[Written for Replicon co-Founder & CEO for LinkedIn]
For professional services firms, most of us concede that a few billable hours will inevitably fall through the cracks — but the actual amount of time lost can add up quickly, and is likely to be a little more than you thought.
In fact, in a Chrometa survey of over 500 professional services employees, participants estimated that they ultimately billed for just 67 percent of their actual billable time. This, of course, translates to substantial revenue leakage for employers of consultants, accountants, IT professionals, and anyone else that falls under the “professional services” umbrella and the jurisdiction of the often-unforgiving billable hour.
Below, I list a few common causes of revenue leakage for professional services firms, and a few steps you can take to remedy them:
Outdated, manual processes
Even in this age of disruptive technologies, a fair amount of professional services firms still haven’t made the leap from Excel and other manual processes to automated methods of time management, processing, and billing.
This means that the tracking of billable time relies on employees filling out spreadsheets or timecards manually with their hours, which — frankly — usually translates to employees holding off on completing them until the last possible minute. And who can blame them? Not only is trawling through multiple sources to try to determine how much time they spent on specific projects time-consuming and tedious, but it’s also not billable. By modernizing your time-tracking system, you can significantly reduce (in some cases, up to 90 percent) the amount of time your employees spend on administrative tasks, enabling them to redirect those hours where they should be — on client deliverables.
The other issue with manual processes is the potential for human error. Your employees are likely constantly on the go, and tracking and itemizing how exactly they spent their time is the first thing to fall by the wayside. But when timesheets are filled out after the fact, how accurate are they, really? Try to recall how you spent your time last week — can you accurately report your time down to the minute? Or rounded to every 15 mins? Or even every hour? If you, like many professional services employees, work on multiple projects at a time, often travel to various clients, and generally maintain a full and busy schedule, then odds are you’d be hardpressed to remember how exactly your time was spent. So when reporting billable hours depends on shaky-at-best recall, you not only lose hours due to faulty estimation, but you can also put your client relationship at risk by reporting vague or unreliable hours.
To better manage their time and projects, the majority of professional services firms have turned to a PSA solution of some sort. In fact, according to SPI’s 2016 benchmark, there’s been “increased adoption of PSA business solutions” among professional services firms — almost 80 percent now use one. However, not all solutions offer the same capabilities, and if you’re specifically looking to increase reporting accuracy for billable hours, then the key is to find one that both enables you to capture and collate time in a detailed, real-time way, and that also offers a mobile app for your traveling or remote employees.
Limited access to historical data
Professional services firms rely on predictions and estimates (project costs and timelines, hiring for boom and bust cycles, and resource utilization) so it goes without saying that the formulation of these estimates shouldn’t be an ad hoc process. But this, too, is often less data-based than we’d like to admit. If your firm doesn’t have access to detailed historical data, then your estimates are going to be more like a shot in the dark than the result of a well-documented process. Ultimately, if your estimates are off, then you’re losing time trying to pick up the slack on overrun projects, and firefighting problems that should have been anticipated.
The professional services space is seeing increasing amounts of fixed-bid projects from customers, so now more than ever you should turn to historical data to inform your decisions and safeguard your profitability from off-base estimates.
Lack of resource visibility
The determination of resource allocation is another crucial aspect of professional services processes that is too often left to guesswork or team politics. Employees vary in both skill set and workload, so tracking the skills and experience of your workforce, as well as their current and upcoming projects, allows you to assign projects to the most relevant and available resource every time. In short, to maximize billable hours you need to optimize your workforce. And yet, only 35 percent of professional services firms have the ability to “model individual resources across multiple projects for precise time ranges,” which means the majority of firms are losing money and efficiency through lack of clarity and oversight around their resources and projects.
And — aside from affecting your financial bottom line — this lack of resource visibility can substantially increase employee attrition. Without a holistic idea of where and how your resources are being utilized, it can be hard to tell when certain employees are being consistently overworked or underworked. Attrition is something that professional services organizations need to keep a closer eye on — according to SPI’s benchmark, attrition rates are on the rise, and the cost to replace an employee can be in excess of $150,000.
Billable hours are what keep your business out of the red, and these changes can help your organization see significant improvements in both the amount and accuracy of your employees’ billable hours.