If you’ve ever worked in a corporate setting, you’d know that some form of time and attendance tracking is used in most organizations. I’ve worked in consulting organizations for the past decade. I’ve seen attendance registers, clocking in and out of work, access control via card or biometric systems, job cards, manual timesheet entry, physical employee boards, digital time tracking, RFID systems, GPS systems, and combinations and variations of these methods being used.
That’s a lot of systems, right? Modern time tracking systems are capable of real-time monitoring and reporting on employee activities, generating a large amount of time tracking data in the process. This article explores how time tracking data may be used by consulting organizations to derive meaningful insight into employee performance, assist with business operations, and provide tools which enable effective project management.
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This Article Covers:
- What Are Employee Performance Metrics?
- How is Employee Productivity Determined?
- Why Should Organizations Measure Employee Productivity?
- How is Employee Utilization Determined?
- Why Should Organizations Measure Employee Utilization?
- Are There Other Ways to Use Time Tracking Data?
- Do You Know How Clients are Billed for Consulting Work?
- How is Time Tracking Data Used for Client Invoicing?
- How Should Consulting Organizations Price for New Work?
- Can Time Tracking Systems Help Manage Projects?
- Final Thoughts
What Are Employee Performance Metrics?
Employee performance metrics are measures of employee performance. Depending on their job description, various aspects of an employee’s performance may be evaluated, such as:
- The quality of an employee’s work.
- Number of deliverables an employee produces.
- The speed at which an employee completes work tasks.
- Consistency of an employee’s work output.
- The ‘mix’ of work an employee is doing.
- Employee engagement level.
From the above, quantitative and time-based employee performance metrics may be developed and assessed using data from time tracking systems. Other metrics such as qualitative performance may also be assessed using time tracking data, provided some thought is put into setting up the time tracking system correctly.
Two employee performance metrics which will be discussed in this article are employee productivity and employee utilization.
How is Employee Productivity Determined?
Employee productivity is a measure of how efficiently an employee converts an input into a desired output. In the context of consulting work, input refers to employee time and effort, and output refers to a product or deliverable (of requisite quality). With suitable time tracking data, employee productivity is easily evaluated. For example, we may assess the productivity of drafters A and B as follows:
If drafter A takes 28 hours to produce 10 drawings, their productivity may be calculated as:
10 / 28 = 0.36 drawings per hour.
If drafter B takes 22 hours to produce 7 drawings, their productivity may be calculated as:
7 / 22 = 0.32 drawings per hour.
Based on the above, we conclude that drafter A is more productive than drafter B.
The method outlined above is simplified and may be more complex in a real world scenario. For example, we might need to consider the type of drawings each resource is working on to ensure that the comparison between them is valid.
For deeper insight, factors such as re-work and drawing revision time may be included in the calculation, allowing us to consider the time taken from first draft to construction issue of a drawing, and assessing employee productivity accordingly.
Why Should Organizations Measure Employee Productivity?
Modern time tracking software allows a broad range of employee productivity calculations to be carried out, as it provides an input of accurate employee time data linked to specific activities and tasks, which may be further tailored to an organization’s specific processes and workflows. What this means is:
- Employee productivity may be assessed across different tasks, teams and projects. Both high and low levels of productivity may be identified.
- Employee productivity measures can be used to assess which employees are the most productive at specific tasks.
- Task specific work may be assigned to capable employees when faced with a tight deadline.
- Organizations can determine which employees are the least productive at specific tasks and plan training accordingly.
- Strengths and weaknesses of employees may be analyzed before assigning them new work or projects which suit their capabilities.
Another useful performance metric for consulting organizations is employee utilization.
How is Employee Utilization Determined?
Employee utilization is a measure of the amount of time an employee spends on billable work. It is often reflected as a percentage, and is calculated with reference to a specific period of time. To calculate the employee utilization rate, you need to know the number of hours worked within the specific period, and the number of hours spent on billable work within the same period. An example of how to determine employee utilization follows:
If employee A works 45 hours during a given week, and spends 36 of those hours on billable work, employee A’s utilization rate for that week would be 36 / 45 = 0.80. Assuming the same employee worked 2000 hours in total for the year, and spent 1700 hours on billable work; the employee’s utilization rate for the year would be 1700/2000 = 0.85.
