profitable resource utilization.
Factors affecting resource forecasting
Resource forecasting for professional services keeps projects running smoothly and allows for on-time and on-budget project delivery. Effective resource allocation, forecasting and planning can make the difference between project success and failure. The factors responsible for project forecasting are:
#1. Complexity of resource matrix
Resource forecasting at an organization level has several complexities involved. For example:
- Workforce movement within a matrix organization permits the re-deployment of rolled-off resources.
- If the business is expanding in a different geography, resource forecasting would suggest acquiring a new workforce.
- And if the outlook is slow due to recession or poor economic conditions, the hiring activities have to stop.
- Lastly, if there is a skill set mismatch, the company would have to look at cross-training existing resources.
#2. Resourcing strategy and market conditions
As a rule of thumb, the company uses contingent resources for short-term assignments and prefers full-time employees for longer-duration projects or for critical positions. This model comes with its own set of challenges.
For starters, the quality of contingent resources’ cannot be guaranteed. The attrition rate is high for resources with hot skills who are more vulnerable to leaving the organization. Another factor worth taking into account is that attrition could be high in certain locations.
#3. Keeping up with the latest technologies
With the explosion of new IT skills such as Big Data, IoT, AI and ML among many others, the current workforce will need to pick up new skills to stay relevant. Resource forecasting needs to analyze both future project skill development and current resource demands and plan accordingly.
#4. Future client requirements
Professional service organizations estimate future client demands based on the current sales pipeline. The gaps between supply and demand are also determined, on the basis of which forecasting ascertains if there will be a shortage or excess of capacity. Accordingly, additional resources are allocated or the available resources are diverted to other projects.
At the same time, for business sustainability, capabilities in new skills are also acquired.
#5. Sudden ramp-up or scaling down of resources
Let’s assume two scenarios that can upset the resource planning process:
- There was a frequent ramp-up or scaling down of resources
- New resource request came up with a short lead time
The contingent workforce is utilized to fulfill these requirements. Even then, the resource manager needs to forecast these resources in advance so that the quality of resources is not compromised.
One way to do so is by building relationships with vendor organizations that can supply quality resources on short notice.
#6. Lack of understanding of historical data
Resource planning and forecasting are more effective when resource managers have visibility into workloads and can review historical project data to forecast future demand.
And in situations where historical data is unavailable, an AI-led resource forecasting system is used in the decision-making process.
Key resource forecasting strategies for success
#1. Maximize profitability utilization and reduce resource cost
Resource forecasting and capacity planning in professional service firms is even more challenging when your resources are working on more than one client project at a time.
There is a period of downtime when the deliverable is sent to the client for review and the team is waiting for approval before moving to the next step. In such times, the resources can take up tasks for another client or keep another project moving in parallel.
Ad-hoc way of reporting and capacity planning on spreadsheets is not efficient in larger teams.
Using resource forecasting, resource managers can gain insights into billable and non-billable or strategic work and stay ahead of the curve. They can mobilize resources to billable deliverables and improve project profitability. Forecasting analytics allows for optimum resource utilization and prevents over or underutilization of resources.
#2. Minimize last-minute hiring costs
Insufficient resources is one of the main reasons why projects are unable to kick off at the right time. As per PWC, 30% of project failures are due to a lack of resources. Resource forecasting enables service companies to predict resource demand for future and pipeline projects.
Resource managers can identify the excess or shortfall of resources ahead of time and apply resource treatments to bridge the gap. If the demand is less than the supply, the excess could hit your bottom line. On the other hand, if the requirement is more than capacity, there will be a shortage of resources which could not allow you to start the project.
In both cases, time and budget overruns are unavoidable. Proactive measures such as adjusting project timelines, hiring contingent resources, or selling excess capacity eliminates unnecessary hiring costs.
Resource forecasting for professional service organizations facilitates informed hiring decisions and allows sufficient lead time to reduce cost escalations.
#3. Understanding resource requirements along the pipeline
Professional services tools provide the data you need for accurate resource forecasting. This data includes:
- Incoming pipeline of chargeable work
- Resource availability and skill profiles
- Employee timesheets
Without services quoting software, the rich stream of data ends up being disparate sources of information. The cloud-based services quoting Provus gives you visibility into your team’s capacity and workload, making it easy to quickly integrate forecasting into your daily work.
#4. Reduce bench-related costs and manage your bottomline
A study by Harvard Business Review found bad hiring decisions to be responsible for 80% of employee turnover. It can lead to a large bench of mismatched skill sets and impact the bottomline.
Resource forecasting reports allow managers to minimize bench-time and improve profitability by proactively looking for tasks for resources before they get rolled off.
#5. Track project financials and stay ahead of the curve
Cost management is an important task for resource managers. Along with estimating, allocating and controlling the project budget, cost management empowers your company to predict future expenses and minimize budget overruns.
Resource forecasting helps monitor key financial indicators like:
Resource forecasting monitors shared resources working on multiple projects and managers can adjust the resource mix and project costs in advance.
#6. Timely availability of resources reduces cost escalations
When a critical resource is unavailable to complete a task which then delays other dependent tasks, the project fails to deliver on time or within the budget.
Resource forecasting using resource optimization techniques can help make the right resource available for the right project at the right time, to avoid resource bottlenecks. They can even implement resource leveling which means extending project timelines to accommodate available resources or employing additional resources for timely completion of the project.
#7. Utilize historical data through Provus recommendation engine for better resource modeling
The recommendation engine by services CPQ platform Provus strikes the ideal balance between the best deal, acceptable margins and achievable project commitments.
Using historical data the rule-based optimizer helps you seamlessly move from estimate to quote. The estimation process takes into account the realities of scope, resources, locations and discounts, which are the most critical parts of the quoting process.
Resource forecasting gives you the edge when it comes to profitability as you’ve got the information needed for resource planning, allocation and spending.
In order to forecast accurately, you need the right tools to help you make informed decisions. Provus’s recommendation engine uses historical data to facilitate better resource modeling and thereby allows professional service organizations to manage their resources in the most optimal way possible.
Looking to leverage historical data for efficient resource forecasting? Schedule your Provus demo.