Tips For Managing Your P&L

I am probably in the minority, but one of the things I have always liked best about my job is managing a P&L. I have always been comfortable with math and maybe it’s just the sheer analytics of pulling a P&L together. It’s like being on CSI, at the scene, gathering the facts, doing all the analysis and then solving how the crime was committed and who did it. Now, I can’t tell you anything that will change whether or not you like managing your P&L, but hopefully I can give you some tips that will help you in your thought process and that will make the process better for you.

Years ago, it was good enough to come up with what you thought was your budget for the fiscal year and if there were variations along the way, no one was too upset if you made your numbers by the end of the year. In fact, if you beat your numbers by the end of the year, everyone cheered and maybe bonuses were bigger for you and your department or team. You may not have had a clear line of sight how you were making your revenue or how your expenses were going to change, but maybe you just crossed your fingers and hoped for the best. If you were “close enough”, maybe the consequences were not too bad as long as the rest of your division came through and overall things were better than the prior year. The economy was good, unemployment low, e-businesses and pharmaceuticals were flourishing and companies were spending more money on technology solutions, growing, changing and as a result, more opportunities for special work were not only probable, but likely.

Then came the Enrons, the WorldComs, Arthur Anderson and SOXA and the process has become so much more scrutinized and the P&L that you are providing that is rolled up into your company’s numbers is really, really important. Not only is it important over the course of the year, it is just as important quarterly and looked at in great detail monthly. It now really matters if that project finishes on time and that you can bill for it when you expected, for the amount you expected and that you get paid timely by your client. It’s even problematic at times if you billed for a project early as it causes a shift between your budget and actuals. And, god forbid, if you bill for a project in a different quarter than you expected! The rules have changed and you need to avoid surprises, not only the bad, but even the good as no good deed will go unpunished. And those of us with P&L responsibility have a great portion of our goals connected to this, so we need to give this aspect of our jobs the attention it deserves and be good at it or our livelihoods will certainly suffer the consequences.

Become Best Friends with Your Finance Person

I am not an accountant and I certainly can’t tell you all the things your finance representative can about how your company does their accounting. The rules are complex, and the best advice I can give you is to meet with your finance person as much as you need to so they can guide you. They will help by asking relevant questions or pointing out variances and can be instrumental in making sure you didn’t forget to consider a key piece of data in your analysis.

Don’t Wait Until the Last Minute

Do your homework all year. You don’t have to wait for the e-mail from Finance to start the process. It seems like every year, I have less and less time to pull together my budget. Maybe you will have two weeks, maybe a month, but do the things all year that will keep you from scrambling to pull all the information together you need for your budget at the last minute. Maintain project logs and include well thought out start and end dates, the project budget, whether or not it has been approved (signed) by the client and when you expect to bill for the project. If the project log is in an excel spreadsheet, consider adding a tab that keeps a monthly tally of what you are expecting to bill each month. Be careful you do not add up everything in the log and you are pretty sure which projects are likely to be completed and billable. I would strongly recommend sharing the project log with your client, as it can serve two purposes – first, it will serve as a communication tool to use with your client so you are both on the same page as far as priorities, likelihood projects will be approved and you agree on the price, and second, your client is likely in the same position you are and you will be saving him or her from having to pull together a similar document on their own of your expected charges that need to be part of their departmental budget.

Hopefully you have developed a business plan and have talked to your clients about new services you would recommend and are working on commitments to implement those services in the up-coming year. If not, there is no time like the present to start building your business plan, both short and longer term. You need an arsenal of ideas to pull from. Strategically planning where you and your client are heading will help you add value and not just sell products or services for the sake of selling. Your clients will appreciate having a roadmap too.

Keep a summarized document of your contractual provisions that impact your revenue or that change. For example, if your contract includes a CPI increase, any pricing increases or decreases, performance incentives or penalties, summarize them in a separate document so you have a handy tool to jog your memory when you are budgeting or explaining variances month to month. It will also help you when you are issuing your client’s invoices. I even like to keep such a document posted in my office as I refer to it often.

