Unlike companies that produce and sell products, service organizations make money by billing out the time of their resources. As a result, people are usually the largest expense for a services firm, as well as the biggest risk.
If there are too many people margins suffer, and if there are not enough, a firm can’t take on new work. It's no surprise, then, that several of the most common project management mistakes are related to accurately forecasting the types and numbers of resources needed to successfully and profitably deliver work. To learn more, check out our most recent ebook, "The 10 Most Common Mistakes in Project Management...And How to Avoid Them."
The Top Three Mistakes of Resource Management Challenges
1. Incorrectly Forecasting Staffing Needs
Trying to accurately predict the number of employees required to meet client demand is a challenge for even the most seasoned project managers. Firms routinely struggle to get the balance right. Yet, it is also a critical equation—having too many resources “on the bench” will put and keep a firm in the red. For a smaller firm, one extra person not fully utilized may mean the difference between being profitable, or not. Larger firms, on the other hand, often intentionally overstaff in belief that it will allow them to act quickly when an opportunity arises. However, having a lot of people that aren’t fully utilized is a major weight to carry. What is compounding this problem is that there are no tools to help forecast resource demands. Many admit they still rely on assumptions and experiences when making hiring decisions.
2. Hiring For Skills Based on Short-Term Need
The new realities of the services economy are forcing companies to expand their range and depth of offerings. In 2017, 89% of services firms stated they expanded to offer an increasing variety of services. As work grows in complexity, so do the skills required to deliver this work. Service organizations are committing to large and complex projects that require additional skills beyond their existing capabilities. This often leads to a hiring to meet demand. Unfortunately, these organizations usually only have short-term plans for keeping these resources billable. After the project ends, then what? Try to find business to fill the pipeline with projects that need those skills? Or try to find a different role in the company for these resources? This type of short-term thinking when it comes to hiring decisions leads to margin leakage.
3. Hiring the Wrong People
The construction of a team is paramount, and it's necessary to be incredibly thoughtful about who to hire. Ideally, during the hiring process, an organization has time to vet candidates for things such as culture fit. Unfortunately, sometimes time is a luxury. Winning a large new piece of business can feel like a fire drill—the client wants to start the project tomorrow, resources are needed, and the natural reaction is to hire to plug the hole. There is a sense that it will work itself out later. But, when rushing to fill openings to respond to growth, mistakes happen, and people come on board that are not a good fit. This leads to turnover, which in turn leads to low morale and wasted cost. Yes, it’s foundational to bring the people on with the required skills and knowledge for the job, but they must also match the company culture.
The Solution: Build and Leverage an On Demand Network of Contractors
While it’s a common misconception that the number of employees is a sign of success, it is actually the proper allocation of employees that is indicative of a strong business. Smart leaders resist the knee-jerk reaction to hire in an effort to keep the team as lean and nimble as possible. The solution is to develop a network of contractors, subcontractors, and strategic service providers that can be tapped to manage surge capacity on a project-by-project basis.
There are many advantages to building and leveraging a contractor network. The ability to scale and fill in the right people, for the right projects, with speed, is a competitive advantage. There are also significant cost benefits. It reduces costs of hiring, including prospecting, interviewing, and onboarding. More employees also means more office space, equipment, HR, and other non- billable resources required to manage a growing team. A contractor network, on the other hand, offers flexibility and reduces margin leakage from employees with low utilization rates.
To get the most value from a contractor network, ask the following questions: What type of skills are needed? How often? In which geographies or time zones? And, importantly, ask how the firm will manage these resources efficiently. While this is a completely different way to think of how to organize a firm, it is a requirement to be successful in the future.