Why Should Organizations Measure Employee Utilization?
Consulting organizations typically set target utilization rates for their employees based on the billable hours required to maintain profitability, while factoring in the time spent on non-billable work. Target utilization rates will vary depending on the industry, organization, business unit and employee role; for example administrative, finance and management personnel may spend a large portion of time on work which is non-billable.
Knowing employee utilization rates enables an organization to set profitable rates for services, compensate employees fairly, and determine whether employees are being over or underworked. Employee utilization rates may be used to compare the performance of employees with similar roles in an organization, or to compare employees within specific teams or assigned to specific projects.
Additional metrics may be derived from the utilization rate; these include capacity utilization rate (which is the utilization for an average employee), the ideal utilization rate and optimal billing rate. Such metrics offer valuable insight into an organization’s performance and profitability.
Are There Other Ways to Use Time Tracking Data?
Yes, there sure are! Time tracking software may provide useful information such as:
- Details of employee or team attendance and punctuality.
- Absenteeism information.
- Amount of regular hours and overtime hours worked.
These are easy to determine, and may be analyzed and filtered at employee, team, project, departmental or organizational level. Trends may be readily discerned from a graphical representation of such data. For example, management may discover that a particular employee or team is consistently booking a lot of overtime, or regularly displays high absenteeism rates.
When evaluating employee performance metrics, note that it is important to establish a baseline metric to enable comparison against a set reference point. The baseline serves as a reference point or performance benchmark, it may be an industry standard, company or business unit specific.
With the large amount of data available from employee time tracking systems, organizations may build a database of employee and project related metrics. As the database grows, an organization will have access to historical, current and real-time data linked to specific tasks, clients or type of work. This data may be used to assist with numerous tasks; for example:
- Data may be used to rapidly determine project costing.
- Task completion times may be estimated.
- Resource allocation may be optimized based on project budgets and deadlines.
- A database of employee performance metrics could prove useful in developing baseline metrics specific to an organization.
You may be thinking that we’re wrapping things up, BUT, hold on! We’re not done yet. There are other ways time tracking data can be used.
Do You Know How Clients are Billed for Consulting Work?
For consulting organizations, fee arrangements with clients are typically fixed fee or time and materials based (or a hybrid system including elements of both – lets ignore that case for now). For a fixed fee contract:
- The effort (i.e. cost) to complete the work is estimated. This includes direct, indirect and overhead costs.
- A profit margin is added to the estimated cost to complete the work.
- The total fee inclusive of all costs and suitable profit margin is quoted to the client.
- Alternatively, a value-based pricing model may be used to arrive at a proposed fee (this considers the value of the work rather than the cost element).
For a fixed fee contract, the client pays the set fee regardless of the actual effort required to complete the work. If you can do the work quicker or cheaper, you make a greater profit.
In a time based contract, the following applies:
- The quoted fee is based on an hourly or daily rate.
- The client is billed for the exact amount of time worked.
- Material expenses may also be included, depending on the nature of the work to be performed and details of the agreement.
- A list of quoted rates are typically proposed, as rates would vary depending on resource type and resource level.
- The rates quoted to the client already have the cost of completing the work and a suitable profit margin built-in.
So, back to the point…
How is Time Tracking Data Used for Client Invoicing?
For time based contracts, time tracking software may assist directly in generating accurate client invoices, and billing clients according to actual time spent on projects.
The software may be used to provide detailed breakdowns of exactly what tasks and activities time was spent on, by which resource and at what rate; hence avoiding any disputes regarding invoicing and ensuring that the organization is paid timeously and accurately. It is important that the time tracking system is integrated with the payroll system, enabling seamless client invoicing.
For fixed fee contracts, an organization is paid a fixed amount regardless of the time taken to complete a project. Time tracking data is not used directly for invoicing in this case, but is rather used to keep track of project costs, evaluate and manage the financial health and profitability of a project. Partial fee payments may be linked to project milestones. Time tracking systems may be used to track task completion and trigger milestones for client invoicing.
Time tracking data can also be used to price new work.
How Should Consulting Organizations Price for New Work?