Get a good handle on your expenses and how they might change. Work with Finance to give you salary and benefit data and summaries of your expenses month by month if it’s not readily available to you. Factor in any changes you are expecting in staffing, leaves, severance payments, one-time expenses, capital expenditures (for things like new computer equipment) or licensing fees, legal expenses or travel. Depending on how your employees are paid, make sure you factor in which months may have additional pay and benefit expenses if paid weekly or bi-weekly. Look at what your vendors are charging you and rebid contracts or try to negotiate lower rates if their fees appear high. Talk with other departments and make sure you understand any anticipated changes in expenses that may be allocated to you. If you can, budget something for team recognition or celebrations. Understand seasonal expenses, such as special events like annual enrollment where printing, postage, staffing and other expenses may be higher than other times of the year and when you are typically billed for those expenses. Use the data available to formulate plans on driving your expenses down so your cost continues to improve year over year. Maybe a one-time expense to automate a process may lead to longer-term savings. Consider how you can utilize offshoring if that is available to you.

Keep a running tally of your budget to your actuals and understand any differences and shifts in revenue and expenses. Hopefully you have tools available that will do this for you, but if not, build something yourself or work with Finance. You should be tracking this data every month so you can adjust your plans accordingly. It is not a one-time process and thus you need to be continually adapting to change and updating your plans. The more clients you manage, the easier it may be to compensate for fluctuations (or not), but you need to come up with a process that works for you.

Talk and Confer With your Client

You must talk with your client prior to submitting your budget and make sure you plan for changes in their organization. Although your client may not be aware of all changes or may not be able to share all of the changes, they certainly will be able to tell you how their company is doing in a broad sense, such as if they are growing, if they are in an acquisition or divestiture mode, or if they are planning an early retirement window or other downsizing event. The more you are aware of your client’s challenges, the better you will be able to plan. Certainly if you are billing your client by the head, you better be planning for any anticipated changes in your revenue stream based on their corporate initiatives or trends.

I will be so bold as to suggest sharing your budget (at least revenue expectations) with your client, how you came up with your estimates and when you are planning to bill for various projects. Your client will appreciate your transparency and you will be collaborating on your assumptions. Your client is probably best equipped to comment on your budget, but you need to give sufficient time for the discussion and not spring it on them 2 hours before your budget submission is due. Plan ahead.

Involve Your Team

Some of the best ideas I have seen for revenue growth opportunities or expense reduction have come from my teams. They are dealing with inefficiencies and hearing about our clients’ pain points every day. Have some brainstorming sessions with them as you build your business plan and don’t forget to involve them in the budget process. If they understand how the budget was developed and feel they had a voice in developing it, they will be much more receptive when you hold them accountable for keeping projects on time and help keep you from having variances between your actual and budgeted numbers.

A Word About Revenue Targets

In a perfect world, you will come up your revenue target based or your base fees and anticipated project-based work (based on your thorough analysis), what additional services you have sold your client and you may have even built in a cushion with your client for “unanticipated projects” so if something comes up there is still room in their budget to get additional work done without sacrificing other project work. In a perfect world, you will submit your budget, your revenue will be the right percentage higher than the prior year because you have done your homework on a reasonable growth rate for your industry and your expenses will be projected to be less than last year and your manager will be singing your praises in the halls about the profit you will be contributing to the bottom line. Unfortunately, what tends to happen is that the first pass of your budget added up with those of your colleagues and other departments will show a short-fall between what was submitted and what was dictated by management as what was needed. So then the real fun begins.

Now management may come back and dictate your revenue target, calling the additional amount you need to contribute your “stretch” goals. Now you have a few options:

§ You can sit around and whine about it to your boss or peers, but generally this isn’t going to change anything, so probably not your best strategy.

§ You can pull out your business plan and see if there is anything on your list you could present to your client and reasonably accelerate. You talk with your peers and manager for additional ideas that you may have overlooked that make sense for your client. Hopefully your client hasn’t finalized his or her budget yet and you might be able to close another piece of business and feel confident you can make your stretch goals.

§ Maybe your analysis was so thorough that you know there is no way you are going to make your stretch numbers. So you pull together a presentation and schedule a meeting with Finance, your manager and possibly your group leader. You refine your numbers as best you can, and you negotiate the stretch revenue target as best you can. And the difference will need to become a plan to further reduce your expenses.

In the end, it helps no one to have an unrealistic target you can’t meet, but it equally helps no one if you are not proactive.

