"There is always a tendency in a downward economy to make rash decisions and to buy in work, often with no real understanding of how this will impact on the profitability of the practice.

It still surprises me that so many of the small to medium sized practices approach pitching for new work without all the information they need to see whether they are likely to make or lose money. Many rely on fairly rudimentary lists made up of two columns: the possibles and the probables. This method is so ‘broad brush’ that it makes it extremely difficult to forward plan with any accuracy.

There is a growing trend within the larger practices for a more thorough and strategic approach and larger numbers are now using practice management systems so they can see at a glance what is in the pipeline and to gauge future profitability. The functionality provided by today’s practice management systems makes it easier to decide which projects to pitch for and to understand the cost involved in winning new contracts.

However, with leaner times forecast for the economy as a whole, smaller practices should also be considering a more strategic approach to their pipeline. It should become second nature to enter any new opportunity onto the system and allocate a status to it. For example, if a speculative job is raised following an initial enquiry from a completely new prospect, the % likelihood of securing the work may be much lower than if an existing client approaches the practice with a new project. All relevant data is then captured by the system and all time and expenses accrued prior to appointment can be entered against the potential work. Again, this is an important consideration as too often the time that goes into speculative work is disregarded.

If something slips during the speculative phase , you need to be able to quickly and easily remodel, in order to provide the practice with a more rounded and plausible representation of what is likely to happen, rather than clutching at ‘ifs’ and ‘maybes’. The ability to review revenue forecasts that take into account the % likelihood has the advantage of providing a level of confidence about the future and also makes it easier to take a cold hard look at potential projects and to be brave and shun unprofitable work.

The prospect of uncertain times makes it likely that the pressure on fees will continue to increase, so practices should seriously consider how they are going to manage in the times ahead and be brave, and turn away unprofitable work if the figures don’t add up."

Andy Heath, Director of IRIS PROJECTminder