I received a call last month from one of my Big 6 clients. This is a firm with 300+ staff with a considerable volume of audits. Like most people I have been holed up in my home office continuing my consulting via Zoom. ”Please will you come and see us – we need you to train some of our new managers on how to improve their performance and audit profitability.” I responded by offering them some options. So this practice management consultant took a look at his passport and realised it needed to be renewed – no pages left!
This is the first of a series of articles – not sure how many I will write – so come along with me on this journey that will introduce some of the key principles that are embedded in Margin Mastery. More about this comprehensive course as these articles progress. Come with me as I introduce you to some massively revolutionary insights that, I GUARANTEE, will enable you to improve your staff performance and job profitability. How? Training. Fresh insights. Powerful motivation. Defined responsibilities. BUT, THERE IS NO CHANGE REQUIRED TO YOUR WORKING PROCEDURES. NONE. Interested? You should be because Margin Mastery has a proven track record of delivering profit improvement results – from medium sized to large sized firms.
I had been consulting for three years with a 120+ firm in London. Natalie, the Managing Partner, came to me one day asking if I would consult with her 15 managers and highlight ways in which they could improve job profitability. I worked with her team for two years, achieved significant results and, as a consequence included some of the highlights in one of my seminars. Fifteen years later I was introduced to the managing partner of a Grant Thornton office who after delivering a workshop for partners enquired if I would work with his managers to improve their audit profitability. De ja vu! Except I did not have a course that I felt would justify this managing partners faith in me. So, I set about creating one – with their assistance and willingness to trust me to present a course that would deliver job profit improvement. The result? From the beginning the course was, and still is, entitled Margin Mastery. In the last five years I have delivered this course to more than 250 managers and overviews to 80 partners.
WHAT THESE ARTICLES WILL UNCOVER – AND WHAT THEY WON’T
I plan to share with you some of the core components for you to better understand what Margin Mastery teaches and how this dynamic course achieves such outstanding results. These cannot be measured in purely financial terms – the results are real and are well documented by my clients- increases in gross margin of 15% and, often, more. These have converted into lasting results year on year. The non-financial results include (1) improved relationships between managers and partners. (2) More focussed and impactful conversations with staff regarding the approach to the job.
Key Point: If you keep on doing what you have been doing, you will, most likely, keep on getting the same results. Why walk with a limp, when you could run?
What I cannot do is to convey the depth of insight, instructions and motivation that the online courses provide. There are somewhere in the region of eight hours of training including separate courses for partners and managers. I bring all my experience in how to create lasting change into this course.
THE PROBLEMS – ARE THESE ONES YOU RECOGNISE?
There are a number, but let me highlight just one:
The budget: Your manager prepares a budget. It is possible that this equates to the likely fee to be charged – maybe a little more. The budget is signed off and the job commences. The job is completed by staff and manager and handed back to the partner. The partner starts the file review and is aware that the job has already fully absorbed the budget. The job is finished and there is a write down. Who is responsible? The partner might consider that it is the staff who have ‘dumped time on the job’. While the manager view often differs and holds the view that the partner has not secured a high enough price.
Sound familiar? Or at least some elements of this will, most likely, resonate with you. You probably also recognise this scenario from your training days.
The root problem here, and it is a common one in many offices, is that responsibility for the write down falls through the cracks. The partner holds the staff responsible while the manager considers the partner has not agreed a high enough fee with the client. The partner does of course have position power and in her/his mind their view prevails. The manager accepts whatever verdict is handed down.
LET’S EXPLORE THIS AGE OLD PROBLEM FURTHER
Managers are inherently optimistic when budgeting. It’s a core component of the manager DNA. There is a tendency to assume that the job will go according to plan. But it rarely does, does it?
In every office I have ever been into the description of the difference between the recorded job cost and the price charged is referred to as a ‘write down’. That is what the computer usually calls it. Why? Because accountants have told the programmers that this is the most appropriate term.
Wrong. The term write down is an utterly useless management term. It is this term that gives rise to the disconnect in budget responsibility between partner and manager. The blame game is in full swing.
I am going to conclude this introductory article on improving job profitability by sharing the first insight and step toward improving job profitability.
Key Point: The key is in the term Ownership and Responsibility.
Simply put: Managers are responsible for budgeting. Partners are responsible for agreeing the price.
Managers should produce a realistic budget on which they are required to deliver. No manager should budget to the price. No partner should require a manager to reduce the budget to the price. No, the manager should produce a budget and then deliver on it. Give them the ownership of the budget and then the responsibility for delivering on it. To the extent that they run over the budget that difference we refer to in Margin Mastery as the Productivity Variance. Incidentally, my definition of a good manager is that a ‘good manager creates a budget and then delivers on it’.
Now, I am sure you can identify where I am going with this. The partner has responsibility for the pricing. Any difference between the manager’s budget and the price we refer to as the Pricing Variance – which is 100% the partner’s responsibility.
Key Point: Managers should produce a realistic budget on which they are required to deliver. Identify the two variances and have the manager and partner each manage their appropriate variance.
Now, there are a whole host of other points that comprise solving the job profitability conundrum. Covid has introduced complications in our work practices and the delivery of information from clients. Two years into this pandemic most firms have addressed these issues as best they can. Applying Margin Mastery strategies will enable you to improve profitability. Many firms have seen job costs increase. Some not all clients have been accepting of price increases. More needs to be done to address these challenges.
In my next article I will delve further into how to improve your firm’s job profitability.