more-arw search

Q&A Forum

Efficiency and Billable hours

This has been a subject in a few forums I belong to. How do you encourage, promote or assure operational efficiency in the billable hours revenue model? To make things worst, I recently had a conversation with a CPA firm that uses "employee utilization" as a performance metric for one of it's divisions. A Family Office practice doing the books for HNW individuals using billable hours. I am in the position that the revenue model coupled with the performance metric provides a disinsentive for operational efficiency. In fact, the bias is for inefficiency. The company is not affected whether a transaction is processed in 20 minutes or 40 minutes. The amount of time is going to get billed anyways. An employee processing say 50 transactions in 40 hours will be no different from someone processing 70 transactions for the same amount of time. Both will be "fully utilized". Your thoughts?

Answers

Stuart Langer
Title: Practice Manager, Software & Services Ve..
Company: Intacct Corporation
(Practice Manager, Software & Services Verticals, Intacct Corporation) |

I believe the fallacy in the logic is the statement that 50 transactions in 40 hours is equivalent to 70 transactions in 40 hours. There is an inherent value in the activity and billing beyond that standard will not be realized in revenue. If the value of the activity is $100, and 50 transactions in 40 hours is worth $100, then the person who delivers 70 transactions is generating more value, while the person who delivers 25 transactions delivers less.

My clients typically have a perception of the value of the activity and the level of production, those things equate to time and effort.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Stuart, they "close" the books for the HNW individual (among others but this is the bulk).. If you are saying 50 transactions cannot be compared to 70 , then we can also say that closing in 3 days is not equal to closing in 5. Also, an employee that can process transactions (quality being not an issue) can go on and process the books for another client if he/she can.finish the books faster.

I do NOT see any fallacy in my thought process. Can you elaborate.where you think the fallacy is?

You said, "My clients typically have a perception of the value of the activity and the level of production, those things equate to time and effort." << it does NOT mean you were efficient. Can you honestly say that another product lead cannot do the same project faster and creating the same quality of work?

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

There is another dimension, efficiency doesn't directly equate to quality and quality does equate to billable hours.

Because someone may work faster, they may work with less quality. That in turns requires non-billable hours to improve the product to acceptable levels.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Wayne.... quality is and should be a given.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

What should and what is are usually quite different animals. KPI's aren't intuitive if quantitative.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Wayne. that does NOT mean we should not strive for efficiency.

According to dictionary.com
efficiency
[ih-fish-uh n-see]
noun, plural efficiencies.

1. the state or quality of being efficient; competency in performance.
2. accomplishment of or ability to accomplish a job with a minimum expenditure of time and effort: The assembly line increased industry's efficiency.
3. the ratio of the work done or energy developed by a machine, engine, etc., to the energy supplied to it, usually expressed as a percentage.

My point was....
From the client perspective, efficiency matters. Efficiency does NOT matter a great deal from the professional company (in this case the CPA firm) perspective. Since they will bill the "inefficiency" anyways. If they want to increase the number of clients (thus revenue), their only solution is adding more personnel. Especially that their metric is "employee utilization". Whether that employee is efficient or not is NOT a factor.

Maurice Blumberg
Title: Partner
Company: Blumberg Consulting
(Partner, Blumberg Consulting) |

Efficiency is controlled by the marketplace. If your folks are charging for 40 minutes when the task should only take 20 minutes you are going to lose the client.
The auto industry has made studies for procedures, so repairing a tie rod end for a Camry 2006 takes xx minutes (if you look at your repair bill from the repair shop you can see this explicitly) which costs $$ based on the hourly charge for the shop you are using.
If you are familiar with Standard Costing then you will recognize the underlying concepts. If enough effort is put in your company should be able to come up with a very accurate time for all of your main activities and slightly less accurate for the minor. Use the 80:20 rule to decide which are the activities that need to be measured and fixed accurately. Your end user will appreciate that the fees they are paying are fair and that they are getting value for their money.
Hope this helps.

2295 views
Topics

Get Free Membership

By signing up, you will receive emails from Proformative regarding Proformative programs, events, community news and activity. You can withdraw your consent at any time. Contact Us.

Business Exchange

Browse the Business Exchange to find information, resources and peer reviews to help you select the right solution for your business.

Learn more

Contribute to Community

If you’re interested in learning more about contributing to your Proformative community, we have many ways for you to get involved. Please email content@proformative.com to learn more about becoming a speaker or contributing to the blogs/Q&A Forum.