A Critique of Project Management: A Means to Efficiency

Ron Baker sure knows how to get my Irish up. (Save your political corrections, I am Irish, I get to say that.) Last week he sent me a link to the WebCPA article by Jeff Stimpson, Project Management: A Means to Efficiency.

Ah, where to start, oh, I know the title! It is inane. Real project management is concerned primarily with effectiveness not efficiency. It is customer and result focused. Its purpose is to insure that the objectives are met according to the customer’s expectations, not to make the firm more efficient and certainly not to protect the firm in the case of a lawsuit. I have battled about the latter belief at just about every project management course I have attended or facilitated.

The teaser sentence is no better – “Staffing issues, varying types of engagements, and a need for greater profitability are causing firms to sharpen project-management skills.” Really! How about wanting to provide better information, not to mention insightful knowledge to their customers? Once again, the focus is wrong, inward, rather than outward.

Perhaps Jeff Stimpson is not to blame since these occur before his by line. In fact, the first quote of the article from Kenneth Jones at least speaks of providing better customer service although it seems to be speaking of it as an afterthought.

The article often references “professional standards” and “quality processes” such as Six Sigma as being necessary to insure that a firms project management is efficient. This is rubbish – knowledge workers are not factory workers. Knowledge transfer cannot be streamlined, nor would you want it to be. The article quotes several “quality experts” who, in my reading of the article, fail to understand the primary absolute of quality – quality is conformance to a requirement rather than goodness. The original guru of quality Philip Crosby in his masterwork, Quality Is Free, first posited this idea.

This idea is critical to understanding quality, yet so few people (yes, even the quality experts) fail to grasp it. A firm cannot say that it does quality work, only a customer can say that about the firm. As Miliken & Company, an international textile and chemical firm and a Malcolm Baldrige National Quality Award winner, state, “Quality is not the absence of defects as defined by management, but the presence of value as defined by customers.”

The article then goes on to quote (or perhaps misquote) expert after expert waxing on the wonders quality and how it improves a firm internally. One of the most egregious occurs in the section entitled The Form. In it, knowledge workers are reduced to being “budget models” and “supply-versus-demand in total.” Then comes the coup de grace, “firms can look at clients’ data as the ‘raw material.'” Boys and girls, please keep your knowledge workers away from anyone who in any way equates your customers to raw materials.

The process then described is downright foolish:

“If we think of a business tax return as a project, then when we got a thousand of them at once, we said, ‘Okay, let’s take a look at the processes to make sure each return goes through the process efficiently,” says David McCarthy, shareholder and director of profit enhancement services at Rea. “We document out each process step and ask, ‘Is this value-added process step, or a business non-value added, or a non-value-added step?'” Hostetler also says, adding that the goal is to shrink, if not eliminate, the last. Rea’s process also especially goes after bottlenecks and other obstacles in the workflow.
“Let’s say we’ve got five people, and when they’re done with their process step, they’re dumping it on one person. That person becomes the bottleneck,” Hostetler points out. “We try to find ways to sort resources to have another person at that ‘bottleneck’ person’s level.” He adds that typically such an overloaded staffer would be a tax manager or shareholder, or, towards the end of the process, even a staffer in an administrative role.
“Can you see how that’s so similar to a manufacturing process?” McCarthy says. “Last tax season, we got more returns out the door with fewer people and less stress.”

Yes, but did you provide high quality returns from the perspective of the customer? Did you provide any insight or value to those customers or did you eliminate the knowledge worker who could have provided that insight as a “bottleneck?” How does one decide what is a “non-value-added step” for a knowledge worker?

The Reasons Used section of the article is no less absurd although it is less offensive. “What if every time you went into Starbucks, your cup of coffee was different? They use standard cups and temperature, standard pricing and delivery time. Product management is about standardization.” Bullshit! First, the analogy is as bad as week-old cup of coffee. Every cup of coffee at Starbucks is different! Let us do some quick math. Three sizes of drinks times five different milk choices times four coffee choices times seven syrup flavors times three foam levels is 1,260 and I am leaving stuff out! Second, project management is not about standardization. It is about providing a framework to insure the provision of value to a customer.

In the Infrastructure Needed and Software sections the author trots out the standard second defense (cost accounting) of timesheets. When will these folks learn that once you refute a theory you cannot continue to use it in defense of your argument? If labor does not equal value for pricing, then labor does not equal value for cost accounting. You cannot refute my argument that the world is round by saying, “Yeah, but what if you fall off the edge.”

A quick side note – Microsoft Project is a piece of crap! The most harm Microsoft has done to the world was naming the product Project. The real project managers of the world now have to spend needless time on explaining that the mpp file created by that software is not a project plan. It is a pretty and mostly useless Gantt chart. Where is the concept of scope in Microsoft Project? Hint, it ain’t there.

