[Top tips] Getting the scope right

In part five of the series ‘the seven habits of a commercial adviser’ Ben Kent and Adrian Furner discuss how getting the scope right is fundamental to meeting client expectations and delivering commercial advice. [Habit 5]

Getting the scoping right is the fundamental foundation for delivering a profitable project. As the recent PwC law firms survey 2014 puts it “The ability of partners to agree profitable terms with their clients and carefully manage the scope of agreed work is key”. A few extra hours of planning up front can save time and often hundreds of thousands of pounds.

Whichever industry you are in, planning and scoping are hard to get right, as they are often subject to changing dynamics that are difficult to predict. The professions are no exception, but generally don’t have a reputation for spending sufficient time at the scoping stage.

The bigger the project, the harder the fall. The McKinsey/Oxford study shows some startling statistics: half of IT projects with budgets of over $15million run 45% over budget, are 7% behind schedule and deliver 56% less functionality than predicted.

What can advisers do to avoid pitfalls and keep on top in the scoping process?

Be disciplined and align expectations up front

Time invested sitting back and focusing on a few key areas at the start of the scoping process can have a huge impact on the end result of a project. Having put lots of time and energy into winning the pitch, there is a temptation to dive straight into the project work to prove to the client that you are enthusiastic and efficient. The tough part is that the client will often not push back on this because from their point of view, it’s great to see immediate progress. However; being able to create, articulate, and agree a clear scope helps to avoid mis-communication and mis-aligned expectations. Crucially, It also gives you a higher probability of creating better outcomes for the client and allows you to measure and quantify your success at the end of the project.

Matching the approach to the client

Advisers often switch into auto-pilot at the outset of a project without realising. It is easy to see a piece of work that looks familiar and make conclusions about the approach, the pricing structure, the timeline and a host of other factors. Clients value their adviser’s experience of working on similar projects and approaches, but this should form the basis of a discussion, not a set-in-stone methodology. We called this habit ‘agreeing the scope’ because it should be a collaborative exercise defining an approach that works well for both parties.

Including flexibility to deal with risks and contingencies

Almost inevitably unforeseen issues will crop up over the course of a project and usually it is difficult to account for these when defining the scope. Clients tell us time and time again that they want their advisers to approach them proactively to tell them about any changes to the scope as soon as they arise. The ability to anticipate risks and difficulties ahead of time and plan possible responses is gold dust to clients. For this very reason, it is important to build flexibility of resources in, so that you can respond effectively to any changes that are required by quantifying them in terms of the implications for the cost and the timeline.

Demonstrating value for money

Value for money is inextricably linked to commerciality in most clients’ minds. In the professional services world the default pricing model is based on time and materials, despite the fact that this may not represent the best value for money for clients. In this traditional approach the client bears the majority of the risk in terms of cost. By contrast most clients live in a world where their customers expect them to bear the risk. Therefore to provide greater value for money and reduce risk for the client, advisers should be prepared to have a few options of well thought-through pricing models to offer.

Advisers should also look to actively demonstrate in the scope where they can save money for the client over the course of the project. A client receiving value for money is largely a subjective concept and so in the client’s mind, the message from advisers at the scoping session should be ‘these are all the things you are getting, and this is where we can save you money on them’.

Fundamentally, scoping forms the crucial platform on which commercial advice is delivered. Fail to assign it  sufficient importance at your peril.

[This article originally appeared in professional marketing magazine. For further details go to www.pmforumglobal.com. In the next issue: Habit 6 – Build practical solutions]

Virtuous habits: embrace Commerciality to stay ahead of your peers

Research conducted by Meridian West and Financial Times shows financial professionals are perceived by their clients to be less commercial than other advisers. 34% of senior executives say legal professionals are excellent at providing advice that shows commercial insight, compared with just 15% for accountancy and finance professionals.

Why should this be? With their grip on the numbers, financial professionals are close to the heart of any business. Yet external advisers are becoming increasingly specialised – able to give clients a view on the intricacies of transfer pricing in Eastern Europe, say – often at the expense of being able to share a broader, more commercial perspective. Compared with lawyers, accountants are disadvantaged by regulation such as Sarbanes-Oxley, which create barriers (both real and perceived) about offering business advice.

With increasing frequency, information about other organisational priorities – risk, talent, technology, innovation and customer – are being given equal attention alongside financial data when boards take business decisions. External advisers need to respond to this appetite for forward-looking metrics and non-financial KPIs. One way to stay ahead of peers and keep ahead of changing client expectations is to embrace Commerciality.

What is Commerciality?

