Okay, perhaps evil is a bit of an exaggeration, but whenever I encounter an environment where time is tracked and billed, I see tremendous inefficiencies and value-destruction.

Let’s consider why.

Imagine you have something to sell – a widget, say. Tell me, for how much should you sell it?

The answer to that question is more obvious than you think. To calculate the optimal sale price you don’t need to know:

  1. Raw material cost
  2. Labor hours
  3. Overhead allocation ratios

You don’t need to know any of that because the answer is: you should sell that widget for as much as you can get!

That’s right, the optimal sale price is not determined by internal factors, it’s determined solely by what the market is prepared to bear. You cannot – let me say it again, CANNOT – calculate the price of a product.

All you can do it estimate it. And you must recognize that, in most situations (certainly in those environments where we’re most likely to see T&M billing) it’s simply impossible to estimate the the price with a high degree of accuracy.

The primary assumption behind time-and-material billing (T&M) is that you can calculate the price of something by simply counting the number of minutes required to produce it.

But you can’t. Effort does not equal value. In many cases, it doesn’t even approximate it!

One of the problems with time is that it’s inherently measurable. Because it can be counted in intervals as small as a minute, we’re lulled into the false impression that we are calculating (as opposed to estimating) value.

The alternative

How then should we estimate value? And how should we track productivity?

If we use time to estimate, it’s important to recognize that we’re using time as a proxy (a yardstick) for value.  Time does not equal value.

My advice, where time is concerned, is not to estimate time in increments any smaller than half a day. In other words, do not ask, how many hours will this job take?, ask how many half days?

Where short-duration tasks are concerned, my preference is to ignore them altogether. Just factor them into the multiplier you are using for half-day slots!

I’d rather, however, that you find some other proxy for value. We’re working with a bookkeeping firm currently. When I challenged them to identify a better proxy for value than time they came up with a great one – transactions (debits and credits). It’s obvious that the volume of transactions processed is a greater determinate of client value than time consumed.

And how do we track productivity? Well, we start by burning timesheets!

You DO NOT make money out of expending effort. You make money out of delivering value. And the connection (in most cases) between these two factors is very tenuous.

Timesheets encourage team members to be busy. This drives multitasking, and the hogging of work that could otherwise be passed-off to lower-paid people. Both destroy value. Furthermore the maintenance of time-tracking systems, consumes enormous resources and the completion of timesheets insults your team members at 10-minute intervals.

You need to recognize that individual jobs (or projects) do not make you money. Your portfolio of work makes you money. Once you realize this, you can focus on managing the portfolio, rather than the jobs.

You don’t make money by keeping your team busy. You make money by delivering jobs. And the two are NOT the same thing. People work best in fits and starts. And team work necessitates relay-racer behavior (person B hovers, waiting for person A to finish his work – and then sprints to hand-off the job to person C).

You need to mobilize your team to get jobs out. Think of the pit crew in a Formula 1 team. Timesheets are not conducive to this environment.