Why is Resource Management Emerging as a Strategic Capability for Project Businesses?



Episode description:

Hemant

Welcome to the ProductDossier Podcast. I am delighted to bring this series of episodes to you in which we will discuss important aspects of professional services automation. In today’s episode, Sandeep Kumar, Founder and CEO ProductDossier is here to discuss the increasingly important subject of resource management. Welcome Sandeep.

Sandeep

Thank you, Hemant. Thank you for having me on this podcast.

Hemant

To start with, before we get into resource management, can you please tell us how project businesses are different from other types of businesses?

Sandeep

Well, there are really two kinds of businesses, the product business and the project businesses. Right? So, there are companies who make products and the thing is they are not building the product for a specific customer, they are building it for a market and for a set of similar kind of customers. Right? So that’s the product business, whereas in the project business you are working for the needs of a specific customer. So, the team, including the project manager and all, they are engaged with the customer even before the project begins. And they have this task of getting the customer satisfaction, getting the project margins you know as planned and completing the project in time with the you know governance and all that. So, in that sense, these two businesses are very different.

Hemant

One hears a lot these days about resources. Of-course resources are important for any business. But the subject is coming up again and again on resources, managing them, allocating them why it is becoming important.

Sandeep

Absolutely. You see, resource management is extremely critical. So first, what is resource management? Basically, it has a decent span. So, it starts with the resource capacity and planning of resources. That is the capacity planning. Then there is a resource forecast coming from different sources and the demand forecast, so to say. And then allocating those resources to projects and tracking their utilization. So, this is involved in It and then linking all of this with the downstream processes like rev rec. (Revenue Recognition) and billing, etc. So, this is sort of what comprises of resource management. And then why it is important? Because today if you take specially the project-based businesses like IT industry, they are employing hundreds and thousands of billable resources, right? So, it is extremely critical that companies do the resource allocation or resource management and that to the right resource management to making sure that you know their revenues are it basically impacts their revenues, it impacts their margins and it also impacts the customer satisfaction. And in recent times we have seen if the resource management is not done right, then it reserves into high attrition. So, in my mind, resource management is extremely critical for the factors I just said.

Hemant

That’s interesting because although everyone knows that resource management is important, so far it has been more or less you know delegated downwards. So, can you explain these individual aspects, particularly starting with top line and margins?

Sandeep

Yeah. So, you see today one of the biggest challenges CEO or the practice head is facing is called the billing loss. So, what happens is there are firm orders in the organization, but they are not able to find right resources for that project. And if you don’t put the right resources in time, this results in revenue loss and this basically phenomena industry also calls it as a billing loss. Now, why this is happening? There are two reasons primarily one, basically there was no, I would say the resource forecasting, or the demand analysis done in a proactive manner and the forecasting comes from the existing projects and more importantly from the opportunities. And since there was no forecasting the TA teams or the talent acquisition teams, they are not able to plan their hiring and all and because of which the resources are not available. And the second reason in my mind is today there is very less visibility in a real time manner that where the resources are allocated, which resources are on the bench and what is the ramp down in the next few days or weeks, right? And because of which even the organizations are not able to utilize even the existing resources in optimized manner. And both of these sorts of result in your revenue loss and impacts your top line. Now, the second thing is if you don’t allocate the right resources to the right projects, for example, if you allocate a higher skill person to a low bill rate job, then this is going to impact your project margins as well. So, you can see that the resource management, if not done well, it will hit your top line and bottom line.

Hemant

So, you’re saying lack of resource forecast, not having a proactive hiring and real time visibility of resources, it affects even the benching, it affects company‚Äôs revenue. Before we talk about the solution, let’s first talk about the customer satisfaction and attrition because you touched upon those points and saying that not using resources right way can affect these areas as well.

Sandeep

Absolutely. The reason for both of these, that is the reduced customer satisfaction and high attrition. The reason is the same. Now take two use cases. The first one, if there is a certain skill set required in a customer project and the organization put in a person who has lower skill sets, then that is required. Now what will happen? It’s very logical that it is going to impact your deliverable performance, etc. Right? And that will result in customer dissatisfaction and even puts your future business in jeopardy. So, you can see the right allocation, as I mentioned earlier, can impact your customer satisfaction. Now take the other way around, it is not just about customer satisfaction. If you put in a high skill resource person into a project which requires relatively lower skill sets, now this person will obviously feel frustrated because this person, she’s not getting job satisfaction and all that. And ultimately this will lead to attrition. And not only that, it will also lead to a lower project margin. But the right resource allocation the word is really the right, it is very important for customer satisfaction and lower attrition.

