IT services companies deploy their own reporting mechanisms to track costs, profitability, attrition and other relevant parameters. More often than not, these parameters are tracked in retrospect. For instance, we come to know the profitability of a project only after the project is completed. While this indicator is still a useful indicator, it cannot help you undo the damage that has been done. Typically, these indicators are called ‘lag indicators’. To put it simply, the indicator comes after the action has been done; not before or even when it is being done.
Almost all parameters that we track and monitor are lag indicators. Monthly and quarterly reviews are nothing but discussions based on lag indicators. We capture and analyze our expenses, revenues losses, revenue leakages as lag indicators.
Now let consider the example of fuel indicator of a car. The fuel indicator tells you the fuel level realtime. If we look at the fuel indicator of today’s car, they show realtime mileage based on how aggressively the driver is driving. The fuel indicator tells driver how her driving style is going to affect the mileage. This is an example of a lead indicator. A lead indicator can anchor you to change your actions to attain favorable results. Another real world example of a lead indicator is the score card of a cricket match. The scorecard has value because it gets updated as you go on playing. You can use its data to change your strategy.
If we stretch this analogy to an IT services company, imagine a project leader who wants to put together a team for a project. If the project leader has access to lead indicators, she can find out what will be the profit margins for that project with that particular team. He or she can optimize the team further to achieve maximum profitability.
Sounds exciting? Let’s see how lead indicators from Instazen help IT services companies under different scenarios.
Optimizing project pyramid :
A project pyramid is the most logical way of putting together a team that maximizes the project profitability. Yet, most of the times, project managers find it difficult to put together optimum teams. Instazen has a draft project simulation utility using which project managers can simulate a project team. Instazen automatically generates a project pyramid and tells you the project profitability with that particular team.
All of this can be done even before the project is actually received. The moment you receive the project order, on a single click, the simulated project can be converted into a live project. This example demonstrates the power of lead indicators. Let us consider one more example.
Project profitability :
As we discussed earlier, project profitability is normally calculated after the project is completed. There are a number of factors that affect the overall profitability - revenue leakages, unaccounted costs etc. All of these factors are also generally looked at in a retrospect. Instazen allows you to track profitability realtime. You can also see which factors are making dent in the profitability when the project is on-going and course correct.
Here is the third and very relatable example of a lead indicator:
Leave Management :
Normally, when a project manager gets a request to accept or reject a leave, he or she would purely do it without any concrete logic. The project manager will generally have no idea how approving that leave request is going to affect the net margins or project timelines. With Instazen, when a leave request is received, the project manager can actually see how the revenue and hence profitability will change if that request is approved. This kind of visibility helps to arrive at the right decision.
When lead indicators are available, one should just stop relying on lag indicators! Reach out to us to know more about how lead indicators can help you boost your net margins.