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In most design firms, the overall workload is uneven from month
to month. This makes it difficult to have the right resources in
place when they are needed. If you don't have a reliable method of
forecasting the workload, you could easily find yourself
overstaffed (and unprofitable) or understaffed (and having
difficulty delivering on client commitments). In this two-part
article, we'll discuss two different types of forecasting for
design firms. The first is a short-term projection of the workload
based on specific projects and client accounts; the second is a
longer-term projection of overall financial activity based on past
performance, adjusted for new assumptions about market
Of course, trying to predict anything is a guessing game.
However, if you come to the process with enough relevant
information, you can in fact get useful results. The crystal ball
needs to clear up just enough to give you an indication of whether
your company will be at or near its productive capacity. As soon as
you know this, you can make any necessary adjustments-such as
accelerating (or perhaps delaying) the start of any large new
projects or arranging for more (or fewer) resources. In particular,
a reliable projection of the workload can help you determine
whether any changes might be needed to your company's head
Before you can begin to predict tomorrow's workload and
finances, you need to know exactly where you stand today. This
essential business information needs to be coming to you
Let's take a quick look at each of these individually.
It's vital to track the time and materials going into open
projects. You need easy access to real-time totals of labor and
outside costs, which means that daily posting of timesheets and
vendor invoices is required. Many different project-tracking
systems are available. Among other capabilities, the system you
select must compare estimates to actuals and calculate the
remaining balances on projects. These numbers are necessary for the
workload projection that we'll be discussing in this article. Also,
keeping a close eye on the time and materials remaining is an
essential part of tracking the burn rate on large projects, as
discussed in a previous CPM
article on project management.
Your weekly recap of all new business development efforts should
include rough estimates of the schedules and expected billings for
pending projects. Quantify each opportunity as best you can. Also,
make sure you're capturing all marketing activities. In many
studios, several people are involved in soliciting new projects.
Preparing and discussing a weekly recap allows the group to
exchange information, develop shared priorities, and coordinate
Your monthly financial statements (balance sheet and P&L)
must be timely and accurate. As discussed in another article on financial
management, you need to track key financial indicators and
watch for trends. To help with this, it's a great idea to maintain
a set of monthly charts to visualize the data. (We'll come back to
the topic of charts in a moment.)
If you have all of these prerequisites in place, you're ready to
move forward to the process of preparing projections. Our
discussion will focus on two formats. First let's examine a
This type of forecast can be described as a “bottom up”
projection because it's built up from specific details about active
projects and client accounts. It's quite realistic because it's
firmly anchored in today's information. The general concept for
this is visualized in Figure 1:
Figure 1: The projected workload includes current projects
winding down and new projects ramping up. Ideally, the combined
total is close to your firm's productive capacity.
In preparing this projection, you'll be bringing together two
sets of current numbers: actual projects that are winding down,
plus new business that you expect to be ramping up. Figure 2
contains some sample data in this format. As you can see, the upper
portion of the worksheet shows active projects. The columns show
the approved total for each project, minus the amount already
billed, leaving you with the amount remaining. This remaining
balance is then spread across the number of months left in the
Figure 2: This short-term projection shows the workload in terms
of anticipated monthly billings. From this, we can develop a rough
idea of the head count necessary to produce the work.
Please note that we're looking at dollars rather than hours.
This means we're making an important assumption that the two are
still largely in sync. However, this might not be the case if
you're working on a fixed-fee project that has turned out to be
much more labor-intensive than you originally anticipated. The real
work might extend beyond the end of the negotiated billings. As you
read down this list of open projects, you'll see that some have
just begun, while others are almost finished. When each project
does come to an end, the individuals or teams involved will become
available for new assignments.
Now let's move to the middle section of this worksheet. It shows
potential new projects that will be ramping up. Each new business
opportunity has been assigned an estimated schedule and a total
billing value. To be conservative, these estimated billings must
then be factored back to reflect the probability of you landing the
assignment. This probability factor is a judgment call. If a
potential project is add-on work for an existing client, it's an
initiative that the client is definitely committed to and you know
for certain that no other studios are being approached, then you'll
assign a high probability. In contrast, if you're in a competitive
bidding situation to land a new client and you know they're talking
to three or four different firms, you'll assign a lower
probability. Your chances may be one in three (33 percent) or one
in four (25 percent).
Compiling this new business data every week is an ongoing
challenge. To quantify each opportunity, you need to be far enough
along in your conversations with the client to have sufficient
information for your assumptions to be reliable. Any preliminary
conversations that are still too vague for you to quantify should
only be listed here with zeros.
Regarding schedules: the upper portion of this projection should
guide you in setting potential start dates for future work.
Obviously, you can't promise to start a big new project tomorrow if
you already know that the essential resources for it are still tied
up with a previous assignment.
