In lean startups, there is a big focus on running tests. Tests to validate your business model, tests to validate your operating strategy, and tests to make sure it keeps working over time. Today, I thought I’d take a look a closer look at a common test of operating effectiveness within consultancies. Utilisation. Here’s why utilisation should be consigned to the dustbin of failed performance drivers …
Consultants generally use a time sheet to record how many hours (or minutes if they are lawyers) they have spent on a piece of work. One of the key metrics that then comes of this is utilisation, i.e. how many hours are you billing Vs not billing. When you are not billing, you are considered ‘on the bench’. Stay on the bench too long and you find yourself out of a job.
So what is wrong with this picture? Let’s start by looking at fixed price contracts, specifically the core feature of them having a pre determined price ceiling once someone has figured out how long the job should take.
- Consultants get an hours budget. This could be a golden opportunity to work smarter not harder, finishing the job under time and using the time left over to innovate or develop new business. Add a utilisation target and you suddenly get whole teams of consultants working the exact number of hours predicted…
- Accounts are somehow linked to these fantasy time sheets and not actual cash flow, with end of month targets and ‘revenue’ forecasts calculated on time sheet hours. The incentive…record the maximum hours you can bill the client for (assuming you go the job done) and do your other work on this consultancy twilight zone
- Performance targets are partly based on utilisation, ‘show us you’ve stayed billable 85% of the time and we approve your end of year bonus’.
- Give consultants an hours budget per project. Pool any ‘unused time’ and link it to the end of year bonus. Bingo, an incentive to work smarter not harder. You could go a step further here and create performance metrics around business development, but that’s another story
- Decouple accounts from time sheets. Use time sheets as a project management tool, not an invoicing source of truth. Invoices should be based on contracted pricing and customer satisfaction. If it’s done in half the time, great. You could even share the cost savings with your customers…
- Decouple team reporting from time sheets. Use cash flow instead. We’re in business to make money not spreadsheets