that at least one major function is quantifiable, workload and results could be charted and graphed to portray an accurate picture of the relative efficiency of each department over time. Examples of quantifiable functions include:

Accounts receivable: Total dollars past due by month

Billing: Number of bills issued each month and on-time payment statistics

Cash collection: Total cash collected

Accounts payable: Number of invoices processed (also percentage processed without error); cash discounts achieved

Financial planning: Percentage variance of actuals versus forecasts by quarter

Human resources: Number of candidates interviewed versus positions accepted; number of separations processed; annual staff turnover rate

IT: Number of help desk calls taken; average time to resolve a call

Facilities management: Electricity consumption per headcount; maintenance costs per square foot and per headcount

By monitoring these key activities and rewarding excellent results with spot bonuses or other types of recognition, the firm can secure better than average productivity. However, in spite of these measures, as the firm grows, at some point additional administrative staff will be required. When to add that staff is a key question.

As a rule of thumb, a new position should be added once existing staff routinely is required to work more than 50 hours per week. With respect to financial staff, they normally may work 50-hour weeks during the monthly close and fall back to an average at or just slightly above 40 hours in other weeks. However, if existing staff are unable to close the books in five or fewer working days, either they are understaffed or their procedures are insufficient. If it is determined that their procedures are adequate (which the graphs noted earlier may help illustrate), additional staff may in fact be needed.

Mergers and Acquisition: Time to Revisit Policies and Procedures

When a firm acquires another firm or it is acquired itself, this action provides management with an excellent opportunity to take a fresh look at policies and procedures at both firms and, when appropriate, take the best from each or simply upgrade them to meet identified needs. For example, if cash flow is insufficient to meet the combined firms objectives, it may use the announcement of the merger as an opportunity to implement a semimonthly billing process. Similarly, treasury functions can be merged, including the implementation of credit limits for each client. Human resource functions can be consolidated and redundancies eliminated. Merger transition plans

should also set forth the goals for the IT team and plans for integrating networks and eliminate unnecessary redundancies. As difficult as it may be to integrate two firms, if done well, clients from both firms may benefit from reduced administrative costs and improved systems.

Summary

In this chapter, we have discussed a wide range of issues that professional firm executives need to understand in order to provide their firm with sound fiscal leadership. HR functions are an integral component of the firms financial management as the majority of costs are tied to compensation and related perquisites. Because so many of those HR issues involve interpretation of complex legal issues, HR professionals should be capable of recognizing when to utilize competent legal counsel and have the budgetary support to tap those resources as needed throughout the year. Employee performance should be evaluated in writing at least once per year and excellent results rewarded within an equitable market-based compensation system.

Executive management of the firm must ensure that GAAP are enforced, particularly by being conservative in its revenue and expense recognition policies. Long-range planning should be well documented and form the foundation for the annual budgeting process. Annual revenue, expense, and capital budgets that are developed from the bottom up by line managers within a set of high-level targets established in the long-range planning process are more likely to be effective than those set from the top down. Monthly updating of all budgets and forecasts helps to keep executive management well informed as to the fiscal health of the firm. A monthly briefing book, or executive reporting package, that includes historical financial statements, forecasts, and trend reports can expedite the review process and highlight key managerial issues. Finally, contract negotiations with both clients and vendors should focus on key terms and conditions as well as pricing. The masterful execution of these component principles is critical to a well-managed professional services organization.

Purchasing, Procurement, Vendor, and Asset Management

John Baschab and Jon Piot

People who work together will win, whether it be against complex football defenses or the problems of modern society.

-Vince Lombardi1

If, after the first twenty minutes, you dont know who the sucker at the table is, its you.

-Unknown

This chapter outlines management practices for ensuring that the professional services firm selects and manages outside vendors in a manner that delivers the most value to the company in exchange for consideration paid to the vendors, all the while working in a partnership with the vendor to further the aims of both the company and the vendor.

In this chapter, we emphasize the importance of properly managing vendors and provide techniques for monitoring and assessing vendor performance. We cover the typical vendor types found in a professional services organization, how to set thresholds for prioritizing vendors that need scrutiny, and how to establish and assign the vendor management role within the firm. We also discuss how to take control of vendor relationships, particularly inherited ones, how and when to recompete vendor contracts, and provide guidance to the vendor manager on working with vendors in turmoil or financial trouble. The topics of vendor management, purchasing and procurement