Northwind Consulting does not exist. Neither do its clients, its numbers or its problems. Everything below was written for this lesson, and nothing in it should be cited as fact about anything.
Read it once, at the speed you would actually read a board paper. Don't study it. Then go to Lesson 2. There is a plain-text copy at files/northwind-q3-memo.txt if you want to attach it to a chat.
To: Board of Directors, Northwind Consulting Ltd
From: R. Adeyemi, Chief Operating Officer
Date: 21 July
Subject: Q3 trading, quarter ended 30 June — papers for the October
session
Classification: Board confidential. Not for circulation to practice
leadership.
This memo reports trading for the quarter ended 30 June and sets out the matters on which the Board is asked to decide at the October session. It supersedes the interim note circulated on 14 July, which understated bench cost by approximately £40k owing to a misclassification in the Leeds ledger. Figures are unaudited. They exclude the Harbourview receivable in dispute, which is described at section 7 and carried at nil pending resolution.
Sections 2 to 5 cover trading. Sections 6 to 9 cover the cost base, delivery and commercial position. Sections 10 and 11 are standing items. Section 12 lists the decisions required.
Net revenue for the quarter was £14.2m against a plan of £15.1m, a shortfall of 6.0%. Contribution margin was 31.4% against a plan of 33.0%. Cash conversion lengthened to 88 days against a plan of 72, of which roughly nine days is attributable to a single public-sector client moving to a consolidated quarterly payment run.
The revenue shortfall is concentrated in two practices and is substantially a phasing effect. Three engagements originally scheduled to commence in June now commence in September; the associated £0.6m falls into Q4. Adjusted for that phasing, the underlying shortfall against plan is nearer 2%, which is within the tolerance the Board set in April. Margin, however, is not a phasing effect and is discussed at section 4.
| Practice | Actual (£m) | Plan (£m) | Variance | Prior year (£m) |
|---|---|---|---|---|
| Public Sector | 5.1 | 5.0 | +2.0% | 4.6 |
| Financial Services | 4.3 | 5.2 | −17.3% | 5.0 |
| Operations & Supply | 3.2 | 3.1 | +3.2% | 2.9 |
| Technology Advisory | 1.6 | 1.8 | −11.1% | 1.4 |
| Total | 14.2 | 15.1 | −6.0% | 13.9 |
Financial Services accounts for the whole of the group variance and rather more besides. Two of the three deferred engagements sit in that practice. The third sits in Technology Advisory, which is otherwise growing year on year and is not a cause for concern at this stage. Public Sector and Operations & Supply both ran marginally ahead of plan, in both cases on volume rather than rate.
Group chargeable utilisation was 68.2% for the quarter against a target of 74%. The distribution matters more than the average. Public Sector ran at 79.4% and has been running hot for three consecutive quarters; Operations & Supply at 73.1%; Technology Advisory at 70.6%; Financial Services at 59.1%, its lowest reading since the practice was established.
Eleven consultants across the group had no chargeable assignment scheduled beyond four weeks at the quarter end, of whom eight sit in Financial Services and six are at Grade 4 or above. Direct bench cost in the quarter was £410k, against £255k in Q2. This is the principal driver of the margin variance at section 2 and it is not a phasing effect. It will recur in Q4 unless the Financial Services pipeline converts, or unless those consultants are redeployed to practices that are demonstrably short of capacity.
The obvious internal redeployment — Financial Services consultants into Public Sector, which is the practice running hot — has been attempted twice and has worked poorly both times. The framework accreditations required for most Public Sector work are individual, not corporate, and take between nine and fourteen weeks to obtain.
Weighted pipeline at the quarter end stood at £22.6m against £24.9m at the same point last year. The headline number is not the concern. Conversion is.
Conversion from qualified opportunity to signed engagement fell from 31% to 24% over four quarters. Average elapsed time from first substantive meeting to signature lengthened from 47 days to 63. Both movements are group-wide rather than practice-specific, which argues against a practice-level explanation. The commercial team's own view, recorded in the June review, is that bid documents are being assembled too late and by whoever is available rather than by whoever knows the client, and that this shows in the quality of the submissions. Two competitive losses in the quarter were to the advisory arm of Meridian Software, in both cases on a proposal that the client described as better tailored.
