Professional Services Organisations borrow staff from one team to use on another’s project. How should that be managed?

Efficient deployment of professional staff in a diverse PSO often means one company, business stream, department, or team borrowing from another if utilisation is to be kept high, and if clients are to be satisfied. Each team will inevitably staff a project from its own resources by preference, but if skills are in short supply, they must look elsewhere. This is one reason why visibility of availability, skills and experience across the entire organisation is important.

Conversely, a team with time on its hands will want to promote its professional staff and ‘sell’ them to others.

However, these issues create challenges in terms of revenue sharing, costing, and motivation. These need analysis.

team

A perennial issue in the management of PSOs is that of responsibility. There is the ‘line management’ responsibility of team leaders which includes:

  • Responsibility for the day-to-day deployment of a team of professional staff
  • Responsibility for the personal career development of the team
  • Responsibility for the profitability of the team

And there is ‘project’ responsibility:

  • Responsibility for the staffing of a project
  • Responsibility for the profitability of a project
  • Responsibility for all commercial decisions (invoicing, etc.) associated with a project

In most organisations, these responsibilities overlap, but they can also be in conflict unless there are clear rules for the resolution of issues with respect to inter-team charging. As PSOs become more commercially driven and team leaders and managers are rewarded according to the profitability of their team these conflicts can become serious.

Let’s look at an example:

Let’s suppose there are two teams, led by A and B. Each team leader employs a number of staff as follows:

  • A employs AA, AB and AC
  • B employs BA, BB and BC

In a simple world, each team executes and invoices projects using its own staff. Budgeting and forecasting are relatively simple, and there are no cross charges.

But what if B sells a project that requires the skills of AC?

In this case, he or she must borrow AC from A.

But how is this to work in terms of gross margin (on which the bonuses of A and B may partially depend)?

  • Should some of the revenue that belongs to B be passed back to A?
  • Alternatively, should some of the cost that belongs to A be passed on to B?

There are no entirely right answers here, but my own preference is for the second option, for several reasons:

  • In a commercial organisation it is the obtaining of revenue (or rather gross margin) that should be rewarded most clearly
  • In a commercial organisation it is the incurring of loss that should be penalised most clearly
  • People should not generally be rewarded or penalised for circumstances that lie outside their control

Let’s consider what would happen if our cross charging rule were that A should receive 85% of the revenue earned in respect of AC’s work on the project.

When B comes to A to tell him about the project, which hasn’t yet started, he’s optimistic:

‘You’re going to get good money for AC. I’ve negotiated a rate that’s higher than the usual. So you’ll probably end up getting more than you would if you’d sold him yourself. Sadly, I’ll only see a small part of that revenue myself, but, sadly, those are the rules.’

Of course, as in all cautionary tales, things don’t work out well. What B didn’t really tell A was that this is a fixed price project, and B has made some dodgy assumptions about the number of days the project will require. When it comes down to it, the revenue is spread more thinly than planned across the days that AC has given. When A receives his share of the revenue, it doesn’t even cover AC’s standard project cost.

‘I could have sold AC on some other projects and made more money,’ he complains.

However, this is just one of the problems. When A complains to B that he was expecting more revenue, he points out that the project has gone wrong through poor project management, and poor estimating. Why should he be penalised for that, since it was B’s team who were responsible?

B has to admit that some of this may be true, but he counters with a complaint that AC wasn’t actually as experienced and suitable as A had suggested, and so some of the problems were AC’s fault, not his team’s.

And so on.

Not all of these problems are resolved by looking at it another way, but some are. If A charged a fixed price for AC’s work, regardless of the revenue associated with the project, then at least the first kind of problem is averted. But what should that price be?

Full fee rate (B’s notional or actual fee rate for his project) would seem too high, since it would remove any incentive for B.On the other hand, standard project cost would seem too low (let’s suppose that AC has a standard project cost of 450), since it doesn’t provide much of an incentive for A, and provides him with no reward for the ‘risk’ of employing staff (and incurring overheads to do so).

In fact, assuming that appropriately skilled staff can generally be found in one team or another, a clever team leader wouldn’t bother to employ anyone at all. He would simply buy the time of his colleagues at standard project cost.

Of course, there are reasons why this would be a foolish policy. If you ‘own’ your own staff you may make your own decisions about how to deploy them, how to reward them, and you have a much greater chance of running successful projects if you have at least some influence over, and have earned the loyalty of the staff you deploy.Risk must bring rewards, and so the risk of running a team must be reflected in a margin to be charged to other teams when they need to borrow your staff. You should be rewarded for having recruited them, trained them and obtained their loyalty and for the risk that you face that they may be idle and unprofitable.

In the next post, I’ll address the question that arises from this: how should cross charges be calculated?

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2 thoughts on “Professional Services Organisations borrow staff from one team to use on another’s project. How should that be managed?

  1. Professional Services Organisations borrow staff from one team to use on another’s project. How should they be calculated? – Adam Bager

  2. Thoughts on Measuring and Managing Professional Services Organisations – Adam Bager

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