Learn From Your Mistakes

Try to document where your variances occur month to month and year over year. It can only help you get better. Have a plan. If things change during the year – a client cancels or adds a project or a project timeline changes, understand the impact it will have, and don’t forget to communicate with Finance. They will ultimately need to explain any variances.

Planning will be key in how successful you are in managing your P&L. Whether or not you enjoy this aspect of your job, learn to make your P&L one of your priorities and manage it, not let it manage you. Good luck, and I wish you much prosperity!

Please feel free to comment and let me know if I have helped you in anyway!

Bad News Doesn't Get Better With Age!

A wise friend and colleague (let's call him Dave A.) provided me good and sound advice when he would tell me, "Bad news doesn't get better with age." We are all guilty of procrastinating when we need to deliver bad news whether it is to a client, a boss or even friends or family. Probably some of the worst conversations I have had with clients are when they have been caught off guard by a problem or issue, especially when it was their boss or one of their executives who alerted them.

It is human nature to want to delay picking up the phone to tell someone about a problem. It’s really an issue of conflict avoidance. Maybe you think your client will be angry or yell at you or think poorly of you or your team. I know I have been guilty of saying to a client, “Well, I was waiting to get all the facts before I called you.” Think about how that comes across to your client:

§ Trust is diminished in your partnership as you are basically telling him or her that you do not trust their reaction to an “early warning”.

§ Your client will think you are not looking out for them by leaving them in the dark when you are aware of an issue and they are exposed if their manager becomes aware of it before they do.

§ You are basically undermining their value by not allowing them to collaborate with you on the cause, depth or even resolution of the issue and how it should be communicated within their organization.

As difficult as it may be for you to make that call (and yes, it needs to be a call and not an e-mail), get over yourself and just do it and do it as quickly as you can! Although I do not recommend delegating who makes the call to the client, have a process in place that if you are not available, there is someone who will take responsibility for the alert. It’s been my experience that clients appreciate the heads-up and their reaction has never been as bad as I expected it to be. In almost all situations, my clients have ended the call by thanking me for letting them know. It also buys you more time to gather all the facts and come up with a plan to redefine a service improvement so that same issue does not happen again. Most importantly, I have found by having even that basic knowledge of an issue, it gives your contact a defense mechanism to support you. It enables them to say, “Yes, I am aware there is an issue, my contact is working on it and will give me more information.” This demonstrates that you and your contact are connected, partners and collaborating. What great messages that sends!

On a related note, make sure your entire team practices the “Bad news doesn’t get better with age!” concept. Some of the other most difficult conversations I have with clients have been when they have called me about an issue and I was out of the loop. Thus, it is critical that there is a process in place where you are notified almost immediately about “bad news”. When a client calls, they want to know you are in charge, you are helping to craft the resolution and that you will be following up with more specifics about the scope of the issue. They will also want to know what you will be implementing to avoid making the same mistake again. So make sure you are not demonstrating actions to your team that will make them slow to let you know. Don’t shoot the messenger or make them uncomfortable coming to you. As a senior team member, try to ask probing questions that will help facilitate getting to the heart of the issue sooner or offer reasonable resolutions that will be acceptable to the client. Show your appreciation for them getting you involved and help them craft the appropriate tone of the messages and the details. Be a positive not negative force in the process.

Last but not least, make sure that it’s not the only time you talk to your client is when you are delivering information about problems. So if one of the reasons you are reluctant to pick up the phone is that the last 5 times you talked to your contact it was about an issue, then you are not talking enough. Make sure you are bringing new ideas, trends and improvements to your clients too. Try to involve them in team celebrations, team recognitions and agree that at least quarterly you can summarize and discuss all that you and your team have accomplished. It will help balance the good with the bad and strengthen your overall relationship. And client recognition means as much if not more to your team than anything you can do.

In summary:

1. Notify early about an issue or problem.
2. Gather the facts as quickly as possible, including the cause, defining the scope of the issue and how you will improve your process to avoid making the same mistake again.
3. Feed information along the way to your client (if necessary) that demonstrates you are taking the lead and are committed to keeping them informed.
4. Make sure you follow-up and provide your client a full summary of the details and resolution as soon as you can.
5. Make sure every individual on your team understands the escalation process so you are notified of any and all issues as quickly as possible.
6. Be proactive and supportive in the resolution.
7. Talk to your clients about the good and not just the bad and talk often.

