Words

Engagement Margin

Assurance
Engagement Economics Training

Introduction

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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Objectives Objectives 
Navigation Features 
After completing this training you will be able to: 
Define Engagement Margin and how it is calculated
Identify the drivers of Engagement Margin
Identify ways to improve Engagement Margin

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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Objectives Navigation & Features
• Click the menu at the top of each page to navigate to a new Section.

Navigation Features

• Each Section has different Topic pages of content. Click each
button to review the individual Topics for each Section.

• Click the buttons on the bottom right hand side of the page to navigate through

additional pages under a specific Topic.

• Mouse over this image for Quick Tips with additional information on supporting
linked content

• Indicates additional navigation instructions

• Indicates important information

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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Introduction Engagement Margin – The Basics
What is Engagement Margin?
Calculation • Key measurement of profitability.
• Engagement Margin is what we bill and collect less Resource Costs. Cost of
Resource
Share Rates sales is also known as Resource Costs.
• Engagement Margin is calculated at the client and/or contract level.
Click the mouse on • Engagement Margin is visible to Engagement Leaders and Managers in
each topic above to
be directly linked myMetrics.

Drivers of Engagement Margin

Project
Management

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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Introduction Engagement Margin – The Calculation 900,000
(522,000)
Calculation Engagement Margin 378,000
Fees (excl. Disbursements)
Resource Resource Costs
Share Rates Engagement Margin

Click the mouse on • Fees are accrued revenue less any unreimbursed expenses charged to the WIP
each topic above to
be directly linked • Resource Costs are the hours charged to the engagement times the Resource
Share Rate

• Engagement Margin is Fees less Resource Costs

Fees Resource Engagement
costs Margin

• Remuneration Benefits
• Occupancy
• Technology
• L&D
• Practice Protection

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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Introduction Resource Share Rates
• Resource Share Rates (RSR) are developed annually (effective July 1) at the
Calculation
Work Location level based on compensation costs, direct controllable costs and
Resource Assurance National Costs
Share Rates
• A single RSR is developed for each staff class within a Work Location

• RSRs are not adjusted throughout the year

Click the mouse on Market
each topic above to Scale Rate
be directly linked

Resource Share Rate

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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Scoping-Overview Scoping - Overview

Defining Scope Scoping determines the objectives and requirements necessary to complete a
project. An engagement that is properly defined estimates the hours and staff
Click the mouse on needed to complete the project in the most efficient way. Focusing on scope in the
each topic above to planning stages is important because it eliminates inefficiencies and unplanned
be directly linked variances.

Questions to ask during scoping:

• What are the client’s specific needs and deadlines/milestones?

• Are all aspects of the engagement identified and listed correctly on the
Engagement Letter or Statement of Work (SOW)?

• What staffing resources are needed to deliver?

• What is the cost associated with that staffing plan?

• How much do we need to charge for this work in order to deliver and still meet
realization and engagement margin targets?

• Are there lessons learned from prior engagements with this client or
similar engagements?

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Scoping-Overview Defining Scope
Defining Scope
Investing time to understand project scope allows us to better manage resources
and client expectations, and results in higher quality deliverables and increased
client satisfaction. In addition, defining scope makes it easier to identify out-of-
scope work and opportunities for additional billings.

Click the mouse on Utilize your Engagement Letter to document the following:
each topic above to
be directly linked • Terms and conditions
• Services provided
• Key deliverables
• Roles and responsibilities
• Fees, Expenses and Payment Terms
• Global fees and related allocations

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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Assurance Pricing Pricing – Assurance Pricing Tools
Tools
Assurance has various pricing tools available to the various business
Product Codes units that were created to improve our budgeting process through
standardization.

Click the mouse on • Economics Management Tool (EMT) – Recurring Audit Engagements,
each topic above to including Risk Assurance in support of the audit
be directly linked
• Assurance Margin Pricing Tool (AMPT) – Core Attest Non Audits

• FS BAS Assurance Margin Pricing Tool (FS BAS AMPT) – FS BAS
Engagements

• Risk Assurance Pricing Tool (RAPT) – Internal Audit Services,
Technology Solutions (ESS, CSP, ARCA), RMCS & TPA Engagements

• Transaction Services Pricing Tool (TSPT) – TS Engagements

Additional information on the Assurance Pricing tools can be found in the
Engagement Startup iPDF on Spark

Assurance Pricing Tool information continued on next page

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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 Click the mouse on each number to learn about the
key benefits of using the Assurance Pricing Tools!

