Tracking time is fundamental to improving the efficiency and profitability of service based organizations.
If you’re not a believer, just consider the following analogy: No manufacturer would sell widgets without knowing the cost of the components that make up their widgets. This allows them to set a price on their widget such that they make money when they sell one. Similarly, no service based organization should sell services without understanding the cost of their services. For service based organizations, 90% of costs are people-related. Thus, a poor understanding of people’s time translates into a poor understanding of the cost of services provided.
Despite being analogous to selling widgets without understanding the cost of those widgets (which would be absurd for any manufacturer to do), many service based organizations either don’t track time at all or don’t do it very well. And we all understand why - tracking time is really hard, no one likes it, and few people do it well.
You Can't Fix What You Can't Measure
Many organizations simply look at their cost and their revenue at the end of the quarter or year and make sure they’re still operating profitably. Of course, this works, but the manufacturer could also do the same. The important part is that they don’t. The reason they don’t do this is because, by actually understanding the cost of the components that make up their widgets, they are able to improve margins by:
- Charging more per widget (analogous to charging more per hour for services provided or obtaining a bigger budget) OR
- Paying less for the components that make up a widget (analogous to staffing a project with more junior level employees who cost less and are higher margin)
The classic adage - you can’t fix what you can’t measure - is as true as ever in this scenario. If you don’t understand the cost of your services, then you can’t expect to improve your margin or profitability, or even understand which services are more profitable than others. If simply being profitable at the end of the quarter or year is enough for you, then I would recommend that you stop reading here.
If you’re not satisfied with just “getting by”, and are interested in improving profitability, then keep reading.
Here’s the truth - tracking time is hard. Because of this people don’t like completing timesheets, they’re inaccurate, and they’re rarely done on time. This is unfortunate for service based organizations, given that timesheets determine the cost of providing service based work.
If you are able to get a better grasp on this information in a more real-time fashion, then you, like the manufacturer, are able to determine how you can improve your business. At this point, the question is - how do you do that?
How You Can Improve Your Business With Better Data
Let’s just assume that we lived in a world where it were easy to get accurate timesheet data across your service organization. If this data were rich and flowed easily to your management team, what would you be able to do with that data? You would be able to improve operations - understand and improve utilization, increase profitability, boost margin, and even elevate employee happiness.
If you had real-time and accurate timesheets, then understanding utilization would no longer be a concern. You would be able to trust your utilization metrics, and drive real business value from such data. You could shift resources around to match target utilization figures, understand hiring needs, and relieve employees risking burn out, to name a few ideas.
Know Where Your Projects Stand
Understanding where projects stand is not a problem of math, but rather, it’s a problem of inaccurate and untimely timesheet data. In our hypothetical world with perfect data - such as the type the manufacturer has - you’ll have real-time insight into project progress, margin, profitability, and more.
Over servicing is one of the biggest problems in the services industry. Many factors may cause over servicing and even encourage it (keeping your client happy, for one), but one thing is clear - you’re in dangerous waters when you simply don’t know that you’re over servicing your client.
Boost Margin and Increase Profitability
With data of the type we’re talking about - you’ll have a pulse on your project margin and profitability. Improving margin is often a problem of having less senior employees spending a greater majority of time on a project than his or her more senior colleagues. Margin will also be affected negatively by over servicing, which we spoke to in the section above.
More Efficient Resourcing
With a better idea of what people are working on and for how long, you’re able to use this information to course correct and/or more accurately forecast and resource future projects. Without good historical data, however, forecasting based on past projects may be a futile effort.
In summary, time tracking is critical for service based organizations who want to optimize the delivery of their projects and by doing so improve employee happiness, resourcing, margin, and profitability.