Consulting organizations are required to set price points for their services to clients, either quoting directly for a project or bidding against competitors for new work. Time based contracts represent a low risk when pricing new work, as cost and profit margins are already incorporated in the rates quoted for the project. Fixed fee contracts represent a greater risk, as profit margins vary depending on the effort (time and resources) required to complete a project. Unfortunately, the effort required to complete a project is not known when pricing the job. With the aid of time tracking data, the following approach may be used to price for a fixed fee job.
How do you price a fixed fee job using time tracking data?
- Develop a scope of work for the project, based on the client brief or scoping meetings.
- Depending on the project complexity, break the scope of work down into project phases, activities, tasks and deliverables.
- Historical time tracking data may be used to estimate the amount of time required to complete tasks and deliverables, providing an informed estimate of the effort required to complete a job.
- Employee utilization and productivity metrics may be used, to ensure that costing is based on the estimated output of proposed resources or teams.
- Costs such as overhead costs and operational costs should be included in the analysis.
- With the project cost established, a suitable profit margin may be added. Organizations typically have set profit margins for their work, depending on the client and type of work being performed.
Here’s an example of how to price a fixed fee job
A client has sent out a brief requesting structural engineering services for the design of a new warehouse facility.
This is a common project done by your organization. To quote the client for this project, historical time tracking data may be analyzed for projects done for the same client, as well as projects related to structural engineering services and warehouse design.
If sufficient data is available (i.e. your organization has developed a project database) we may prioritize projects based on certain parameters, for example warehouse size, warehouse type, warehouse location or geotechnical conditions.
The historical time tracking data may be used to provide an estimate for the time to complete the new project, provide a breakdown of activities, tasks and milestones for the project, as well as propose resources and teams suitable for each task. This information may be used to estimate the project costs, and would ultimately inform the quotation provided to the client.
Tools may be developed to streamline and automate the processes outlined above.
The final use case we’ll be looking at today, is the use of time tracking data for project management.
Can Time Tracking Systems Help Manage Projects?
Without a doubt. Linking real-time employee time tracking software with project management tools provides project managers with up-to-date insight into a project’s status. This allows project managers to keep track of project delivery, and adjust resource allocation and budgets where required.
If a project is tracking behind schedule, time tracking systems integrated with project management tools allows the project manager to easily:
- Investigate employee productivity and utilization rates.
- Establish the cause of project delays, by comparing the project schedule to time tracking data and work outputs.
- Decide whether to assign additional resources to the current or future stage(s) of a project, or to adjust project timelines and milestones accordingly.
- Forecast the impact of project management decisions, before deciding whether to implement them.
Here’s an example of how time tracking may be used in project management
Employee time tracking software may also be used to assess the financial standing of a project, as outlined in the scenario below.
Consider the warehouse design project discussed previously. A fixed fee contract of $100,000 was agreed with the client for the project. The project was planned to run for five months, at a cost to the company of $16,000 per month. If everything goes according to plan (which somehow never happens!), the total project costs for five months are 5 x $16,000 = $ 80,000; and the company makes a profit of $100,000 – $80,000 = $20,000 for the project.
Three months into the project, the project costs are assessed using time tracking data (for simplicity, we’ll assume that only employee costs are applicable to the project, neglecting other operational costs and overheads). The time tracking data reveals that employee costs of $20,000; $25,000 and $25,000 were incurred during the first three months of the project. This totals $70,000 and represents 70% of the project budget being depleted in three months. This raises a red flag, and warrants further investigation into the project financial status.
If the trend continues with similar costs incurred during the next two months, the project will represent a loss to the business. Alternatively, it might be the case that the project is on track for completion within the next few weeks, generating a profit in the process.
And there you have it, we used time tracking data to help run a project like a champ.
Final Thoughts
As a consultant, effective time management is a crucial tool to optimize productivity, achieve targets, and stay ahead of competitors. Employee time tracking systems provide value and offer insight in numerous ways within a consulting organization.
Organizations should harness the power of employee time tracking software; ensure that their time tracking system possesses the required functionality and is easily integrated with other tools such as ERP and project management software. This will lead to deeper insight into employee, project and organizational performance; and allow managers and directors to identify areas for improvement within project and business operations.
Take a look at the following articles for some additional reading:
A Guide to Employee Monitoring in the US