Assurance Pricing
Tools

Product Codes

Key Benefits of
the Assurance
Pricing Tools

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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 Click the mouse on each number to learn about the
key benefits of using the Assurance Pricing Tools!

Assurance Pricing
Tools

Product Codes

Key Benefits of
KeytPohBrfeietcAhnisenesfguitTrsaonolcse

Assurance
Pricing Tools

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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 Click the mouse on each number to learn about the
key benefits of using the Assurance Pricing Tools!

Assurance Pricing
Tools

Product Codes

Key Benefits of
the Assurance
Pricing Tools

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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 Click the mouse on each number to learn about the
key benefits of using the Assurance Pricing Tools!

Assurance Pricing
Tools

Product Codes

Key Benefits of
the Assurance
Pricing Tools

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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 Click the mouse on each number to learn about the
key benefits of using the Assurance Pricing Tools!

Assurance Pricing
Tools

Product Codes

Key Benefits of
the Assurance
Pricing Tools

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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 Click the mouse on each number to learn about the
key benefits of using the Assurance Pricing Tools!

Assurance Pricing
Tools

Product Codes

Key Benefits of
the Assurance
Pricing Tools

Non-recurring
Pricing Tools only

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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 Click the mouse on each number to learn about the
key benefits of using the Assurance Pricing Tools!

Assurance Pricing
Tools

Product Codes

Key Benefits of
the Assurance
Pricing Tools

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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 Click the mouse on each number to learn about the
key benefits of using the Assurance Pricing Tools!

Assurance Pricing
Tools

Product Codes

Key Benefits of
the Assurance
Pricing Tools

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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 Click the mouse on each number to learn about the
key benefits of using the Assurance Pricing Tools!

Assurance Pricing
Tools

Product Codes

Key Benefits of
the Assurance
Pricing Tools

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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 Pricing – Product Codes

Assurance Pricing • The product code defines the “type of service” that is being delivered.
Tools
• Product codes are a key determinant in how we assess the need of future
Product Codes resources, and where to create technology and investment dollars.

Click the mouse on • Product codes allow us to understand the profitability of our service offerings.
each topic above to
be directly linked • Product codes can have premiums associated with them. The effect of such
associated premiums on engagement margin may be analyzed within the
Assurance pricing tool being used.

• The product code utilized should be selected based solely on the type of service
being delivered to the client.

Assurance Product Code listing snapshot:

Product Code Product Code Name Practice Premium Service Total Uplift%
Protection Uplift
Uplift% Assurance%

US109 NonSEC-GAAS Audits 3% 4% 7%

US176 SEC - Integrated Audit 11% 16% 27%

US174 CFG Advisory 1% 14% 15%

US211 Accounting Adv - Existing 1% 13% 14%
Standards

Click here to view the complete Product Code listing

Practice Protection Uplift is applied to recover the Firm’s cost of practice protection.

Premium Service Uplift is applied to take into account urgency and/or risk on an engagement, as well as the required
degree of specialization and experience.

The uplift applied to the WIP is a sum of the two. For example, an Assurance WBS code using US211 would have a 14% uplift.

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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Example Leverage

Scenario Leverage is the ratio of hours performed by interns through seniors to the total
hours charged to the client code and is measured as a percentage.
Click the mouse on
each topic above to Staff level Hours A
be directly linked Partner/MD/Manager Hours 300 B
Senior/Associate/Intern/Admin/GDM Hours 700 A/B
Total Hours 1,000
Leverage 70%

Benefits of Leveraging
• Improves profitability due to staff with lower RSRs
• Drives higher utilization for staff
• Develops staff by providing new opportunities to perform higher level work
• Results in higher satisfaction among staff due to expanded exposure and

development
• Provides time for managers and above to further build relationships

Click to access Understanding Leverage iPDF
Click to access the Understanding Leverage training video

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Example Leverage - Scenario

Quality must be “top of mind” in decisions regarding engagement leverage!

