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Benchmarking exercise

INVITATION TO PARTICIPATE IN THE BENCHMARKING EXERCISE OF THE MALAYSIA PRODUCTIVITY CORPORATION (MPC) – MIA’S COMMUNITY OF PRACTICES (COP) PROGRAMME IN KLANG VALLEY

Have you ever considered how a single proprietor firm can make up to RM 750,000 nett per annum? Do you want to learn from him his secret of retaining his best employees? What could possibly be his service mix? Did all these come from the auditing practice alone or is it on tax investigation where the margin is possibly higher? How much does he spend on training his producers (i.e. full time professional staff)? Some said: - “On average staff leave every 2 years or less.” Can you recoup your investment in your personnel? All these “trade secrets” shall be revealed in a Benchmarking Exercise.

Benefits of the Benchmarking Exercise

The exercise provides a set of unbiased benchmarking criteria from which you can access the performance and future development possibilities of your firm. You can find out how you compare financially against other firms, the important things you can do to lift profits and how to reduce write-offs, improve workflow, and reduce debtor levels and more.

You can have a first hand knowledge of what works for others and what are the areas to be considered when implementing business improvement techniques applicable to your practices. On the international level, you can even benchmark your services against international firms of accountants.

Background Information

The Benchmarking Exercise was initiated in September 2007 in Klang Valley with 15 accounting firms participating. It was then the first ever industry driven benchmarking activities for professional services sector.

The Malaysia Productivity Corporation (MPC) acts as the facilitator on benchmarking, advising MIA on the processes involved as well as providing the sources for best practices.

Since then, the exercise has been extended to the southern region (Johor Bahru) where the first benchmarking exercise was commenced in year 2008. It is our vision to extend the exercise to all states of Malaysia in order to obtain a meaningful national benchmarking index.

We are now embarking on the 3rd phase of the benchmarking in Klang Valley and the 2nd phase of benchmarking in Johor Bahru.

How does it work?

First, the key performance indicators (KPI) and various crucial benchmarks which are measurable will be determined by the participating firms (community of practices).

Secondly, the community of practices will be guided on the definition of each KPI and a run-through of the MPC’s e-benchmarking system (i.e. an online system which allows a hassle free completion 24/7 regardless where you are), prior to keying-in the data.

Thirdly, participating firms will be given certain timeframe to key-in the relevant data into the system. While we did not audit the data, we did review for relatives so that the results we published are based on consistent and high quality data.

Finally, the results of the benchmarking system will be revealed in a sharing session.

Your Total Time Involvement

In terms of timing, we expect the project to start immediately and be completed in August 2010. Your total time involvement throughout the exercise will be approximately 10 hours.

23 Mar 2010	:	Initial briefing session (3 hours)
April 2010	:	A meeting to decide on key performance indicators and a hands-on training on the usage of e-benchmarking system (3 hours)
May 2010	:	Participating firms to key-in data (1 hour)
June 2010	:	Analysis of data and report writing (by MPC)
August 2010	:	Results Sharing Session (3 hours)

Cost Incurred

The exercise is fully supported by the MPC, therefore no costs will be incurred from your side, except for your time commitment and minor traveling expenses.

Wish to Know More or to Participate?

Are you interested to find out more about the exercise or to be part of the Community of Practices for the 3rd phase in Klang Valley?

If your answer is yes, please attend our initial briefing session to be held as follows:

Date	:	March 23, 2010 (Tuesday)
Time	:	9.30 am - 12.30 pm
Venue	:	Bilik TQM, Block E, Malaysia Productivity Corporation (MPC), Lorong Productiviti, Petaling Jaya, Selangor

To confirm your attendance, please provide your Name, Designation, Firm name, Address, Tel, Fax and Email address to practice@mia.org.my or call Shuhairah / Sarimah at 03-2272 1501 ext 429 / 431 / 413. We hope to receive your confirmation of attendance by Friday, 19 March 2010.

Thank you.

Executive Summary

The Malaysian Productivity Corporation (MPC) – MIA’s Community of Practices (CoP) programme was initiated in September 2007 with 17 accounting firms onboard. It was then the first ever industry driven benchmarking activities for professional services sector. MPC acts as the facilitator on benchmarking, advising MIA on the processes involved as well as providing the sources for best practices although it is more of the general management type.

The CoP mainly focuses on the issues pertaining to human resources management (since HR is one of the highest cost component of a practice) and people performance measurements among MIA’s participating firms. However, it is important to note that the size of the firms in the CoP varied from a firm with 5 staff to one which had more than 120 staff.

The objective of the MPC-MIA initiatives is to establish key performance indicators and various benchmarks which is measurable using the MPC’s e-benchmarking system. To further reinforce the project, certain comparison were also make with the Australian practising environment since their operating environment and the Commonwealth legal system is highly comparable.

Significant disparities were noted in the area of revenue per partner, profit per partner and the participating firm’s profit margin. This shows that service offering can have a significant impact on a firm’s bottom line with consultancy being proven to be more lucrative. This is also in lince with the MIA’s push for firms to diversify into consultancy. One of the firms with a margin of over 50% specialises in tax investigation.

Secondly, the staff to partner ratio needs to improve for the industry to develop on a sustainable basis. It is equally important for the partner and staff to have a balanced work-life approach to ensure a better retention of talent within the industry. Although there is an obvious slowdown in economic activities, the demand for talent will always be there. It is alarming to note that one of the firm in the CoP had recorded a staff turnover ratio of 65% in 2006 (the year of our study)
In addition, the investment in staff should be further encouraged. The highest ratio recorded at present is a meagre 3.12% although this did not take into account the in-house training expenses which are usually not appropriately captured. It should be the target of MIA to see the training expenses ratio to that of turnover to be at least 10% in the next 3 to 5 years.

Another area of concern is the charge rate multiple. This may serve as an immediate barometer of profitability as well as efficiency. Any firm with a charge rate multiple of less than 2 should seriously asked themselves if they want to be in practice because their opportunity cost elsewhere should be much more appealing. This is especially true if the firms had already been in operations for more than 12 months in 2006. A charge rate multiple of 2 and below may indicate a severe lack of confidence in one’s own work vis-a-vis the clients’ expectation. This may eventually proof to be a drain of resources in such practice and a disincentive for staff & partner, going forward.

Among the recommendations following the CoPs sharing of best practices are:-

A more detail report of the outcome of the 1st benchmarking CoP can be obtained from the MPC with permission from the participating firms.