In the section Pros and Cons, we have this gem. “The toughest aspect of project management was the initial load of client budget information, according to Gaino and Archer, who add that their firm, much smaller then, had to ‘literally’ lock 25 staff and partners in a room and not allow anyone to leave until their client budgets were entered into our system, and reviewed and approved by the partner.” Ok, that is downright funny! I love when inappropriate quotation mark usage meets oxymoronic language. They literally put literally in quotes!

While funny, the reality saddens me. The wasted intellectual capital spent inputting a lagging, non-customer centric budget number astounds me. How does that help them in the future? Yippy, Skippy, we met last year’s budget! So what and who cares? Certainly not the customer!

My best advice about the Best Advice section is never to get to it.

A side note about the side bar on sample metrics – there is not one that is customer centric. At least one, however, is predictive – cycle time. The most important, on-time performance, eludes them.

Oh, by the way, the article needed a better editor; I counted at least three times where project management was referred to as product management. I guess quality control does not apply to journalism for accountants.


  1. Hi Jonathan,

    Thank you for the comment, I’m sure Ed will have something to say, but I also wanted to respond.

    I, too, started in a Big 4 (but waaay before you, in 1984), and you’re right, the way they push out the greenies is an accomplishment. But that’s not knowledge transfer, that’s training–technical skills.

    We at VeraSage think you train pets, not human beings. Do you want your daughter to get “sex training” or “sex education.”

    The Big 4 do employ Chief Knowledge Officers, but most firms don’t try to capture tacit knowledge, because do so is “inefficient” under the time billing model. In a factory, supervisors used to say, “Stop talking and get to work,” but in a PKF it should be, “Get to work, start talking.” Another difference between factory workers and knowledge workers.

    To Michael Gerber’s book, he takes it too far. You can’t systemize knowledge work to the level of McDonalds. It’s too human for that. Sure, there are some things that can be, and project management is critical. But PM looks forward, planning capacity, risk, etc., while timesheets look backwards. Look at what most firms measure!

    I also don’t think there’s a contradiction between your team members and customers. It’s not either/or. If you want happy customers, you better have happy team members, because how they feel is how your customers will feel. If a choice had to be made, I’ll take a team member over a customer, but in the long run, the two are correlated.

    Finally, yes, I think a ruthless focus on efficiency is bad. Who the hell wants to operate like a machine 24/7? I used to get busy-work at Peat Marwick because my managers/partners would catch me reading a book at my desk–my way of unwinding and recharging. They’d ask, “Don’t you have anything to do, Baker.”

    A better question in a PKF is, “What are you reading? How would it help the firm, or its customers.” But you see, it harms billable hours and decreases efficiency. Insane! I’ve written 5 books, not one of which could have been written whiled employed in a traditional CPA firm because my “efficiency” would have sucked. How sad is that?

    Your capacity is not your time, it’s your intellectual capital. Ideas are more valuable than their execution. Focus on effectiveness and you’ll add much more value to your customers.

  2. What is really interesting about this article and other posts VeraSage has taken on is there appears to be a hidden assumption: that once you have demonstrated effectiveness, you need to begin to focus on efficiency.

    They don?t ask this question directly, but it does seem implicit: How can you deliver your effective model better and timelier to the end customer?

    Now, many argue that most companies have lost the means to be effective and need to get back to being effective. And make no mistake, effective must take priority over efficiency.

    But what happens once you are effective? Isn?t it natural to look to improving the processes, training, and customer delivery? Are these articles starting from the assumption that you are effective and now can look at improving efficiency?

    So, risking offending the entire VeraSage community: What is the next step once you are delivering your products effectively?

  3. Eric,

    Let me be succinct (a rarity I know) in response to your “But what happens once you are effective?” and your very last question.


    And that’s the antithesis of efficiency.

  4. Ron,

    Wow – truly a rarity. A succinct answer.

    Innovation – great. But it does avoid my question. You can (and should) be innovating all the time. Even as you are becomming more effective on your current service and product offerings, You can (and definitely should) innovate.

    But, you have a mature product or service. You are very effective at providing that product. What next? Chane simply for change? What happens if the market rejects the change or innovation? What if the value is diminished?

    Of course, we are going to conduct market research, testing and attempt to communicate the additional value. So no need to go down the ‘how to’ path of what do we do next from that perspective.

    No, my observation was simply that these articles that are so routinely blasted apart by Ed and yourself make zero sense unless there is a hidden assumption: You are already effective.

    Let’s address root causes and hidden assumptions. The message might carry a lot further.

  5. Eric,

    But most firms don’t innovate because they are way too busy trying to be 5% more efficient.

    A mature product is going to die someday, and better for the company to kill it than someone else. Apple, Intel, 3M, etc, do this all the time. They track innovation sales: what % of our revenue comes from products we didn’t have 3 years ago. Intel wants that number to be 100%! Apple is 50%.