Scenario

Click the mouse on Leverage Model Low Med High
each topic above to
be directly linked Ptr / Mgr hours 700 600 500
Senior & below hours 810 910 1,010
Total hours 1,510 1,510 1,510
Leverage 54% 60% 67%

Fees $ 500,000 $ 500,000 $ 500,000
RPH $ 331 $ 331 $ 331

Resource Cost $ 314,950 $ 290,450 $ 265,950
Engagement Margin $ 185,050 $ 209,550 $ 234,050
Engagement Margin %
37% 42% 47%
Average Resource Cost per Hour
$ 209 $ 192 $ 176

Click to access Understanding Leverage iPDF
Click to access the Understanding Leverage training video

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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GDM Introduction Global Delivery Model (GDM)
• GDM is a long-term, xLoS global strategic initiative that will enable the
GDM Benefits
delivery of services through a network of alternative sources both within and
GDM Menu outside the US.
of Services
• The GDM model focuses on developing Service Delivery Centers (“SDCs”) to
GDM Engagement perform routine activities that are high volume, low risk and non-client facing.
Margin Example
• Delivery Driver network facilitates movement of hours to GDM.
Click the mouse on
each topic above to • GDM Information is now available on Spark. Visit GDM Assurance United
be directly linked States for information on Resources, Activities and FAQs.

FY18 Target: 2,700,000 hours

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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GDM Introduction Benefits of using GDM
Profitability
GDM Benefits • Increases EM as a result of lower Resource Share Rates for GDM staff
Resource Availability
GDM Menu • Reduces pressure on Associates during busy seasons
of Services • Provides more challenging/rewarding project opportunities
• Enables Associates to do more challenging work during busy seasons
GDM Engagement • Quicker ramp up of Associate training and experience
Margin Example Increases Competitiveness on Proposals
• Built in SDC resources ready, willing and able to assist on large engagements
Click the mouse on • Incorporate SDC into pricing models
each topic above to • Use SDC as a “selling tool”
be directly linked
Keys to using the Global Delivery Model:
GDM usage starts in the planning phase of your engagement:
• Include GDM hours in the Pricing Tools to properly reflect economics
• Schedule through Envoy as soon as Engagement Letter is finalized
• Make GDM part of your engagement team by including them in your

kickoff meeting and in status update meetings

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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GDM Menu of Services:

GDM Introduction

GDM Benefits

GDM Menu
of Services

GDM Engagement
Margin Example

Click the mouse on
each topic above to
be directly linked

See Assurance GDM – US for a detailed listing and descriptions of services offered by

PwC the SDCs, as well as tools and technologies used and user guides 24

Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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GDM Introduction GDM Engagement Margin - Example

GDM Benefits Market Scale Southwest Associate – Southwest Associate - GDM
Rate Orange County Phoenix Staff
GDM Menu $140 $140 $120
of Services Amount billed
per hour* $200 $200 $200
GDM Engagement
Margin Example Resource $76 $70 $25
Share Rate
Click the mouse on 62% 65% 82.5%
each topic above to Engagement
be directly linked Margin %

*Amount billed represents the rate per hour on the engagement rather than the individual

Note: GDM Market Scale Rates are discounted based on the host market and that of the new
associate rate of the host market. The discount is also seasonal, i.e., busy season vs non busy
season. Resource Share Rates remain consistent across geography, throughout the year.

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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Improving EM Ways to Improve Engagement Margin

EMT for Recurring Increase Fees – Negotiate with the client for yearly rate increases and to
Engagements bill additional time not otherwise addressed.

Click the mouse on Reduce Costs – Identify specific engagement tasks to leverage
each topic above to downward and utilize GDM resources.
be directly linked

Identify Efficiencies – Automate processes using technology, reduce total
hours, reference previous experiences—don‘t give away efficiencies by
lowering rates.

Utilize available Project Management tools to plan, price and monitor
engagement profitability. Address variances to IPR early.

Manage AR Balances– Bill and collect timely based on agreement.

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Objectives & Engagement Margin – The Basics Scoping Pricing Leverage Global Delivery Model Improving EM
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Improving EM Improving Engagement Margin

EMT for Recurring EMT - Benefits:
Engagements
• EMT calculates budgeted financial metrics, and predicts final engagement
Click the mouse on results based on original budget, actuals to date (GFS) and estimates to
each topic above to complete
be directly linked
• Provides instant visibility into current status and project metrics

• Less need to pull WIPs or manually create budget to actual analysis

• Real time resource usage information, allowing redeployment or reallocation of
work

• Early identification of possible adjustments, allowing time for remediation

• Performance variances may be avoided by reviewing your engagements timely
in EMT, thus improving your EM%

• Highlighting additional time not otherwise addressed to allow for timely client
discussions

• Benchmark data to improve future budgeting

Click here to visit the EMT Web Spark page

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