Why and who needs time tracking in companies? How does this indicator directly affect the profitability of projects? What employee time tracking software to choose? And why is time tacking helpful for the employees themselves? Let’s find out the answers in this article together!
What businesses need time tracking the most
Consulting, auditing, IT and digital companies, and engineering and architectural firms are all professional services businesses. And they need to take into account the billable hours of all team members. Because they sell services to customers based on the hours spent by their professional employees (auditors, programmers, architects, engineers, etc.) and buy the hours of the performers.
It is necessary to take into account working time to manage the economy of the company as a whole, and the profitability of individual projects. The key indicator of economics in projects and the main indicator of business success is profitability.
At the project level in companies, profitability is managed by the project manager, as RMClient explains. To calculate the gross margin of the project, you need to know the revenue and costs of the project. And the main part of the costs in professional services companies is the cost of labor of employees.
How does employee time tracking increase a company’s profitability?
In order to understand what share of an employee’s costs per month relates to which project, they take into account working hours in the context of each specific project. That is, they allocate the hours that were spent on a particular activity, on the project. This is how the cost of labor for the project is formed. Thus, the main purpose of time tracking is to spread the cost of labor between projects.
As a rule, in companies providing professional services, work is carried out according to the time & materials (T&M) scheme: this is a type of contract under which the client pays upon completion of work based on the reports provided, and the rate of employees is negotiated in advance. That is, the client needs a report on the work done. And to compile such a report, it is necessary to take into account working hours and visually distribute the activity of employees for specific tasks and projects.
Time tracking and effectiveness
Thus, in professional services organizations, time tracking and measurement is not necessary for formalizing processes and monitoring employees, but for effective project management.
With the help of information collected in timesheets. A timesheet is the optimal format for recording working hours: a table with data on employee hours. It clearly shows: who worked on what project for how long. In timesheets, we can evaluate the effectiveness of project implementation, evaluate their profitability, and prepare T&M reports for clients.
Types of time tracking
Based on the norm of working hours, its accounting is divided into:
- Unsummed. This includes a standard 5/2 schedule with a 9-hour work day, where lunch is from 45 minutes to 1 hour. A person works the same number of hours every working day, and the days and hours are recorded in the time sheet.
- Summarized. There is no clear fixation on the number of working days and hours worked on these days. The main thing is that the total number of hours worked per year does not exceed the norm according to the production calendar.
Key time checking metrics for professional services
The metrics that professional businesses should consider:
- One of the key indicators is recycling. Utilization is the ratio of total scheduled time (numerator) to real-time that an employee spent on a commercial project (denominator); measured in percentage. By dividing the numerator by the denominator, and multiplying by 100%, we get the utilization for a specific project. As a rule, in professional services, 75% is considered a good indicator of utilization.
- The second most important indicator in professional services is the profitability of the project. This is a key indicator that shows how successful and profitable a business is. A company that has many projects with good profitability will prosper and develop. And it is clear that the presence of projects with low or negative profitability indicates trouble in the company.
- The third important metric is the evaluation of the effectiveness of project planning. This is a more complex metric: it is formed from indicators such as plan, fact, and estimate.
At the stage of project planning, the company lays down many risks, this, in turn, is reflected in the budget. When budgets are agreed upon with clients, and the project implementation phase begins, life makes its adjustments: plans begin to change.
An important task of the project manager is to update the plan on time. That is, at the stage of project implementation, we can operate with the original plan and current indicators (assessment). And then, using the accounting of working time, we can collect the actual indicators for the project.
Is time tracking beneficial for employees?
There are several benefits for employees from time tracking:
- First, the employee will know exactly how many hours he spent on a particular client. This will help to strengthen his negotiating position for an increase in bonuses for a particular project, or a salary increase.
- When an employee accurately records their working time, the situation that this employee will be overloaded or “burn out” is less likely. Timesheet managers will clearly see if an employee has an inadequate workload, and understand that he needs to be unloaded.
- Eliminates underloading of employees. And this is also bad, because, in this case, professionally, a person begins to degrade. If the utilization rate of an employee in professional services is below 40%, then he stagnates and does not develop professionally. You need to keep a balance so that the employee utilization rate fluctuates between 60 and 85%.
It is impossible to say unequivocally whether each company needs to automate time tracking. However, as RMClient says, technical fixation greatly simplifies the process and helps to control the progress of the team.
However, the main legal document for fixing working hours remains the timesheet. Using it in conjunction with these programs helps in resolving disputes between the employee and the employer, and can also be useful for defending their rights in court by both parties.
At the same time, one should not forget that in addition to applying technologies and maintaining a timesheet, it is necessary to correctly distribute work tasks at the planning stage.