an impact on the bottom line. Critical areas of focus in cost management opportunities are:

Internal meetings, seminars, and training Travel time and expenses Staff expense reimbursement

As a professional services firm, it is important to train, develop, and communicate with professional and administrative staff. Staff meetings-by practice group, office, department, or firmwide-are critical, but the methods and costs of these meetings can be managed. Some suggestions for cutting meeting costs include: holding internal meetings in the office rather than at hotels or resorts; if multiple locations are involved, holding the meetings in the city where the majority of the participants reside; consolidating multiple areas/topics to eliminate multiple trips; and using videoconferencing/ web-based meetings for both internal and clients.

Although there are capital expenditure costs to videoconferencing, in the long run, it saves time and relieves employees of burdensome business travel. Companies with multiple locations or clients in remote or difficult-to-reach locations often find videoconferencing helpful and much more personal than conference calls.

A recent analysis of a multioffice management consulting firm with revenues of $200 million determined the optimal target for meeting expenses to be 1 percent of revenue. To maintain such a ratio, managers must make specific decisions about implementing policies that reduce expenses.

Professional staff training is a necessary part of the development and growth in any professional services firm. But it is important to evaluate the training need by level or department. For example, CPAs and attorneys need a certain number of hours of continuing professional education within a given year to maintain their licenses. The controller and others on the accounting staff may need to use outside training and courses to ensure the firms CPAs adhere to Sarbanes-Oxley training requirements. As an executive seeking to control costs, your job is to ask about the necessity and reasonableness of such expenditures.

When nonclient travel is required, the same policies and procedures should be enforced as they would be in client travel. Consider bringing outside consultants into the office to conduct training for a group of employees, versus the cost of sending those employees outside to attend an accredited course. And, by all means, encourage the professional staff to present to one another to promote learning and continuing education. This can be a worthwhile, cost-effective, and enjoyable way to educate and train. Chapter 10 covers the topic of professional staff training, development, and career tracks in greater detail.

Professional Costs. A major cost in a professional services firm is personnel cost for the professional staff whose primary responsibility is to serve clients and generate revenue. Determining appropriate compensation is a mul-tifaceted process that includes analysis of the industry, a firms rank within its sector (including industry/benchmarking studies), current market rates (what it would take to replace the level of experience and expertise that a certain professional has), and compensation ranges within your organization.

For law firms and financial consulting firms, compensation varies significantly based on the following factors:

Size of the organization Industry specialty Geographic location Target utilization of staff

For example, a law firm may expect first-year associates to charge 1,800 billable hours in a typical 2,080-hour year (based on 80 hours of holidays and 120 hours of vacation time). Thus, an associate is expected to work 50 hours per week on average, which could vary from 40 to 100 hours, based on client needs.

In most professional services firms, billable hours play a significant role in the overall performance assessment of a professional, affecting promotions and compensation. While each organization has a required number of bill-able hours for each staff level, cultural expectations of the organization play an equally weighted role in measuring performance. For example, the dynamic of face time is a crucial measurement within law firms and other professional services organizations. Even if not engaged in billable work, legal associates are expected to stay in the office, seek additional work, and provide assistance to others in need. These parameters vary from firm to firm, so each organization should establish its own billable hour requirements and measurement standards.

The two most important measurements regarding professional staff in a services firm are the generation of revenue by billing time to clients (bill-able hours) and total compensation of the professionals generating that revenue. Chapter 10 covers compensation issues in more detail.

Billable/Nonbillable Hours by Employment Level (Average Hours per Week). As Exhibit 2.7 shows, billable hours vary between 45 percent and 75 percent for management consultants. Consultant-level professionals achieve the highest percentage, while project managers are billable roughly two-thirds of a workweek. Partners, who have additional selling and firm management responsibilities, average roughly 45 percent billable time per week. Associates are billable 56 percent of the workweek.15

23.5

28.7

Partner

30.9

17.4

37.7

13.2

24.0

18.0

22.0

13.8

Project Consultant Associate Support manager staff

Exhibit 2.7 Billable/Nonbillable Hours by Employment Level (average hours per week)

Total Compensation. Exhibit 2.8 summarizes total compensation for the various levels of employees at law firms. The average compensation across all levels is $172,000. Equity partners/shareholders average total compensation is $299,391, which is significantly greater than that of other levels.16

Median Total Compensation by Firm Size. Similar to hourly billing rates, the median total compensation increases at all staff levels as the firm size increases, as shown in Exhibit 2.9. The higher partner levels are rewarded more significantly as the firm size increases in comparison to the average and lower partners.17

profitability. The senior executives of professional services firms are responsible for the overall profitability of the organization. This can be measured in many ways, but one helpful statistical tool is the average income and expenses per professional.

Average Income and Expense per Lawyer as a Percentage of Receipts. The majority of expenses per lawyer as a percentage of receipts are allocated to employees compensation-approximately 60 percent to lawyers, 15 percent to support staff, and 4 percent to paralegals (see Exhibit 2.10).18