Adv 330 On The Fly 2spring Semester 2021due Tuesday March 9 2 ✓ Solved
ADV 330 / “ON THE FLY†#2 Spring Semester 2021 Due: Tuesday, March 9, 2021 @ 11:59pm EST Grading: 100 pts. for a “dead solid perfect†answer – right outcome/solid rationale 50 pts. for right outcome + weak/flawed rationale 0 pts. totally missed missed the plot on this one Doug Terry, one of the two account supervisors in your group, walks into your office one fine morning and proceeds to tell you that the Chief Marketing Officer for High West Financial Services, one of the five clients in your account group, is questioning the agency’s billing practices. Specifically, the client is questioning the hourly charge out rates for employees working on the account under the agreed contract/services agreement.
As the Group Account Director on the High West business, you - along with the agency’s CFO - handled the contract negotiations with the High West CMO that resulted in the approved contract/services agreement, which contains an Agency Fee Addendum. Per the contract, the client has agreed that the agency will charge on an hourly basis for the time-of-staff on the High West account using a “multiplier†of 2.50 on employee direct salaries to cover direct salaries, benefits, overhead, and includes a provision for a mark-up of 25% (on direct employee costs). The formula for the contractually agreed fully allocated employee cost hourly charge out rate on High West is below: Direct Salary + Benefits (20%) + Overhead (Direct Salary x 1.0) +25% (direct costs) = Employee Hourly 1800 Annual Hours Charge Out Rate Doug proceeds to tell you that the agency Account Supervisor (AS) on the High West account regularly plays golf with High West’s Advertising Services Manager, and at some point, inadvertently told her that she makes ,000 working at the agency.
And while this all seems very innocent at the time, the client files this information away and quietly goes to work. What could possibly go wrong? Using the salary information provided, the Advertising Services Manager computes that if the AS works 40 hours per week, that the AS’s time on the High West Financial account would total 2,080 hours per year. Doing the math using the ,000 salary information she obtained purely through happenstance from the AS, the High West Advertising Services Manager computes that the ASs charge out rate is .61/hour. The Advertising Services Manager goes back and checks the “math†against the charge out rate for the AS position of 0.00/hour as outlined in the Agency Fee Addendum to the contract, and determines the agency is overcharging High West .39/hour for the AS’s time on the account.
The Advertising Services Manager goes to the High West Chief Marketing Officer with this information, and the CMO immediately calls Doug to set up a meeting the following morning at 9:00 a.m. and wants a “full and transparent review†of the agency’s billing practices and charge out rates for employees on the High West account. Continue to The Big Question …. HERE’S THE BIG QUESTION Is the Advertising Service Manager’s assertion regarding the agency’s “over charge†on agency time-of-staff on the High West Financial Services correct? YES _____ NO _____ The rationale behind your answer:
Paper for above instructions
Title: Analysis of High West Financial Services' Assertion on Overcharging PracticesIntroduction
In the realm of business partnership and marketing agencies, billing practices often become sensitive subjects. High West Financial Services' assertion about overcharging based on the charge-out rates of the agency's staff warrants careful evaluation. This paper analyzes the validity of the claim made by the Advertising Services Manager at High West regarding the overcharge related to the agency account supervisor’s hourly rate by examining the contractual agreement, the mathematics behind employee charge-out rates, and the implications of the casual disclosure of salary information in professional settings.
Understanding the Contractual Framework
The contract between High West Financial Services and the agency specifies a charge-out rate derived using a multiplier of 2.50 applied to employees' direct salaries, which includes salaries, benefits, overhead, and a markup. The formula outlined for calculating an employee hourly charge-out rate is:
1. Direct Salary
2. Benefits (20%)
3. Overhead (Direct Salary x 1.0)
4. Markup (25% on direct employee costs)
To better understand the validity of the Advertising Services Manager's claim regarding overcharging, we will break down these components, using the salary information provided.
Calculating Charge-Out Rate
Using the provided salary of ,000, we can compute the charge-out rate based on the contractual formula.
1. Direct Salary: ,000
2. Benefits (20%): ,000 * 0.20 = ,400
3. Overhead: ,000
4. Direct Costs (Salary + Benefits): ,000 + ,400 = ,400
5. Markup (25%) on Direct Costs: ,400 * 0.25 = ,600
6. Total Costs: ,400 + ,600 = 8,000
To find the hourly charge-out rate, we calculate this total annual amount divided by the total annual hours worked (2,080 hours in this case):
Hourly Charge-Out Rate = Total Costs / Total Hours
= 8,000 / 2,080 hours
= .92/hour
Analyzing further, we note that the 0/hour charge-out rate specified in the Agency Fee Addendum is already a predetermined rate, taking into consideration the previous calculations. Thus, even though the calculation suggests a lower hourly rate than originally concluded, it remains that the agency is following contractual agreements regarding hourly charges.
Verification of High West’s Assertion
The Advertising Services Manager calculated the hourly rate as .61/hour, derived from ,000 over 2,080 hours without factoring in the contracted terms. This calculation is incomplete and does not accurately reflect the rate charged as per the contract. The agency's charge-out rate of 0/hour for the Account Supervisor is well above the calculated .92/hour rate, affirming that the agency's billing practices are not erroneous.
Additionally, the implication that salary disclosure led to an assertion of overcharging reflects a misunderstanding of contractual agreements and methodologies employed to account for various costs. It is crucial to communicate clearly that salary alone does not dictate charge-out rates, which include various business operational costs.
Relational Dynamics and Transparency
The case displayed an organizational communication flaw where an innocent discussion about salary led to misinformation. Agency employees must understand that even casual disclosures may lead to significant implications. While transparency is essential in client relations, it is equally crucial to uphold confidentiality regarding salary structures (Sweeney, 2019).
Moreover, the importance of establishing professional boundaries cannot be overstated. The relationship between agency personnel and client representatives should foster professional integrity, where financial discussions are grounded in contractual obligations rather than anecdotal beliefs about salaries.
Mitigating Future Conflicts
To prevent similar incidents in the future, it is recommended that both parties engage in annual or semi-annual reviews of the contract terms and billing practices. Such reviews should include thorough financial documentation that elucidates how rates are derived and the considerations (benefits, overhead, and markup) factored in to prevent discrepancies from arising based on casual conversations.
This approach reinforces trust and clarifies any ambiguities surrounding billings and expenditures concerning clients (Meredith, 2020). Training staff regarding the implications of disclosing sensitive financial information and clearly defining roles and responsibilities can further safeguard against potential misunderstandings (Hemphill, 2018).
Conclusion
In conclusion, High West Financial Services’ assertion regarding the agency overcharging based on the casual salary disclosure by the Account Supervisor is unfounded. The calculations as per the contracted agreement demonstrate that the 0/hour charge-out rate is justifiable under the agreed-upon terms. This case serves as a pertinent reminder of the need for transparent communication, adherence to contractual obligations, and the importance of maintaining professional boundaries within business relationships.
References
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