Bookings-Billings-Backlog (BBB) – Performance Metric

I came along this term during my tenure as a lead for a consulting service group. The Bookings-Billings and Backlog was extensively used to understand the pulse of the services business. Looking back into my engineering days, the concept is similar to the fluid flow problem. Let’s take a water tank example and let’s assume that there are two taps attached to it. One of the taps (Bookings Tap) is pouring water into the tank and the other (Billings Tap) drain water out of the tank. The Backlog is the amount of water inside the tank. The challenge for companies is to make sure that the level of water inside the tank is steady or changing steadily. A change in the Backlog is the first indicator that the business is changing and corrective actions have to follow. A fast or an abrupt change indicates that the data was inherently inaccurate or the visibility was being hidden.

If the backlog rises faster – it is an indication that the business is growing. The decision maker has to decide on how to meet the changing requirements. While having a good Backlog is a good sign, it usually has a limited lifespan in the competitive world. The decision maker has to quickly decide on how to serve the backlog or the bookings may be cancelled and the backlog may disappear. There are two ways for servicing backlog. You can either open the billings tap more or spread out the bookings to future time buckets. By draining the billings faster – You can put more resources on the project/projects to service the billings. If you feel that the increases in billing are sustainable and cannot be serviced by the current structure of the organization - then decide on hiring more people in the organization.

If the backlog is decreasing then it is an indication that the business is shrinking and emphasis should be made to increase the bookings and rethink the billings strategy. Bookings are dependent on Sales which in itself has a high level of uncertainty. For the services industry there is more control on the billings and actions have to be taken to manage the workforce based on the billings projections. I have lived through a company where the bookings kept of steadily decreasing over time. The initial reaction was that it was a fleeting reaction of the market and no major corrective actions were taken. In the long run the number of projects went down and the people on the bench were increasing as well as the cash burn rate of the company. The smart manager would look at the metric (Shrinking Backlog) and take quick corrective action. As I had written in my earlier article (The Art of Prediction – Manage Risk ) – all the metrics can be made visible but if not correlated with experience the benefit of early visibility is negated.

Spreading or leveling the bookings is a way to manage risks – (also known as Mura – borrowed from Japanese). It is prevalent in any industry – manufacturing or services. Leveling of bookings ensures that the growth or downturn of the business is manageable and revenue risks are mitigated. A rapid change in bookings or billings can create an unsustainable environment. It causes “Muri – borrowed from Japanese” – which means stress in the organization, people and machines. In such an environment, people are challenged to be creative and do things that are against the norm which more often than not can cause execution of not so well thought out decisions.

My learning’s from managing a services organization was threefold. The first was to manage the organization based on BBB and always be on top of the Backlog metric. Backlog is like the early warning system to indicate whether the business is growing or shrinking. The second was to take quick corrective action to mitigate the risk of failing to meet the changes in the bookings. The last one was to level out the bookings and billings and manage the growth or the downturn to guarantee a soft landing.