“We need more accountability in this firm”.

“Our people need to be more efficient”.

“When I was doing that job I always brought it in on budget. Why can’t they do the same”?

Does any of this have a familiar ring to it?

I’m fairly certain that these and similar statements have been espoused on multiple occasions in your firm as the topic of efficiency and realization is universal in the public accounting profession.

Realization rates have been declining for years while salary and benefit costs in firms are now at record highs. Simply put, the value of accounting, auditing and tax services has not increased as quickly as the value and cost of highly skilled accountants yet we continue to perform the services in the same manner and expect to get a different result.

Rather than re-engineering the processes and firm structures to lower the cost per hour of providing services, most firms have kept riding the same efficiency horse and demand that it continually go faster.

In many firms the needed improvements, when looking at efficiency alone, are as much as 10% to 20%–which is somewhat unrealistic. Improvements in human efficiency are typically small and incremental.

Between 1954 when the world record for the mile run was under four minutes for the first time and the current world record set in 1999, fifteen seconds have been trimmed off the record. Just a 4% increase in efficiency and performance in 45 years! I don’t know that it is possible to make up our efficiency shortfalls in a very short period of time as expected by many practitioners.

Certainly technology has helped the profession gain more efficiency but much of this progress has been offset by the higher cost of accountants. If we improve our efficiency by 2% per year and the cost of labor is increasing at 3% we will continue to fall behind. It will not work. What will work is a gradual increase in efficiency along with a gradual decrease in labor costs.

Given that many low value tasks are now performed by some of your most expensive staff I think it would be very reasonable to start 2012 with a goal to improve efficiency by 2% and to reduce labor costs by 2%.

All you have to do is actively manage the process to make sure it happens. Continue this trend for 5 years and efficiency will be improved by 10% and labor costs will decrease by 10%. For a $5 million dollar firm this could mean $500,000 to $750,000 in improved profitability.

Nothing to sneeze at and you won’t even have to break a sweat!

Steve can be contacted as follows;

Steve Erickson
National Consultant to CPA Firms
505-331-9100
Albuquerque, NM 87120
Steve@SteveEricksonLLC.com
www.SteveEricksonLLC.com