I hope you can benefit from Dave A.’s advice, “Bad news doesn’t get better with age!” as much as I have and please feel free to give me your comments!

Benefits Outsourcing - A Perspective

I took my last job with the understanding that I was taking on a situation where my key account was losing millions, the service my team was providing this client was in bad shape, my team was turning over left and right and my client was really unhappy to the point of having regular calls with the firm's senior leadership. Unfortunately, in an industry where much of new business sales have come from underbidding, this is too often the case. The good news is that all of these issues are resolvable.

If this situation sounds all too familiar, read on.

Fixing the Service

In delving into my particular situation, I was pleasantly surprised to learn that the actual service my team was providing was better than expected. In fact, we were even meeting all of our contractual performance targets. My team was hand-picked to resolve "the problem" and I couldn't have asked for a better team of hard-working, intelligent and qualified individuals. So why was my client so unhappy and why did they think our service was so poor? There were a few contributing factors here:

(1) Although larger projects were being well managed and deliverables were met timely, "simple" client requests were not logged or were handled through multiple channels, thus team members were promising reports or data without properly scaling the time involved with their other commitments. Thus, the client was not getting these smaller items when promised and there were no follow-up calls acknowledging the delay and demonstrating from the client's perspective a lack of commitment and also a lack of management.

(2) In trying to make the client happy from earlier service shortfalls, no one had truly defined what good service would look like and how anyone would know when it was achieved and how we could demonstrate that the service was sustained. Early attempts to make any sense of this resulted in setting very high and unrealistic expectations with the client that could not be achieved for the price that had been agreed in the service contract.

(3) In talking at length with the client and putting myself in their shoes, the most visible factor in defining poor service was the number of people who complained to their CEO or VPs which created days of work for them as well as us. Although out of thousands of cases we handled only about a dozen or so cases escalated, that meant someone on their team and mine was spending at least half of their time on situations that should have been resolved well before someone felt they needed to contact their CEO.

The first two issues are solved pretty obviously and quickly. We worked with the client and the team to funnel requests through particular resources, logged all requests in a central, easily accessible project log and made the managers accountable for delivering on-time with our commitments. If there was an issue or something was taking longer than originally expected, the client needed be told immediately about the delay and the reason. Open communication was key. In order for the client to see the great service they were getting, we created a color-coded report of the non-tangible performance that meant far more to them than the standard contractual performance that had been agreed to. We then reported those metrics weekly and focused our energies collectively on the areas that were below their expectations. Once we started reporting our progress and improvement and sustainability, the client started to understand the service they were getting as well as our commitment to them.

The third issue required a little more understanding as to what was being escalated to their management and needed a more involved resolution. First, our customer service reps needed more training, our administrative staff needed more commitment to resolving issues quickly and we needed to implement a different service model for our retirement and survivor counseling to provide a "white-glove approach" for those types of cases. Once we implemented our new service model and measured customer satisfaction, not only did the escalations almost cease, but it was a turning point in the entire client relationship.

Fixing the Team Turnover

As I indicated previously, I was blessed to have an awesome team in place for my client, they were not easily replaceable and they were key to setting plans in motion for building a strong client relationship as well as critical for continued service improvements. In a complex and technical service environment, high team turnover will certainly create performance gaps. So why was my team running out the door? The main reason was lack of appreciation. The year before I started my job, bonuses were not paid, future bonuses were uncertain and people were obviously not happy in general. In addition, the client was directing their frustration and hostility toward the people who were working hard to improve their service. Again, easily fixable problems.

The first thing I did was reach out to my client and ask for their help. In pointing out their part in my turnover issue, they immediately relaxed their approach with my team and my managers and agreed to more face-to-face time as well as subtle team building functions like coming in a little early for a meeting so we could have dinner and get to know each other on a different level. I was actually surprised when I learned that many of my managers had not ever met their counterparts face-to-face and that all their interactions had been by phone. It is amazing what face time will do to strengthen a client relationship on multiple levels. I was also extremely fortunate to have a client who understood the value and importance of building a great relationship and who so willingly agreed to make that investment in my team.

