Take away timesheets, and most agency executives will proclaim the end of the world. But back when agencies were earning average profit margins of 30%, there were no agency timesheets. Talk about cognitive dissonance.
Ignition has written extensively over the years about how and why agencies and other professional firms need to join the rest of the business world and price based on the value of outputs instead of the cost of inputs. But is it possible to run a successful professional services firm without billing for the hours recorded on timesheets? Apparently so, as thousands of the most successful ones already do, including the gold standards in professional services like McKinsey.
But this article takes on the persistent concern among executives of professional services firms (PSFs) that if they lose the data from timesheets, they’ll lose essential information they need to run their businesses. Given that time tracking became the new standard in advertising agencies sometime in the 1980s, it’s understandable that a lot of agency professionals have been brought up to believe it’s the only tool they have to manage their business.
Indeed, because time reports look so precise and scientific, they create the illusion of providing crucial metrics. But the reality is timesheets tell you almost nothing about the measurements that really matter in knowledge work, and if you accept (as most PSFs do) that timesheets are not accurate in the first place, their true utility is reduced to close to zero. (Not to mention the many negative effects they produce in terms of internal motivation and misalignment of economic interests with clients, but that’s another story.)
To illustrate what timesheets do and don’t tell you, take this simple quiz.
TRUE OR FALSE
Timesheets are a measurement of:
T/F 1. Cost of completing a project
T/F 2. Quality of the work completed
T/F 3. Client satisfaction
T/F 4. Degree of project completion
T/F 5. Extent of internal collaboration
T/F 6. Scope compliance
T/F 7. Effectiveness of individuals or teams
T/F 8. Promises kept
T/F 9. Effectiveness of firm’s recommendations
T/F 10. Ability of staff to follow directions and comply with company policy
Here are Ignition’s answers:
1. COST OF COMPLETING A PROJECT
FALSE. While most agencies attempt to calculate cost based on hours entered on timesheets, they all know timesheets aren’t really providing accurate data. For a variety of reasons and motivations, team members could be entering half or double the time they actually spent on the project. But more to the point, in economic terms, time is not a cost. Salaries, rent, and office supplies are all costs, but “time” doesn’t qualify as a line item on your income statement.
2. QUALITY OF THE WORK COMPLETED
FALSE. Hopefully no explanation is needed here. It would be dead wrong to conclude that “more time” on a project necessarily means better quality.
3. CLIENT SATISFACTION
FALSE. If client satisfaction is correlated to time spent in any way, it would only be in a negative sense. What do clients want? Fewer billable hours. What do agencies want? More billable hours.
4. DEGREE OF PROJECT COMPLETION
FALSE. Timesheets tell you nothing about the degree of completion on a project. No matter that 4 hours were estimated for creative concept and 3.5 of them have already been spent; the responsible party may just be getting started.
5. EXTENT OF INTERNAL COLLABORATION
FALSE. Internal collaboration is desirable, but timesheets will never tell you if it’s happening. Indeed, they are likely to hide it, given the economic disincentive for too many people to “spend time” on a project, or meet together in a conference room to solve a problem.
6. SCOPE COMPLIANCE
FALSE. Ask a project management professional in an engineering firm what it means to manage the scope of a project and they will say nothing about hours. A project is “in scope” if deadlines are being met, hard costs are within budget, and the client hasn’t requested changes or additions beyond the original SOW — period — and hours logged don’t give you the answers to any of those questions. If the exercise of monitoring time “overages” tells you anything (remember, timesheets aren’t accurate), it would be that either the firm is poor at estimating or the project team is poor at time management — not whether the project is staying within the agreed-upon scope.
7. EFFECTIVENESS OF INDIVIDUALS OR TEAMS
FALSE. Timesheets tell you nothing about individual or team performance, and provide no basis for helping teams or individuals improve their professional effectiveness.
8. PROMISES KEPT
FALSE. As a manager, can you rely on timesheets to help gauge whether deadlines are being met? Does a timesheet tell you if the firm is keeping its promises to clients? Or if associates are honoring their commitments to one another? Does a time report help you know when the company is truly over capacity, or does it mostly reflect internal perceptions of being busy?
9. EFFECTIVENESS OF FIRM’S RECOMMENDATIONS
FALSE. Nothing in the time tracking system even attempts to measure the thing professional services firms get hired for in the first place: effectiveness.
10. ABILITY OF STAFF TO FOLLOW DIRECTIONS AND COMPLY WITH COMPANY POLICY
TRUE. In the final analysis, this is really the only accurate (and dubiously useful) information provided by the timesheet system. What proportion of your staff is willing to do as they’re told and submit a regular timesheet? If you’re looking for a leading indicator of obedience, you might as well ask them all to wear non-matching socks and see who’s willing to comply.
* * *
Of the measurements above that most professionals would agree are vital to success, what kind of tools do we have to measure them? Mostly the answer is none. Instead, we keep peering through the wrong end of the telescope, looking for evermore precise ways of measuring the wrong thing.
If you want your clients to start hiring and paying you based on the right things — your talent, expertise, and effectiveness — instead of having the lowest hourly rate, keep in mind the insightful observation of behaviorist Dan Ariely: “You are what you measure.”