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Time tracking is an area that most creatives vehemently oppose.  “It’s a creative process, we don’t know how much time it will take.”  or “It depends on the person and the project.  Sometimes it’s quick and sometimes it’s not.”  These are valid arguments.  These arguments can be applied to other service based businesses as well.  I can assure you, I don’t like time tracking either and when I hire bookkeepers, some are faster than others.

Even though the argument is valid, you still have to find a way to price projects appropriately, track work in process, and measure profitability.  Like it or not, time is the best measure.  That’s not to say there aren’t other ways of estimating.  You have to figure out the easiest, best way to reasonably approximate how much effort each project takes.

In my own business, I quote similar projects a lot.  No two projects are exactly the same, so I never know exactly how long things will take or, when I use a contractor, how quick they will be.  The other big variable is the nature of my clients.  I work with creatives… I never know how much crazy is coming down the tracks.

There are many different variations in how creative firms are managed.  Some owners are pretty organized and/or have systems in place, some want to track down to the littlest detail (often out of fear of not seeing something…that’s a different article), and some have absolutely no processes or systems and are resistant to putting them in place.  So even if the project looks exactly the same, there could be an entirely different amount of cargo on that Crazy Train.

By tracking time and costs to each project and using my experience to scope out projects and understand the business in question, I can get a better handle on pricing the next similar project.  If you don’t collect information on each project, you’ll never be as good at pricing and understanding what’s coming down the tracks as you could be.  Of course, that can lead to lost profits.  How do you estimate how much cargo is on the next Crazy Train?

Time tracking is a subject that causes many a manager’s eyes to roll.  The concern is understandable.  Most of us have experienced the negative consequences that occur when bad time tracking practices are employed.  Time tracking can be a major headache, if you get too granular and it can make employees feel like “the man” is watching their every move.  There are ways to implement time tracking that minimize the commonly quoted reasons for hating the policy, but first you need understand why time tracking is important (even if you bill on a fixed fee basis).

When you track time, you are gathering data that will allow you to do project costing.  This is especially important when you’re working on a fixed fee.  I once had a client who bid a project low because it was a good publicity piece.  Since they knew it was going to be a loser, they didn’t bother keeping up with the project cost reports.  When the project was finished, they finally took the time to review the time data they had gathered.  Guess what?  The project was over budget by 400%!  The designers went crazy trying to make it the best piece ever. Why?  Because no one gave them a limit.  When you actively monitor your project time and budgets, you can give your employees a sense of the project scope and keep scope creep under control.

Project costing information also helps you price future projects.  Take the above situation, for example.  With the time and cost information on that project, the client is armed with useful information for a similar quote request.  Sometimes a project is over budget because of poor project management and sometimes it’s just a bad quote.  Managers will have to do their own due diligence to determine why the project went south. The time tracking information will help them figure out the problem on current projects and will be a great resource for future project pricing.

A major benefit of time tracking is the ability to value work in process.  When you bill on a fixed fee basis, it’s difficult to match your revenue to the expenses in any given month, if you aren’t tracking time.   Using the time applied to various projects will allow you to calculate the value of the work performed during the month, whether or not you invoice it.  The matching principle is a fundamental of accounting and for good reason.  When you can match revenues to expenses, you get an accurate profitability picture.  The sooner you see accurate financial reports, the sooner you can make better business decisions.

In addition to accurate financial statements, monitoring the value of your work in process will allow you to see potential cash flow problems in advance.  For example: A client who was tracking work in process, but wasn’t monitoring it, came to me with cash flow concerns.  They didn’t understand why their sales were fantastic, their revenue was good, and collections were going well, but there was no cash in the bank.  A review of their balance sheet trends revealed a rapidly growing work in process account.  They were doing a lot of work through the months, but there was a break down in the invoicing process.  Projects were either not invoiced after completion, or they were stalling out before completion.  If they had been monitoring the work in process, they could have seen this problem and made corrections before they had a cash crunch panic.

Now that we’ve reviewed some excellent financial reasons for time tracking, let’s take a look at some other benefits that will help everyone feel better about the policy.  One way that time tracking helps your employees is it allows you to “right size” your staff.  I’m sure you’re thinking: “My employees are NOT going to like me hounding them about productivity and laying off their co-workers, if we don’t have enough work to keep everyone productive.”  You’re right; your employees won’t like that.  But, let’s flip that around.  Instead of looking at the negative side of right sizing, let’s look at the positive side.  I had a client whose employees were constantly complaining they were overworked.  With the time tracking information, we were able to finally see, in real numbers, that they were overworked.  Not only could we see areas of the business where they were over-staffed, we could also see where they were under-staffed.  The overworked employees were very happy to have some of their workload shifted to others.  Keeping your staff from burning out is just as much a productivity concern as having too much capacity.

For owners and salaried employees, time tracking can also lead to a better work/life balance.  The very act of tracking how you are spending your time will make you more productive.  It’s very sobering to see the inefficiencies in your day.  If you see it, you can do something about it.  This information will help you justify the need to delegate or outsource tasks that you are taking too much of your time that would be better spent elsewhere.  You’ll also see areas where you can adjust your work habits to get more out of your workday in less time.

The bottom line…. Time tracking is a pain, but there are many benefits. You don’t have to track every single moment of the day to get measurable results. Strive for capturing at least 80% of the workday.  When you implement the new time tracking policy, speak to your employees in terms of the benefits they’ll see, like keeping their risk of burn out at a minimum.   Also, a better bottom line for the business means more opportunity for bonuses and salary increases.  The whole company should benefit from better performance.

~Kelly

No one likes tracking their time, but it is important, even if you bill on a fixed fee basis. Here’s why…

1. It allows project costing of your fixed fee projects which can help you stay on budget and profitable.
2. It gives you the information you need to price future projects.
3. You’ll know how much time and money you’ve spent on R&D projects, so you can take advantage of any available tax credits.
4. Your bookkeeper/accountant will be able to generate more accurate financials because you’ll have the information to value work in progress.
5. The accurate financials will allow you to view your financial trends. Watching your trends allows you to make decisions early, so you don’t end up in a cash crunch panic.
6. Time tracking for business owners and salaried employees can lead to a better work/life balance. You’ll see any areas where you aren’t being productive and you can adjust your work habits to get more out of your work day in less time.
7. You can value the time you’re spending on tasks outside of your expertise and make an informed decision about outsourcing those tasks.
8. You can right size your staff. By gaining visibility in how time is spent, you will see when your staff is in danger of burning out. On the flip side, too large of a staff means lower profits and bonuses, so you’ll be able to see the need to downsize as well.

The bottom line…. Time tracking is a pain, but there are many benefits. You don’t have to track every single moment of the day to get measurable results. Strive for capturing at least 80% of the work day. Also, explain the benefits of time tracking to your employees before implementing the policy. Speak in their terms…what it means for their life (work/life balance, bonus potential…).

~Kelly