No formal bid function exists. Bid work is absorbed by engagement managers alongside delivery, which is also part of the utilisation picture at section 4, since bid hours are not chargeable and are not currently recorded consistently.
Establishment closed the quarter at 128 fee-earners and 31 in support functions, unchanged on Q2 in net terms: four leavers, four replacements, all at or below the grade vacated. Voluntary attrition ran at 11.2% annualised, which is below the sector figure the Board reviewed in April and is not currently a concern, although it is worth noting that three of the four leavers were in Financial Services.
Non-staff cost ran £120k above plan for the quarter, driven by the Leeds office fit-out (£74k, one-off, complete) and a professional-indemnity premium increase (£46k, recurring, reflected in the reforecast). The guidance issued at the July session applies to this planning cycle and is unchanged: no recommendation brought to the Board may assume additional headcount. Support-function cost per fee-earner was £24.1k on an annualised basis, broadly flat year on year, and the finance team's reforecast assumes no movement in that ratio for the remainder of the year. The Leeds lease break falls in March and is dealt with in the property paper circulated separately.
Three formal escalations were recorded in the quarter, against two in Q2 and one in Q1. The trend is upward but the absolute numbers remain small and two of the three have closed.
Harbourview. A dispute over scope on the operating-model workstream. £340k has been invoiced, of which £190k is contested on the basis that the target-operating-model design was, in the client's account, agreed as a fixed-price deliverable rather than a time-and-materials workstream. Our engagement letter is not as clear on this point as it should be. The relationship partner has met the client twice. The Q4 renewal at section 8 is the material exposure here, not the invoice.
Lumen & Co. A delivery lead was changed mid-engagement following an internal reallocation. The client escalated, the original lead was returned for the remaining six weeks, and the escalation is closed. The client has confirmed in writing that it regards the matter as resolved.
Public-sector client (named in appendix B). A reporting-format disagreement, resolved within a fortnight, closed. Noted for completeness.
| Client | Annual value | Renewal date | Assessment |
|---|---|---|---|
| Harbourview | £1.80m | 14 Nov | At risk — see section 7 |
| Lumen & Co. | £0.95m | 1 Dec | Likely to renew |
| Central government framework | £2.40m | 31 Dec | Recompete, not renewal |
| Regional bank (FS) | £1.10m | 30 Nov | At risk — sponsor departed |
| Logistics group | £0.60m | 15 Oct | Likely to renew |
Two renewals are assessed as at risk, together representing £2.9m of annual value. The Harbourview position is described at section 7 and turns on the scope dispute rather than on delivery quality, which the client has not criticised. The regional bank position is different in kind: our executive sponsor left the client in May and her successor has inherited a cost-reduction mandate. There is no dissatisfaction on record. The central government framework is a recompete rather than a renewal and is treated as new business in the pipeline at section 5, which is why it does not appear in the renewal retention rate.
The licence consolidation completed in May has removed £62k of annualised cost, slightly ahead of the £55k estimated at approval. Two further consolidations are scheduled for Q4 and are expected to be smaller. The data-room platform contract renews in February and the procurement team has been asked to test the market.
Spend on generative-AI tooling, previously reported under a discretionary line, is now reported separately at £38k for the quarter. Adoption is uneven: Technology Advisory and Operations & Supply account for most of the usage. There is no policy on the use of these tools in client deliverables, and the professional-standards committee has asked for one by the end of the calendar year.
Two risks were raised in the quarter and one was closed. Raised: concentration in the Public Sector practice, now at 36% of group revenue against an appetite of 30%, scored amber; and bid capability, arising from the conversion analysis at section 5, scored amber. Closed: Leeds office readiness, following completion of the fit-out.
The concentration risk is noted rather than actioned. Reducing it by growing elsewhere is the strategy of record; reducing it by declining public-sector work is not proposed.
Nothing to report beyond the annual conflicts attestation, which closed with a 100% return on 30 June. The two conflicts declared were both historic and both cleared by the professional-standards committee without conditions. The committee's request for an AI-in-deliverables policy is recorded at section 9 rather than here, as it is not currently a regulatory obligation.
The Board is asked to decide three things at the October session.
Appendices A–C circulated separately. Prepared by the office of the COO. Queries to the COO's office in the first instance and not to practice leadership.