Commerciality is a much used, but ill-defined, term. Yet the nub of Commerciality is simple: it involves focusing on business outcomes when providing financial information and advice. To do this successfully means understanding the context in which decisions based on that advice will be taken. This is an area where many professionals struggle. Pride in being technically correct can lead to inflexibility. Lack of clarity about desired business outcome can lead to results that don’t quite hit the mark.

Take tax planning: this is an area rife with complexity where technical and specialist knowledge is vital and advantageous. To benefit from tax efficiencies it might make good financial sense to advise a company to operate a foreign subsidiary. However, a solution that is technically sound on paper may in reality throw up many operational challenges such as an increased cost of workforce mobility, and have a negative impact on corporate reputation by not being seen to pay a fair share of tax.

A truly commercial professional balances these competing demands to find a solution that helps an organisation achieve the best possible business outcome. This may require problems to be framed in new ways. In the above example, rather than dive straight to a technical tax-planning solution, it may be possible to achieve the desired outcome – freeing up cash for investment – through means that fewer reputational or operational drawbacks.

Commerciality in practice: seven habits

Commerciality is a mind-set. Yet this does not mean it cannot be taught to new graduates or honed further by experienced professionals. To translate Commerciality into pract7 habits of commercialityice it is important to focus on behaviours. Identifying behaviours that frustrate clients, consciously eliminating these and replacing them with more commercial ones through practice and repetition is the best way to ensure lasting improvements are realised.

Based on extensive research among thousands of finance professionals and their clients, Meridian West has developed a framework to help professionals identify, communicate and improve Commerciality. The seven habits of Commerciality framework can be applied by finance professionals to any client engagement, regardless of their area of expertise. [More on the 7 habits]

Virtuous habits in practice: three examples

First: understanding the people. Business is mainly about managing people, relationships and politics. Being aware of individuals, their competing interests and motivations is therefore imperative not only for determining the solution to a given problem, but also how the rationale for that solution is communicated.

For example, one firm spends time creating relationship maps for all of its client engagements mapping out all individuals within their own team and the client team. This includes stakeholders such as the CEO and NEDs, not just the direct members of the finance team they liaise with on a daily basis. It is important to pay close attention to the competing interests and preferences of this wider group of individuals who may have power of veto over any decisions made.

Next: agreeing the scope. When deadlines and resources are tight, it is tempting to launch straight into a piece of work to complete it as quickly as possible. This leaves little time to think through the strategy. The most commercial advisers set goals and metrics about what a successful client engagement looks like, communicating information about desired outcomes, tasks, resource and timelines.

Scoping is critical for external advisers grappling with a move away from traditional ‘time and materials’ pricing to fixed or success-related fees. Having a clear scope of works agreed up front helps accurately price an engagement to avoid writing-off large amounts of work when client needs change.

Lastly: communicating with impact. A common complaint we hear a lot from time-poor executives is that financial reporting is long, technocratic and has to be translated for non-financial audiences. They want information which is easy to understand, quick to assimilate and highlights the key points in complex or contentious issues. Simple changes such as prioritising risks, explaining implications clearly for non-financial audiences and communicating visually make a big difference.

The payoff: why bother with Commerciality?

Meridian West’s Mid-Market Monitor, an annual study of buying behaviour in the audit and advisory market, shows that Commerciality can be a significant differentiator when clients choose which external firms they work with. Being able to articulate knowledge of sector trends, provide foresight on relevant issues, and be proactive on scoping and project management can boost pitch win rates and the profitability of engagements.

One firm that has tackled this challenge head on has reengineered its delivery of pension advice to adopt an approach based on Commerciality principles. In doing so they have been able to virtually eliminate an average 20% write-off in fees for subsequent engagements.

So what next for finance professionals?

The seven habits of Commerciality framework focuses on virtuous habits that have both short-term pay off (greater efficiency or profitability) and long-term benefits (improved competitive positioning). Developing a strategy sheet for an engagement, creating a stakeholder map, or focusing on outcomes need not be a tortuous experience.

Any adviser can benefit from spending just a few minutes being more thoughtful about Commerciality and what this means for their interactions with clients. Small changes matter. At the beginning of an engagement have the courage to ask Commerciality-focussed questions: Who are the key stakeholders? What form of communication is preferred? What kind of solution is being sought? What is the desired outcome? The answers might just surprise you.

[By Alastair Beddow, Associate Director and Ben Kent, Managing Director at Meridian West. A version of this article first appeared in the July issue of ACCA’s Accounting and Business magazine. ACCA is the global body for professional accountants.]