Hemant

Oh, that really sounds like a loose loose loose customer, employee and company.

Sandeep

Absolutely, you got that.

Hemant

So, Sandeep earlier You had mentioned that relationship between resource management and downstream processes like revenue recognition and billing. Can you please elaborate on that?

Sandeep

Absolutely. See, the revenue recognition and billing, as you would know are the most important and critical activities in any project-based businesses. I mean in any organization, but especially project based. Since we are talking about that. Now, what happens is at the end of the month there is a need to recognize revenue and do billing. And how does that happen? Revenue recognition depends upon the timesheets resources are filled in the projects where they are allocated and also it is important that they are filling their timesheets against the right build rates etc. So, the project management and the resource management pieces are very critical. Secondly, even in the fixed price kind of projects the timesheets are used for project cost calculation and which kind of by the POC method calculates the revenue recognition and all of this revenue recognition and the same process is adopted in the billing. So, it’s really important that we have done the resource management right. Today the project teams and especially the delivery managers, the project managers, they are spending considerable amount of time in compiling the data which is often very cumbersome process and often inaccurate and this results in rejection of invoices revenue leakages and all that thing.

Sandeep

These processes are actually downstream processes but are dependent on the resource management done well.

Hemant

So, if I understand you correct, what you’re saying is resource management is feeding data into downstream processes and depending upon the quality of that data, these processes like revenue recognition and billing, they are affected. Now that we have talked about resource management and the problems organizations are facing and its impact, let me ask you who is responsible to get it right in the organization? Is it the management? Is there a specialized resource management group function or is it the project manager?

Sandeep

Well, in my mind the resource management is really the foundation of any organization. So, this must and must be prioritized by the CEO and the top management and once they have sort of prioritized it and make it a mission critical activity, then I think different functions have a role to play in it. For example, the customer facing teams like the sales, presales or the account management teams, they have to input the right information in terms of opportunities which are coming up or which are most likely to get closed in the next weeks because this will lead to the resource forecasting. And then the specialized RMG teams or the PMO teams depending upon the organization, they have to work very closely with project managers to find the right resources for each project and get them allocated. Now the RMG team especially also have to work with the talent acquisition teams to sort of plan the hiring thing based on the forecast and making sure that resources are on boarded proactively so that we minimize the revenue loss. So, I would say that it’s an initiative driven from the top and then supported by different functions. This is really required and once all of these acts come together you sort of build the source management culture and that’s really very important.

Hemant

Oh! that’s something substantial, resource management culture. Now let’s talk about how to get there. What are the possible solutions and what are the options, what is available, can you explain that?

Sandeep

Absolutely. This is the part I really get excited about. I mean the problems, everybody has problems but then what’s the solution? So, first things first, just to give comfort to our audiences. The solution is very much possible and it’s not that hard as it may sound like. So, first of all there are two or three parts of it. So, the first thing the organization has to do is I think the problem is they have to start with the acknowledgement of the challenges that they are facing a problem, that’s the biggest hurdle out of the way. And once they have acknowledged that then they have to sort of define their process right from opportunity to getting the order and then starting the project and executing the project and closing it. So, they have to sort of get their process right and identify the challenges and especially the ones which are related to the resource management. So that sort of blueprint is drawn. So that is number one. Number two is now they have to find the right technology solution for this. So, the solution as I rightly earlier said that the resource management includes the capacity planning, the forecasting and then the allocation and utilization timesheet leave management, attendance management, the bench management, the skills and competency management resume.

Sandeep

So, these are different pieces of these solutions. So, they have to find sort of right technology solution for that. And if I look at that and then of course it should have linkages with the HRMS and also the downstream finance solutions. So that is very important. Now what are the possibilities? Right, so there are two or three kinds of solutions available in the market. One is like a sort of quick point solution which are doing certain things and it’s quick and dirty but they can take you only that far. That is number one. Number two then there are sort of generic solution available which can do resource management for anything. There is no industry knowledge in it, so they are not specific to your industry, your business use cases, you have to customize them a lot and all those things. So that is another kind of then there is the third category where there is an industry specific solutions. So, for example, for IT industry where there is a lot of domain knowledge put into the product and there is a good chance that typically 90% – 95% of your business use cases are already covered in it.

