Planning and control are the two major factors in the financial success of your firm. Computer spreadsheet programs such as Microsoft Excel® automate the planning and control process. These spreadsheets have powerful 3-D modeling and file linking capabilities. The CAPP spreadsheet models show the powerful planning and analysis capabilities of these spreadsheet programs.
Graphic charts of important Key Indicators of Financial Performance are produced that translate financial data into meaningful information. The CAPP spreadsheet model provides structure for your firm’s profit plan. Values in the spreadsheet are linked to a MS-Word.doc file that shows the analysis of the firm’s operations in an Executive Summary Report so that proper decisions can be made to keep the firm on target with the profit plan goals.
The Labor Budget is first step in the development of a Bottom-Up Profit Plan. The Labor Budget is composed of time and money (hours and dollars). The Labor Budget includes all labor-related mandatory and customary benefits. Total available hours in the labor budget are measured as full-time-equivalents (FTE).
The Executive Summary is an analysis of operations with graphic charts of important key indicators of financial performance. The profit plan key indicators give the benchmarks to measure and control the progress toward the firm’s financial goals and objectives.
Once the Operating Profit Target is established, progress toward that goal is measured and evaluated. Actual values are compared to planned values and variances are identified and analyzed. The results of analysis are interpreted so that informed decisions can be made on what actions need to be taken to reach the profit plan goal.
The Profit Plan provides the balance between the marketing plan revenue and the personnel plan labor by calculating the revenue required to make the desired profit. The monthly revenue objective is compared to the actual revenue backlog projected over the current profit plan year. If the projected revenue backlog is not enough to support the target utilization rate for the existing labor force, then labor may need to be reduced to keep the profit plan on target. The alternative is to increase revenue by adding new projects to the revenue backlog.
The business of a professional service firm is the provision of an hour of labor. Labor and labor-related expense makes up 65% to 80% of most professional services firm’s expense and is the most readily adjustable item of expense. In a professional service firm, time is money. The unit of service is the direct labor hour. Available direct labor hours determine the capacity of a professional service firm to generate revenue.