edition 22 feb 24 2004

setting the scope of work


In the last three months we have had many enquiries from advertisers faced with providing their agency with a scope of work for the coming contract period, only to have the agency come back with a level of human resources that seemed high for the work proposed.

In this edition we introduce the P3 Scope Monitor and will look at some of the issues in setting and monitoring the scope of work and ways using industry benchmarks can clarify the situation.

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how many head hours does the agency need for 2004?

Many remuneration agreements, be they project fees or retainers are based on the head hour resources required to undertake the task multiplied by an overhead and profit factor. In some cases these payments include a performance-based component as well. But one of the key issues is setting a realistic scope of work and then predicting the human resources required.

Setting the baseline

The most effective model is setting the previous year as the baseline. The number of projects for that year and the number and type of head hours and associated costs are a known quantity. Accepting that the head hours are correct this becomes the baseline from which the following years' scope of work is compared.

Setting the scope of work

Predicting the advertising activity for some advertisers is easy and part of their normal budget planning. But for other advertisers it is much more difficult, with the need to react to the market place or difficult trading conditions making predictions for the coming year largely inaccurate. If you cannot accurately set the scope of work then you may be locked into a retainer that is too high or too low. Either way it becomes expensive with you paying too much or not paying enough to maintain the relationship with the agency.

Adjusting the head hours

Some advertisers have opted for a system of an adjustable retainer based on the number of projects being undertaken. This method requires the scope of work undertaken to be reviewed either monthly, quarterly or half yearly based on the level of activity to ensure the number of hours does not exceed the amount agreed under the original contract and to adjust the payment accordingly. The problem with this method is that it relies on the agency keeping accurate and detailed time sheets in the style of law and accounting firms who account for every 15 minutes. This can lead to unwanted disputes over the efficiency and effectiveness of the agency.

Using the industry benchmark

Using the industry benchmarks we have collected over the past 4 years, P3 has developed a model that can predict the human resources required year on year across account management, creative, electronic and print production. Based on creative outcomes, such as television, print and radio commercials it allows advertisers and agencies to not only predict, but to measure the impact of changes in the scope of work on the agency resources required.

To find out how the P3 Scope Monitor can help you manage your agency resources and remuneration, contact P3Biz by email biz@p3.com.au 

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more top 10s for 2004
 
 

The popular P3 Top 10 Checklists are back for 2004. The first one is to be mailed out in April.

Already available are:
Television production
Print production
Agency remuneration
Financial compliance
Misleading statements
TPA compliance

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