What if the partner with the fee book leaves?
Almost every year this costs nothing at all, which is exactly why nobody budgets for it. Price the book that walks, the recruitment, the ramp and the cover, and the exposure turns out to have a mean that never actually happens.
Work Advanced Monte Carlo Pro engine
After you install, this is the model to open.
What Does Losing One Person Cost?
- In your spreadsheet, click the Sortia icon in the strip of icons down the right-hand edge. No strip? Click the arrow at the bottom-right to open it. You can also use Extensions, then Sortia, then Open Sortia.
- Click Start from a template and put that name in the search box.
- Pick the card with that name and click Load this template. It arrives on a new tab with real numbers already in it.
This one runs on a Pro engine, and every free install includes five full-quality runs on your own numbers, shared across all five Pro engines rather than five for each. After that, Pro is $199/year.
The answer
- Most years
- $0 exactly zero in 88% of 20,000 trials
- The provision
- $47,527 the mean, a number no single year produces
- When they go
- $396,000 the average of the years it happens
- The year to survive
- $407,000 P95, more than the whole partner draw
One partner, a $680,000 personal fee book, and four costs that only exist if they go: the margin on the clients who follow them, the recruitment fee, the margin the empty seat does not earn while a replacement ramps, and the cost of covering live engagements in the gap. Every one of those is multiplied by the leave flag at the top of the sheet, which is drawn as a coin that comes up once in eight years.
Click Run on the twenty thousand trials the template loads with, and read the shape of the output before you read any number, because the shape is the lesson. The exposure is exactly zero in 88 of every 100 trials. The median is zero. P80 is zero. The mean is about $47,500, and $47,500 is a number this model never once produces. It is the average of a great many nothings and a few somethings, and the somethings average about $396,000.
That is what an expected value is, and it is why the honest way to carry this on a plan is a provision at the mean plus a note about the tail, not a line item you expect to spend. The tail is the argument. P90 is about $347,000 and P95 about $407,000, which is the year you would actually have to survive, and it is more than the whole partner draw.
Second run, and it is the one that turns the model into an action. Narrow the share of the book that follows them out to a PERT of 0.10, 0.20 and 0.30, which is what a genuine joint-relationship policy buys rather than a hope. The mean falls to about $41,500 and P95 falls to about $353,000. So introducing a second name to every client is worth roughly $6,000 a year in expectation and takes about $54,000 off the bad year, while the recruitment, ramp and cover costs do not move at all, because no relationship policy shortens a hiring process.
That is usually cheaper than the retention bonus people reach for first, and now it is a number rather than an argument. What this cannot tell you is whether they are going to leave. The one-in-eight is a base rate, not a read on the person, and if you have a reason to think this year is different then the thing to change is that draw rather than to trust the default.
To adapt it, use the fee book of the person you are actually worried about, set the follow-out share from what happened the last time somebody senior left, and set the months to full rate from how long your last hire really took to bill rather than from what the offer letter said.
The model
It arrives on a tab called Template: Key Person Exposure:
| The partner leaves this year (1 = yes) | 0 |
| Fee book they personally hold ($) | 680000 |
| Share of that book that follows them out | 0.35 |
| Gross margin on fee income | 0.42 |
| Margin lost on the book that follows ($) | 0 |
| Recruitment fee for a replacement ($) | 85000 |
| Months before the replacement bills at full rate | 7 |
| Monthly margin the seat should earn ($) | 24000 |
| Average share of full rate during the ramp | 0.45 |
| Margin lost while the seat ramps ($) | 0 |
| Cost of covering live engagements in the gap ($) | 95000 |
| Total exposure this year ($) | 0 |
| The year carries no exposure at all (1 = yes) | 1 |
Once it is in your sheet
- The model arrives with real numbers in it and runs as it stands, so you can press the button first and understand it second.
- Change the numbers to yours. The sheet marks which cells are inputs and which hold formulas, and most labels carry a note explaining the row.
- Press the run button at the bottom of the panel. It is labeled for the tool you are in, and the result lands on its own tab, with a written reading of it beside the figures.
Never used Google Sheets? Start here goes the whole way, in seven steps, and assumes nothing.
Next question
- A consulting engagement risk register ranking five risks by exposure and by mitigation value, since the two rankings are not the same list. Free template.What Could Go Wrong on This Engagement?
- Is your busiest person really the problem?Is Anyone Booked on Two Clients at Once?
- What does one conflict of interest cost you?Who Works on Which Client?
- Which client is quietly about to leave?Which Engagements Renew?
- Which date can you defend when the client pushes?Can I Promise That Date to the Client?
- What is this comp package really worth?
Every model like this one, and the method behind them: Monte Carlo simulation.