Sandeep

So, it has advantages that it’s a mature solution for your industry and also the time you will save by this kind of solution. OEMs also had a lot of domain knowledge so they come as a consulting partner also and they will save you a lot of time and money to get started so the time to value gets reduced significantly. So, this is about the technological solutions available and what are the choices. And the third piece I would say in this is that organization need to understand that it is not an overnight success, it’s a journey. So, they have to start this journey once they deploy a certain solution then there is a lot of visibility, a lot of maturity in the process people will start thinking at the next level of the problem. So, it’s a sort of Iterative process. So, in my mind. The blueprinting of the solution. The right technology partner and the journey thing. If these three things are put together and that’s what will result in a sort of a digital culture and which will take you towards that business excellence journey.

Hemant

That’s a very big journey. Very long journey and for me the takeaway in this is the domain knowledge that gets built in if there is something which is based on that and this means accumulated learning gets into various processes the way they are supported and that saves time for new people. New companies which are undertaking that journey. But I’m not very sure whether companies looking at this journey, whether they really place important value on this because they have these, as you said, quick point solutions and that gives them some results quickly and then they don’t see, I mean at least probably they find it difficult to attach a value. So, can you explain that, what kind of benefits people can see? Can you sort of quantify the value expected out of these kinds of undertaking a journey like you mentioned?

Sandeep

Yeah, and I can relate to what you are saying. I have seen in companies they sort of invest in some point solution and then obviously it does only so much and then they announced that this kind of solution doesn’t work, and they continue to sort of face challenges. But having said that and the question you are asking what value can we expect out of initiative like this? So, if I have to quantify it and my quantification is based on real use cases I have seen in the industry. So, let’s take an example of a $50 million company that means around 375 crores in Indian currency and so this roughly would be around 1500 people company. Now, once you deploy a solution like this, what we just described, the resource management and then you have the forecasting, I would expect that minimum, they would have a 2% better resource utilization minimum. And if I just consider being very conservative in my numbers, and if I say two to five and this will result in additional million to $2.5 million of additional revenue and that is typically if I say, even if you spend certain amount of this initiative, it’s about ten X ROI you will get on your investment and it doesn’t take like few years to get there, right?

Sandeep

Within a year, within six months to one year. And if done right with the right tool, you should be able to achieve that. And that, I think, should really excite the CEOs and the management to go for such initiatives.

Hemant

ROI numbers Look very tempting.

Sandeep

Absolutely.

Hemant

But some companies may feel we are still small, it’s too early for us and it’s too big a journey for us. So, do you want to suggest or recommend the right size of the organization for this journey to start?

Sandeep

Yeah, I would say like yesterday. Right. Because wherever you are, when you are young company, it’s easier to change things, it’s easier to build culture. And once the culture builds in, then every new person joining in falls into that culture. But having said that, in my experience, once you are about 150 200 people, the problem of resource management is considerable. To the extent that Excel spreadsheets and all are not supporting you, you have the opportunity of making more revenue with the same resources as we discussed. So, I would say 150 to 200 is the right size you should start at. And if you have missed it, then obviously as early as possible after that.

Hemant

Well, that’s a good guidance to many companies who are still probably hesitating to go for this kind of journey. I have heard, and I think I agree with this, saying that resource management is both an art and a science. And while listening to you, I am beginning to understand why.

Sandeep

Yeah, absolutely. And that’s a very good sort of proverb you are bringing him. And if I may modify it a little bit, basically building science into the art of resource management. Right? So now the science is the technology part which is doing, but then there is an art where you are visualizing the solution, your opportunity to cash and the different places where the challenges are there, then putting them on paper and then actually sort of deploying it. That is the art piece. Both are equally important. And once executed well, as I said, you will build a culture of excellence and the whole company marches towards the business excellence, which creates sustainable and exponential value for the organization.

Hemant

Achieving business excellence is the ultimate goal of any organization. That’s what I think. And you are certainly shown away on how to do this, how digitalization of resource management processes can help get organization closer to that journey. Thanks a lot Sandeep, for taking out your time and explaining resource management subjects with such a great clarity.

Sandeep

Thank you. Thank you, Hemant, for having me on this podcast. I do enjoy your questions and the logical way you sort of guided this entire podcast just for the audience. My email is skumar@productdossier.com in case anyone wants to reach out. And also, I’ll be happy to hear any experiences from any one of your audiences who have embarked on this journey. And once again, thank you so much, Hemant.

Hemant

Thanks, Sandeep. And this brings us to the end of this podcast. Thank you for listening.