This chapter deals with key aspects of short-term operational management and control, emphasizing the methods and indicators that help to monitor operations and prevent events that could reduce efficiency or lead to crises. We assume that the reader is familiar with the basics of financial and budgetary control, and the discussion therefore focuses on some specific problems of consultants and consulting organizations.

33.1 Operating workplan and budget

Operational management and control uses two basic management tools: an operating workplan and an operating financial budget. Both documents are normally prepared annually, for the next planning and budgetary year, in a monthly or quarterly breakdown. This breakdown should take into account seasonal and other variations within the 12-month period, such as a reduced workload during the holiday period, and other events, including major payments to be made or received at a foreseeable time.

Operating workplan

The operating workplan should reflect the firm’s strategic choices and indicate how strategy will be implemented in the forthcoming year. It therefore determines:

–the volume of consulting and other services to be sold and delivered to clients;

–changes in the service portfolio (phasing out a service, introducing a new product, starting work in a new sector, new foreign operations);

–staff recruitment and training required;

–staff retirement and departures;

–the volume and orientation of promotional and marketing activities;

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–the backlog of new assignments to be maintained;

–other measures needed to implement the work programme and to prepare for the future (research and development, organizational restructuring, investment, etc.);

–the ways in which consultants will spend their time effectively when not working directly for clients.

Extrapolation of past trends is useful for preparing an operating workplan. However, mechanistic extrapolation cannot be recommended. An analysis of business trends, and of the consulting firm’s current opportunities and difficulties, will help in setting professional and business targets that are neither mere extrapolations nor unrealistic dreams.

Operating budget

The basic management tool for controlling the financial side of the firm’s operation is the operating budget. In preparing the budget, the firm has to include all the expenses it expects to incur during the budget period, and to fix the projected income at a level required to cover expenses and ensure an adequate profit. If budget preparation reveals that the budget cannot be balanced, it is necessary to revise the workplan and the planned expenditure to keep them within realistic financial limits, and to re-examine the costing, pricing and other assumptions underlying the two sides of the budget.

The budgetary planning may show that the consulting firm’s costs will be too high, and therefore the fees risk being excessive, or profits too low. In this case, management can look at various methods of improving efficiency and raising profits, as listed in box 33.1. The method chosen should be consistent with the firm’s strategic choices. If growth in operations and income is planned, analysis should reveal how expenses will increase. The consulting firm needs to keep in mind the difference between fixed and variable expenses, and subject each expense line to detailed scrutiny before deciding whether and how it should be allowed to grow.

An example of an annual operating budget is shown in table 33.1. It corresponds to the consulting unit, employing 29 consultants, shown in figure 35.2. The salary rates and other figures in the budget are purely hypothetical and are not intended as standards for remuneration policy, or for assessing the expense structure and efficiency of any particular firm.

Structure of expenses

Nevertheless, the expense and income structure shown is within the broad limits of normal practice in a number of management consulting firms. These limits tend to be as shown in table 33.2.

Management consulting services are highly labour-intensive and professional staff salaries are therefore by far the most important single expense item in any firm. Their share in the total expense structure depends on factors such

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Box 33.1 Ways of improving efficiency and raising profits

as the level of professional income in the particular country and firm, and the size of the consulting firm. Single practitioners and other small firms are usually able to operate with low overhead costs, reducing or completely eliminating certain items of expenditure without which a larger firm cannot operate. A single practitioner may even be able to operate without secretarial and support staff, and without renting office space.

Other expenses (grouped under lines 3–12 in table 33.1) include a wide range of different items associated with the operation of a consulting unit of a given profile, scope and level of activity. As a rule, these expenses include costs that cannot be directly related to a particular client assignment; or, if they could be, it would not be practical and efficient to do so. For example, reproduction expenses can be treated as an overhead item or a direct cost item to be charged to a particular client. Routine reproduction work (e.g. reproducing consulting reports in a standard number of copies) is normally treated as an overhead cost. Reproduction of voluminous special reports, or large numbers of additional copies ordered by the client, should be charged to the client as “billable expenses”. A similar choice has to be made in the case of telephone charges and other costs.

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Note: Item 1 (“Professional salaries”) includes the following: director (1 x US$100,000 = 100,000); senior consultants (6 x US$75,000 = 450,000); operating consultants (20 x US$55,000 = 1,100,000); trainee consultants (2 x US$30,000 = 60,000); total US$1,710,000.

Table 33.2 Typical structure of expenses and income

Expenses billed to clients (billable expenses) are often not regarded by consultants as part of their business income, even if these expenses pass through their accounts. Therefore, billable expenses are shown separately (line 17) in the operating budget.

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