As a long-time manager, I never feel I do enough to recognize achievements, but in this case, I really did try to make it one of my priorities if not one of my actual goals. Although the bonus situation was not within my direct control, I took advantage of any way I could to recognize the team. My company had a gift card program were I could hand out gift cards to team members for little awards. I made up certificates to hand out for recognition that the team could post in their cubicles or offices so others would see that they had been recognized for a service improvement or a new idea. I purchased some novelty gifts to hand out and bought some gifts through the company store to distribute. As the service improved and we could streamline and cut some expenses, I was able to turn some of the savings into team bonuses and awarded as many people on the team as I could for their part in making us better. I even updated some of our old PCs and laptops to reduce the frustration of not being able to work efficiently. I looked at each and every team member and made sure they were aligned in the correct job titles which allowed me to increase salaries of my key performers. I threw in a few team pizza parties and a bowling celebration and helped the managers communicate our goals so everyone understood their part in the plan to make us a world-class operation. Although we lost a few team members along the way, overall, our turnover became a non-issue with some much needed attention to team recognition and open communication. And, I did all this while staying within my expense budget.

Fixing the Finances

Over the years I have learned I can not solve all issues on my own. Just like when my clients have a problem, I want them to pick up the phone and ask for my help, if I have a problem that impacts them, I will be open with them. So, when I inherited a financial situation that was losing millions of dollars, I did not feel that I could solve this issue on my own without involving my client in the decisions I needed to make. First, I needed to "prove" to my client that we were losing the kind of money that we were talking about - at a level of detail most of us would normally not feel comfortable discussing with a client. Next we needed to agree that I would aggressively reduce all the expenses that I could through process and technology improvements while not lowering their service. And then, we needed to get realistic about what the spirit of their contract agreed to and what performance was important to them that was well beyond what was contractual. We needed to get pretty creative in how I could increase my revenue by achieving high performance or how I would pay penalties for missing performance. There had to be enough skin in the game that the incentives or penalties actually mattered. Did I mention that my client turned out to be awesome? Well, they are a world-class company and they realized that although we had a contract, they also realized that we couldn't continue to lose millions each year without making decisions that would give them less than world-class service. My service ultimately being a reflection on them, we needed to solve my financial issue jointly. Now I'm not saying that this was an easy discussion or something that happened overnight. But I am saying that if you are losing money on an account, you need to involve your client in shaping the decisions you are going to make as partners. My client was an equal partner in coming to the table with solutions. And sometimes you need to be creative and non-traditional in re-negotiating certain contractual terms so both of you feel good about the outcome. And of course, you need to have a strong relationship and have gained credibility by addressing the other issues I talked about.

Lessons Learned

The lessons here are pretty obvious, but let me summarize:

(1) Communicate, communicate and then communicate some more. Be open with your team and be open with your clients.

(2) Involve your team and your clients in your decisions. No man is an island and certainly more heads are better than one!

(3) With the right team, you can achieve great things. I am still in awe of the things my team accomplished. They made me look good as well as my company. Show you appreciate them any way you can.

(4) Listen. I have found most of my clients are much smarter than me and they are pretty open with what they want and most of the time will tell you how to do it. They are also usually more creative than me and not bogged down by thoughts of industry standards. Don't be afraid to branch out and add performance standards into your contracts that really matter to your clients and better demonstrate how good your service really is, but make sure you can measure them. And certainly give some thought to the amount of your performance incentives or penalties. I have seen numerous contracts over the years that it would cost me more to achieve a performance bonus that I would make in revenue, so then where is the incentive?

(5) Face time with your clients is invaluable. Need I say more?

(6) Clients want a trusted partner, but trust goes both ways. Learn to trust your clients the way you want them to trust you. Always be honest and certainly be open. And, as a good friend of mine always says, bad news doesn't get better with age, so pick up the phone and they will appreciate you more.

(7) Last but not least, have a plan and execute the plan. Come back to it often and make sure you are on track. And it really is great when a plan comes together.

Today, all of the issues I started with are resolved and the client renewed their contract because the relationship is strong and the service they get is world-class. Clients are not easily replaced, so treat them well.

I hope some of the ideas here will help you with your own situation, but please feel free to comment or tell me how you approached a situation differently.