The next step in preparing this short-term projection is to
combine the two pieces we've been discussing: project tracking data
plus new business information equals a rough projection of the
total workload. Based on this projected workload, we can now
estimate the total head count that will be needed. At the bottom of
Figure 2, the monthly number shown for “head count required” is a
very loose estimate-it should be calculated using your own firm's
history of average billings per person. This is not an exact
science. It's just a very quick and simplistic comparison of total
employees to total revenue. The number includes all staff, not just
those doing hands-on creative work. Billings per person can vary
quite a bit from firm to firm, depending on the nature of the work
being produced by your employees and the amount of third-party
services being purchased. For example, a media placement firm could
have very high billings but a low head count.
As we discussed in the article on financial
management, design firms often expect annual labor billings to
average somewhere between $100K and $125K per person. This
represents a monthly average of approximately $8K to $10K. For
discussion purposes, if your projected monthly billings for the
entire company are about $200K and your past billings per employee
have averaged $10K per month, then you would need approximately 20
people to support the projected workload.
Once you've calculated the head count required, compare it to
the actual size of your staff. The two totals will never be an
exact match because capacity and demand are never entirely in sync.
However, if the discrepancy between the two is large, you should
consider making some changes to your resources.
If the projection indicates that you're going to need more
people than you currently have, you now have some lead time for
booking freelancers or making new hires. In many industries,
managers think it's desirable to have demand that is slightly
beyond regular capacity because it puts pressure on the company to
become more organized and efficient. In manufacturing, a short-term
spike in demand temporarily takes the company into overtime
capacity. If workers are being paid on an hourly basis, overtime
scheduling results in increased costs. Analysis is done to make
sure the additional costs are more than offset by increased
In contrast, design firms usually pay creative team members a
fixed salary. This means that temporary spikes in the workload can
result in additional billings without any change to labor costs.
(Some design managers refer to this short-term dynamic as
“compression.”) However, if such a situation continues for too
long, it has the very real potential of lowering morale, which
negatively impacts the quality of work being performed. It also
leads to employee burnout.
The opposite situation would be a design firm operating below
its regular capacity. If there are not enough client projects to go
around, a portion of the workforce will be idle. Typically, design
firms have limited financial reserves, and they cannot afford to
carry labor costs that do not contribute in some way to client
billings. If your short-term projection indicates a workload that
is too light to support the number of people on the payroll, you
might consider several management options:
Obviously, staffing and payroll issues are very important to
your company and to the individual people involved. You won't make
such decisions lightly. Fine-tune the format of your short-term
projection to fit your own company's situation more closely, and
make sure all of the numbers are as current and reliable as you can
make them. Run this projection at least twice over the course of a
month before making any decision about resources.
In the field of personnel management, issues related to
projected staffing levels are often referred to as “workforce
planning.” Every business faces the challenge of having the right
workers with the right skills at the right time. Head count is only
one aspect of this. You must also consider skill sets.
The supply and demand equation for specific creative skills is
different in each city. As a design firm owner or manager, you are
of course on the demand side of this equation. Keep in mind that
the requirements of your organization today may be different from
tomorrow. You may need to make gradual changes to the mix of skills
if your firm is evolving away from one design discipline and toward
another. New project types will require different design and
implementation capabilities. On an even larger scale, you might be
contemplating a shift in your company's basic business model. If
so, the staffing implications could be significant. For example, if
you move toward more brokering of third-party services, it's likely
that your company will need a much smaller core staff.
At this point in your planning process, you've determined
whether different skills need to be brought into your organization.
If the answer is yes, we need to shift our attention to the supply
side. What are the conditions in your local labor pool? Is the
available workforce supply a match to your company's needs? How
many good designers are available in your particular discipline and
how much competition is there for them? Recruitment of creative
staff tends to be a slow and careful process. In the meantime, you
might need some immediate assistance in producing short-term
projects. If so, it may be possible to bring in one or two
freelancers on short notice. To keep this option open, you need to
consciously maintain a broad professional network, with information
about who is available, their specialties, and their billing
To effectively manage long-term client relationships, however,
you'll want to assign staff members to important accounts. If
you've done a good job of forecasting, you should have enough lead
time to go through a careful employee recruitment process. This can
easily take a month or more.
One final note about the format of this short-term projection:
when you prepare the worksheet for your own firm, the time frame
may vary -- that is to say, you might need more columns on the
right side. Four or five months, as shown in our example, would be
a typical horizon for many graphic design firms, which tend to have
lots of small, fast projects. In contrast, six months or more would
be typical for product development or environmental graphic design
firms, where projects tend to be larger and have extended
Now that we've looked at a short-term projection, we're ready to
turn our attention to a long-term forecast (that is to say, a
projection that covers a year or more). That will be the topic of
part two of this article.
Shel Perkins is a graphic designer, management consultant and educator with more than twenty years of experience in managing the operations of leading design firms in the U.S. and the U.K. He has served on the national boards of AIGA and the Association
of Professional Design Firms. He has been honored as an AIGA Fellow "in recognition of significant personal and professional contributions to raising the standards of excellence within the design community." The third edition of his best-selling book, Talent
Is Not Enough: Business Secrets For Designers, is available from New Riders.
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