I read the new Cella 2021 in-house creativity report and a statistic from the report caught my attention. It states that 43% of the recipients surveyed do not use a timesheet, a tool that helps track time. That is incredible given that they deliver projects to their clients (albeit internal ones.) Nowadays, there are many alternatives to timesheets. One of them might be the right fit for your business.
I say this because the idea of any professional services business not to track time is unusual (to say the least). The principal asset of these types of organizations is their people, whose knowledge, skills, and time they sell to their clients.
It seems impossible to track the profitability of work done without knowing the time each employee spends on a project or client. Time reporting is the fundamental building block of most of the KPI’s of any professional services business.
If recorded accurately, timesheet data gives invaluable insight into the profitability of the business’s projects, clients, and lines of business. As well as the utilization of the team.
Why don’t businesses track time?
With that all said, I have worked with some businesses that do not track time arguing that:
- Relying on employees to complete time accurately is impossible because:
- The employee forgets: there is typically a gap between the hours worked and the timesheet entries made.
- The employee “adjusts” hours to meet expectations.
- The cost of chasing employees to complete their timesheets is an unwelcome overhead.
- Employees are typically paid a salary, not an hourly wage so there is a question as to what to do with overtime.
- There’s no easy way to estimate cost and sales rates proactively as there is a load of variables. This means that even accurate data may be misleading.
- If standard costs are used, how to manage under/over recovery of costs? (explanation of these terms below)
- Most work is now either fixed-price or capped-price in any case.
- And so on…
That does not mean that these organizations do not track the work their employees do but they have chosen to do so differently. Below are some alternatives to timesheets:
The employee is given a certain number of tasks to complete in a period of time (typically a week). Once the employee has completed these tasks, their work is done. They can then choose to spend any surplus time on business development, personal development, or additional work.
- The main benefit of this is that this incentivizes employees to complete their tasks as quickly as possible. If related to a good bonus scheme, they do additional work.
- Estimates for the time a “task” takes are likely to be more accurate. A worker is unlikely to estimate 4 hours for a task that takes 16 which will be a good counterbalance vs the client and project manager wanting the work to be done to a budget.
- However, there is a downside. The company still needs to establish a way to ensure the tasks recover the employees’ costs and the business overheads.
I once worked with an agency that took the above approach to the next level when searching for alternatives to timesheets. Employees were allocated tasks as above, however, the difference was that employees were paid for every task completed. They were paid a small basic salary, but most of their income was related to the level of chargeable work that they did.
The agency concerned also used this model to get employees to help work on business development. They knew that their income stream was contingent on the agency having chargeable work for them to do.
The pros for this approach are:
- This is a great solution for a small agency that does not want to have a high fixed staff cost. (In most agencies this is 65% – 80% of operating costs.)
- The “employee” is incentivized knowing that they get paid more for the more tasks they completed.
- “Employees” will be much more motivated to work on business development when there is less work as it’s in their direct interest to ensure a full pipeline of work.
The cons for this approach are:
- There are few labor markets where this type of remuneration model is accepted. For example, the agency that I am referring to was based in Poland.
- Few (if any) creatives would accept this remuneration model.
We are, however, moving towards a gig economy and many agencies happily use freelancers today. So this may not seem that farfetched.
Resource Plan based
This is a similar alternative to timesheets to the task-driven approach, but the employee’s time is managed by a “resource planner.” The planner will assign a resource to a project for a certain period.
The employee is expected to have worked on the project for that period and only notifies the planner if he/she is likely not to complete the work. After this, the work is re-planned.
- This requires the allocated time to be reasonable to complete the task. Typically, this is based on past experience.
- However, there is a risk that the planner underestimates the amount of time required per task. Therefore, the employee must work long hours to get the work done.
This method is an alternative to timesheets because the agency is looking at the situation from a macro level. The agency focuses on the cost base per month and tries to sell/deliver work until that cost base is covered. The aim is to sell enough work to cover the cost base.
Any income above this base is profit. For example, if the business has a cost base of $100k the team will sell and deliver at least that to break even. This works well for agencies that have a lot of “retainer” type work or fixed-price projects.
There’s an issue with this. The company still must estimate the time taken to deliver the work to quote. If they need to bring in freelancers, the calculation becomes more complex
I am sure that there are other alternatives to timesheets. I have talked about the ones that I have personally seen in agencies or professional services businesses.
That all said, I still believe that timesheets are the most effective way to manage the actual work that the agency’s staff does.
It is also getting easier and easier for employees to complete time accurately. Some of the arguments against their use are not as strong as they were even 5 years ago. For example, check out this article I wrote on LinkedIn that shows how straightforward it is to do this in WorkBook
There are also things you can do to incentivize people to complete timesheets. I explain more about this in this article
As I said above, timesheet data is key in providing the raw data for the agency’s KPIs. It also makes it very easy to be transparent to clients.
For example, something to bear in mind is that none of these alternatives address any potential client audit requests.
Do you use timesheets in your agency? If not, do you use one of the alternatives that I have suggested, or does your agency use something else?
Under/Over recovery of costs.
The business calculates a standard cost for their employees based on the following estimates:
- Chargeable hours worked.
- Budgeted Employee Costs.
- Budgeted overheads.
This standard cost is then used to calculate actual project/client costs. However the actual chargeable hours, costs overheads will not be the same as the estimates. The result is the aggregate of the standard costs will not be the same as the actual costs incurred by the business.
Under-recovery of costs is when the total standard cost incurred is less than the actual cost incurred by the business. This means that clients/projects appear to be more profitable than they are.
Over-recovery occurs when the total standard cost incurred is more than the actual cost incurred by the business. This means that clients/projects appear to be less profitable than they actually are.
As you can see, there are many alternatives to timesheets your agency can use. It’s just a matter of finding the right one for your business.
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