If you are a professional services organization, what does budgeting and forecasting look like for you? How do you make sure you’re not spending too little on project staffing or too much? Are you wasting time, resources, your hard-earned cash by frantically assigning projects?

Top-down-bottom-up-gap

Making sure your organization’s headcount is in balance with your backlog and projected pipeline is a constant challenge. To over or under staff your organization affects profitability with poor utilizations or project delays. Budgeting and forecasting allow organizations to prepare resources strategically in order to reduce costs and maximize profits.

Building an analytical model using these three approaches commonly used in professional services will provide valuable insights for budgeting and forecasting:

Top-down Approach

A top-down approach is driven on market demand. An understanding of the market through historical trending data and/or the sales pipeline to gauge expected revenue is necessary. Then, align your organization’s expenses. The challenge is whether or not the business is structured to capitalize on market demand–a high market demand means you may be losing opportunity if you don’t have the necessary resources aligned internally.

Bottom-up Approach

A bottom-up approach is driven on resource supply. Estimate potential sales revenue of a product in order to establish the total sales figure. It answers questions like “how many hours of work can I bill?,” “how many widgets can I get produced?” and “how much crop will my fields yield?”

Gap Analysis

Finally, a Gap analysis allows for a more holistic view of the business. Your organization’s need is unique based on its industry & market conditions. Having the ability to compare both models with ease will give you a competitive advantage. Viewing the difference between a Top-down and bottom-up can give you actionable intelligence. For example, more market demand means you can safely hire more people, or a constraint on resource supply could determine the possibility of raising prices to increase margins.

 

Enable your organization with the right tool.

Not many of us enjoy taking part in the budgeting and forecasting process. It is the most tedious and potentially risky task we do to keep a business running smoothly. It may be stressful to decide what decisions to make for the future of your business.

It is also challenging to weed through multiple cells of Excel spreadsheets and never feel truly organized. However, this process actually CAN get easier, while still using the Excel software you are comfortable with.

Calculate revenue by individual employee based on hours, cost rates, multiplier and utilization rates. PowerExcel, an Excel-based financial modelling solution, provides the functionality you need to calculate and aggregate these figures to a fiscal year revenue model. Store values for each individual’s hours, expected revenue, direct and indirect labor costs by fiscal period and then calculate and aggregates those values and deliver them to the budget reports. This entire process simplifies and automates previously labor-intensive activities.

 

PowerExcel Financial Modeling in Excel

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