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Former Great Plains Software Dynamics/eEnterprise and currently Microsoft Business
Solutions Great Plains serves midsize and corporate clients as ERP system in the
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our opinion on what should you consider to do to secure implementation success.
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11.02.05
Effective Job Cost Tracking In The Advertising Industry
 By Christopher
Montgomery
In today's competitive business climate, advertising agency clients are taking
a closer look at how they purchase advertising products and services. The trends:
• Smaller proportion of client revenues spent on advertising
• Advertising treated like any other line in the budget
• Greater cost-consciousness in choosing vendors and negotiating contracts
Third-party cost consultants often encourage clients to insist on replacing the
flat fees traditional in the advertising business with project-oriented fee structures
and deliverables chosen from a "menu."
These trends make it imperative for ad agencies to exercise close control over
their production costs by carefully tracking the cost of every client job.
Job cost tracking: Needs and challenges
Job cost tracking refers to the processes an organization undertakes to track
the financial and production status of a client deliverable. Effective job tracking
depends on clearly defined responsibilities, effectively managed processes, and
job-tracking software that monitors cost and time factors at every stage.
The task poses some challenges. There can be a lot of people involved in tracking
costs-account teams, production groups, broadcast groups, trafficking and others-and
sorting out responsibilities can get complicated. Not everyone tracks costs in
the same way; some may use a spreadsheet, others may do hand calculations on ledger
sheets. In addition, finding the software system that covers all the cost-tracking
needs of an advertising agency is not easy.
The "people" challenge: responsibility for managing costs
Typically, account management serves as the agency's face with its clients. Account
management presents the initial estimate to the client, keeps the client relationship
running smoothly, and signs off on the actual billing. The production team or
teams, however, develop the inputs to the initial estimate and have hands-on responsibility
for developing the ad. So, who is responsible for cost management?
Some agencies believe account management needs to know what is spent at every
step in the process. The account team, though, typically expects the production
teams to monitor costs because they generate the expenses. Problems occur when,
for example, account management does not know about cost overruns until after
the fact. While it is true that as the client relationship manager, account management
needs to keep a close watch on production expenditures, production groups also
need to communicate potential overages and job cost challenges.
Account teams must be able to read the cost documentation. Some agencies have
account managers who do not know how to read project cost spreadsheets or other
documentation. They often pass the baton to the production groups, or rely on
Finance to reconcile their client's unbilled costs. Agencies should either train
their account staff so they will have appropriate skills, or implement a project
management group. Under this arrangement, project managers would be resposible
for the day-to-day cost tracking and oversight for production group work. This
setup allows account management to focus on client strategy versus operations.
Process challenges
The "people" challenges suggest some areas for improving the process of controlling
costs. Several factors are important in the cost-management process; defined roles
and responsibilities, as suggested above, is one. Others include turnaround time
controls, documentation, and plain old fashioned solid communication.
Process cycle times. So often, clients will request a job to be completed quickly
because an ad is needed for a TV slot, or for a particular newspaper or magazine
edition. The production team hits the ground running when the client says "GO",
but the proper documentation (job number, billable code, signed estimate, etc.)
may not be in place.
This creates problems down the line: How should the time be allocated? Did a particular
staff person spend 20 hours, or was it actually 40 hours because the billing didn't
start until the team got a job number? Does Finance have to manually reconcile
charges? Can we bill the client for the charges if we don't have a signed estimate
yet?
Account management should take the lead by establishing a clear agreement with
the client that for work to begin, the client must sign off on an estimate-if
not at the outset, at least within a specified number of days. Otherwise, it may
be impossible for the agency to keep its internal processes smooth.
Who's driving? The process can easily end up being driven by client
demands. Remember, you are responsible for your agency's financial well being,
not the client. Client behavior should not drive the agency's financial management
and cost tracking needs. For example, if a production team plunges into a project
and spends valuable resources on it and then discovers that the client's instructions
were unclear or have changed then the resulting product is of little value. So
it's back to the drawing board. "Redos" and creative development are one obvious
reason for inaccurate job-cost estimates.
Whether reiterative work or creative development is billable or not should be
specified in the job contract. This, and all other issues affecting production
costs, must be clear at the time of the initial handshake. In any case, it's important
to track the actual job costs so that if the costs are billable, they are clearly
understood by the client. If there is unplanned and unbillable extra work, the
agency must know how much of the cost it has incured. Accurate cost tracking will
help make future contracts smarter.
Read
the rest of the article
About the Author:
Christopher Montgomery is an Associate Principal at Intellilink Solutions, Inc.
– a boutique consulting firm specializing in automating knowledge worker
organizations. His areas of focus include advertising industry transformation,
project financials, IT governance, and resource management. He can be reached
at info@intellilinksi.com |
