Organization and Management of MAS Practice PDF

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CHAPTER6ORGANIZATION ANDMANAGEMENT OFMAS PRACTICE####### LEARNING OBJECTIVESAfter studying Chapter 6, you should be able to:1. Understand the basic techniques in developing MAS Practice.2. Describe the organizational structure of the MAS Practice or Division.3. Understand the role, responsibilities ...

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CHAPTER

6

ORGANIZATION AND MANAGEMENT OF MAS PRACTICE LEARNING OBJECTIVES After studying Chapter 6, you should be able to: 1.

Understand the basic techniques in developing MAS Practice.

2.

Describe the organizational structure of the MAS Practice or Division.

3.

Understand the role, responsibilities and qualifications of the personnel in consultancy practice.

4.

Explain how the target level of competence required of management consultants is defined.

5.

Describe the steps in starting the MAS Practice.

6.

Identify the problem areas in rendering MAS by independent accounting firms.

7.

Understand and apply financial management principle in a consultancy practice.

8.

Understand how to prepare a business plan for MAS Practice.

CHAPTER 6 ORGANIZATION AND MANAGEMENT OF MAS PRACTICE Developing MAS Practice If one wishes to be a consultant, he or she must first assess his or her own talents and expertise. In addition, one needs to review his or her communication skills, both oral and written; sales ability; ability to focus on a project and carry it to conclusion and ability to maintain objectivity. One must also evaluate his or her business and professional judgment. The scope of a consulting practice is defined by the expertise and experience of the consultant within the practice. This can be technical consulting in a) b) c) d) e)

engineering, industrial management, mark eting , business management, or financial areas.

To be successful, it is extremely important to recognize the firm's background and expertise so that the scope of the consulting practice can be well defined for proper communication to the potential clients. The firm should not "over sell" these abilities or accept work outside the firm's capabilities. Prior to entering into a consulting practice, the prospective consultant should conduct market research to identify opportunities in the marketplace. This will specifically involve a. study of the listings of management consultants b. survey of local CPA firms to determine which are offering consulting services c. determination of possible oversaturation of consultants in one's specialty area. d. identification of new services that may provide a competitive edge.

Organization and Management of MAS Practice 111 Although economic statistics and financial information concerning consulting practices are not readily available, most of this information may be obtained from word of mouth discussions with other consultants and knowledge of the local marketplace. Quite frequently, a consultant gets started when his or her clients indicate that they would like to use his or her talents as a consultant. This limited number of clients will provide a sufficient base for the individual to get started and maybe even keep busy started on a full-time basis. In any case, a practice development program needs to be initiated to target potential clients. Market research is important both for the new (inn and established consulting practice. Every practice needs to have a continual flow of work and steady stream of new opportunities and new contracts. Some effort has to be made to reach out, contact potential clients and make them aware of one's consulting services. Equipped with necessary information, one needs to establish an operating plan for the practice - that is, to set goals and objectives. These goals and objectives should include a. a desired income level, b. potential clients, and c. strategies to obtain those clients. Based on the services one proposes to provide, the types of potential clients that could benefit from those services and the potential amount of work, the practitioner can now identify staffing requirements and financing needs. To develop a meaningful and worthwhile network, the practitioner must establish quality contacts and educate the network as to the type of services he or she offers. If one has built a quality network, some contacts will continually refer work to the practitioner. These productive contacts develop and grow based on a solid personal relationship and the consultant's commitment to providing excellent service. Building a successful network requires keeping the practitioner's name in front of clients and contacts. This can be done through client newsletters, articles,

112 Chapter 6 seminars, entertainment, or even periodic phone calls. In any event, there need to be consistent, intermittent reminders to the network about the consultancy firm and its services.

ORGANIZATION OF MAS DIVISION Management advisory services of an accounting firm may be rendered by a man who is primarily an accountant or by a specialist. A firm with large clients may find it necessary to train some of its accountants as specialists in MAS or to engage men with experience and training in engineering, marketing, economics, EDP, psychology, etc. A consulting firm should periodically assess its needs with respect to in-house knowledge and skills. Upon comparing the knowledge and skills held by its current consultants against its needs, the firm can determine the extent of its deficiencies. Should such deficiencies exist, a consulting firm can apply these approaches. 1) It can employ additional consultant with adequate knowledge and skills Or

