Tuesday, July 1, 2008

Investing Nonbillable Time

The prevalent view in our industry is that billable time is revenue while nonbillable time is cost. So naturally the objective is to maximize billable time, or utilization, while minimizing nonbillable time. In fact, there is perhaps no performance metric that demands more management attention in our business than utilization. But is this sometimes maniacal focus warranted?

Not to dismiss the straightforward economics of increasing your utilization, but I think most managers miss the boat with regards to nonbillable time. These hours are not simply a cost, but a valuable investment opportunity.

Consider the facts: Average utilization among technical consulting and design firms is about 60%. That means about 40% of the average firm's time is nonbillable. So of 260 workdays for the "average" employee, about 104 days are nonbillable (kind of surprising to think of it that way, isn't it?). Of those 104 days, the typical employee in our business has about 35 days for vacation, holiday, and sick leave. Probably no more than 70% of those days are actually taken, so let's assume only 25 days away from work.

Now imagine a firm of 100 employees. That translates to about 7,900 days of nonbillable work! (You can do the math for your own firm: no. of employees x 79 = number of nonbillable days per year.) That begs the question: What are you doing with all that time?

The fact is that most firms closely manage and monitor billable time, but apply little discipline to deriving the most benefit from all that nonbillable time. That's an unfortunate misuse of your most valuable resource! Keep in mind the spectrum of critical activities that involve spending nonbillable time—corporate initiatives, operations management, business development, accounting, human resources, strategic planning, etc. As consultant David Maister notes, "What you do with your billable time determines your current income, but what you do with your nonbillable time determines your future."

Managing Investment Time

Let me encourage you to give serious consideration to how your firm can better invest some of your nonbillable time. Perhaps it's the need for a more effective business development process. Or maybe it's the follow-through on your strategic plan action items. Or it could be the need to improve your project delivery process. Undoubtedly, your firm's future depends on how well you invest nonbillable time on these kind of activities.

Here's a few suggestions for better managing what Maister calls "investment time":

Define your strategic priorities. Perhaps you've already done this through your strategic planning process. A common mistake in this regard is trying to tackle too many initiatives at once. One of the reasons this happens is the failure to estimate the time required to complete the desired actions. Some of you will remember my planning advice: "Don't plan what you won't do." Another way to state it: "Don't plan to do more than you're willing to commit the time to." It's better to pick only one or two initiatives that you can execute successfully than to try to address everything that seems to merit your attention.

Develop an action plan for each initiative. Another common planning mistake is failing to develop an adequate action plan. You need to define the required tasks in enough detail to define your resource needs, as well as to enable you to track progress towards your goals.

Estimate the level of effort. A preliminary estimate should be made in determining the appropriate number of strategic initiatives. Then for each action plan, a more detailed estimate should be made to define resource needs. You would never plan a project without projecting your manpower requirements. So why don't we take the same approach with internal, nonbillable "projects?" When you've defined how much time is needed, you may need to scale back your action plans to fit the time that is available.

Specifically budget nonbillable time. For each person assigned responsibility on an initiative, you should allocate the time required to do his or her part. In other words, treat nonbillable projects just like client projects. Be honest about availability. In my experience, firms typically anoint people for internal initiatives with little regard to how much time they really have to devote to it. Unless you've got people who don't have enough to do already (which is another problem!), I recommend a simple rule: Don't assign new responsibilities to people without offloading an equivalent amount of their current responsibilities. This is one of the main reasons that our corporate initiatives fall short of our plans.

Track nonbillable time utilization and hold people accountable. Just as we assign project numbers and job codes for billable work, I recommend doing the same for critical nonbillable initiatives. Likewise, we should track utilization for these assignments. If someone isn't spending the allocated time, they need to be called into account. Here's the key: You have to give nonbillable initiatives the same priority as project work. Otherwise the tendency is to constantly put them off to do project work (or other routine activities).

While these strategies will help, effectively investing nonbillable time will in most firms require developing a different mindset. You have to change the traditional view of nonbillable time as being less valuable than project work. But treating it with the same disciplined approach as billable time will certainly help change that perception. Many of the most successful firms are already doing this. Is it time for your firm to start maximizing the unrealized value of all that nonbillable time?

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