2) It can undertake a variety of "staff development" activities that are intended to endow the presently employed consultant with needed knowledge and skills. Staff Pyramid and Fee Structures A simple approach in staffing a consulting practice is to break the practice into pyramids of from five to fifteen people. Depending upon the practice specialty and the particular firm's philosophy, the size but usually not the structure of the pyramid may vary. A graphic depiction of the consulting pyramid is shown below: Level

1

Partners Principal Director

2

Senior Managers Managers Supervisors

3

Senior Consultant Senior

4

Associate Consultant Staff

Organization and Management of MAS Practice 113 Each pyramid is built around a partner, principal or director. In large practice, there will be multiple pyramids. The numbers in the pyramid refer to the typical number of personnel at each level (per pyramid). Partners, Principals, Directors The top of the pyramid contains the partner, principal or director. This individual is typically the most experienced highly paid professional and is normally responsible for the successful completion of engagements, dealing directly with clients and for selling work. Principal activities of partners include performing practice planning, administering and developing practice, consulting with top-client managers, approving engagement reports, and managing client crises. On certain occasions, a consulting firm may determine that its practice requires additional strength at the partner level. One such occasion could arise if the gap between services to be offered, and the ability to offer them, is so great that recruitment at lower levels cannot be expected to produce the desired results. In the event that a new partner is to be recruited, the principal consideration must be the external reputation of the candidate as a highly competent consultant. The firm should proceed cautiously, since the recruiting process is extremely involved. In addition to the candidate's reputation for competency, the recruiting firm should consider his or her probable (1) remaining period of useful and productive service to the practice and (2) compatibility with the existing practice and current partners.

Senior Managers, Managers, Supervisors The next tier of the pyramid is made up of senior managers, managers, and supervisors. These individuals perform week-to-week management of the engagements and are responsible for identifying new client prospects and assisting in the sales process. Principal activities of managers include planning engagements, evaluating consultants, supervising consultants, writing proposals, reviewing working papers and reports, consulting with client managers. and serves as expert in one or more applied knowledge areas.

114 Chapter 6 Many consulting firms recruit for their practices mainly at the manager classification level. Their reasoning is that a manager is likely to be of worth from the beginning, since his or her personal competence will usually determine the success of individual engagements. A firm that intends to recruit a manager will probably seek the following attributes: 1. Previous successful consulting experience 2. Previous successful middle and top management experience 3. Specialized or advanced knowledge in major areas where the recruiting firm's practice has identified needs Senior Consultants, Seniors The third tier of the pyramid is made up of senior or senior consultants. These individuals typically have 2 or 3 years of consulting experience and are capable of supervising the daily work of the younger staff. They possess the right combination of experience and dedication to complete different projects with limited supervision. Seniors are normally in short supply in most firms. Associate Consultant, Staff The final layer of the pyramid consists of young or new staff. Depending upon the firm, these individuals usually have less than 2 years of consulting experience and may have been hired directly out of graduate or undergraduate school. Some firms require prior business experience, while others prefer to train their own personnel and hire some undergraduate students.

Billing Rates The typical range of billing rates of the four pyramid levels are as follows: Level 1

P6,000 to P12,000 per hour

2

P3,600 to P 6,000 per hour

3

P2,000 to P 3,600 per hour

4

P1,200 to P 2,000 per hour

Organization and Management of MAS Practice 115 These billing rates are normally adjusted annually when promotions are given and salaries are changed. Within each pyramid level there may also be multiple billing codes relating to salary and experience levels.

Defining the Target Level of Competence of Management Consultants Consulting competence is the ability of a consultant (e.g. management services practitioner with an accounting background) to deliver specific agreed-upon consulting services to a client on a profitable time-and-fee basis observing professional standards. The four major factors that must be considered when defining the target level of competence are 1. 2. 3. 4.

Scope of Practice Area Service Variety Client Requirements Service Delivery Capability

DISCUSSION: 1. Scope of Practice Area A consultant who desires to grow should take the following steps: 1. Review the economic region in which the consulting firm draws, or expects to draw, most of its clients. 2. Inventory the services required by the existing client, and in most cases, by the clients the consultant would like to add (e.g. related to audits, reviews and tax planning). 3. Select services from this inventory that will be provided. 4. Acquire the competence needed to provide the selected services. 5. Notify clients and potential clients that the consulting firm is able and willing to perform the selected advisory and consulting services. 2. Service Variety The range of services that consultants typically provide is extremely broad. Most engagements, however, would fall into one of the following categories:...