    Firms need to be more effective at creating value, and focusing on efficiency hinders this. It’s the status quo, and that’s why these firms are so screwed up.

    So our hidden assumption is these firms are NOT effective because they are focusing on efficiency at the expense of effectiveness.

    Does that clear it up?

  6. Ron,

    Ah yes, that IS the VeraSage assumption isn’t it? Firms move toward efficiency (good) until the firm begins to kill effectiveness in order to achieve the efficiency metrics predetermined (very BAD). Firms need to reduce the attention to efficiency and start paying attention to effectiveness and innovation.

    So now we have the basis of the general battle ground. On side ASSUMES that the firm is completely (or very nearly completely) effective, maximizing the value extracted from their offerings to their customers, and is looking to improve the profitability performance. The easy answer is becomming more efficient at delivering the products and services.

    The other side ASSUMES that the firm is sacrificing effectiveness for the sake of being more efficient. The easy answer is to pull back on the efficiency metrics and look to innovate the products and services.

    Assuming, like guessing, rarely leads to anything good.

    You are correct that innovation is the ‘antithesis of efficiency’, but only while you are innovating. Once you have accomplished the innovation, you don’t continually repeat the mistakes, you learn from past ones and deliver more efficiently.

    So my thinking has us looking for a mythical equlibrium point (or range) where we deliver what we know as effectively as possible without repeating the errors discovered during the innovation process.

    So the real question is, where is that equlibrium range? Once discovered, how do we transfer that knowledge on discovering it?

  7. Eric,
    Indeed a “mythical” equilibrium between efficiency and effectiveness–some sort of benign balance. We’re not discussing tires here, but creating value. And I was probably a bit unclear, but I don’t think just innovation is what is needed. What about intellectual capital, capturing, sharing, leveraging, etc. That impedes “efficiency” too (remember me reading my book).

    Here’s a thought, outside the scope of this discussion, but still relevant. It’s a political analogy, so it’s risky I’m going to offend some. Oh well, wouldn’t be the first time.

    Jimmy Carter was a president who focused on efficiency–late hours, got into the deep details on everything (even SNL parodied this trait). Ronald Reagan was a president who was focused on effectiveness.

    You can draw your own conclusions about which was a better president, got more done, created more value (in a political sense), etc.

    Perhaps this a bad analogy, but I don’t think so if you think about very deeply. It may just be because I’m currently reading Ronald Reagan’s Diaries, which are a testament to effectiveness over efficiency.

    Let me be clear: Ed and I don’t think being inefficient is a good thing. No one is advocating going back to quill pen and dumping computers, etc. We are arguing that the ruthless quest to increase efficiency by 5% is misplaced intellectual capital. Far better to increase effectiveness and focus on value, which is not done in most PKFs. Probably because it’s damn harder than working on efficiency.

  8. Of course, there is another theory out there that explains all this, in the context of CPA firms specifically.

    CPAs AREN’T KNOWLEDGE WORKERS. Dan Morris holds this views, since they are treated by leadership as factory workers. We’ve written about this in the past, at:



    If Dan is right, then our efforts at getting firms to focus on effectiveness are not going to have much success, and this whole discussion is moot.

  9. Jonathan,

    Good, I’m glad you’re wrestling with that comment, so did I. But from a macro-economic perspective, it is absolutely true. For proof beyond doubt, read Thomas Sowell’s Basic Economcs:


    Think about it though. If all an economy did was execute efficiently old ideas, where would new innovation, dynamism, products and services come from? Look at countries that merely execute–Cuba, North Korea, the Middle East. Not hot houses of innovation, growth, or dynamism. This is why architects make more than steel workers.

    It’s also not true that an idea that can’t be replicated across customers is not as valuable as one that can. Perhaps this is because we at VeraSage work across all PKF sectors, but think of an advertising agency. They come up with a killer campaign for Coke, and it cannot be replicated across other clients. That doesn’t make it any less valuable to Coke, or the agency.

    Sure, if you can replicate an idea, that’s great, and it’s indeed one of the goals of knowledge management. If that’s the case, efficiency will be built in to the process. But when you say customer WOW!, they aren’t excited about your efficiency, but your effectiveness.

    Think Nordstrom having pianos–that’s not efficient, but it does create customer (and team member) WOW!

    This is why if you act like a true PKF, you’re talisman becomes effectiveness, which is a hell of a lot more valuable than 5-10% more efficiency–every time, everywhere.

  10. As a follow-up to the “ideas are more valuable than their execution” comment, I did write a two-part post on this topic, which you can read here:



  11. Hi Jim,

    I do not pretend to speak for Ed, but I get your question so much I thought I’d chime in. In fact, very recently I had a professional peer reviewer say almost the same thing as you are saying. Here is his point:

    “I think that the author should focus more on a distinction between costing information ( i.e. time sheet data ) and pricing metrics ( i.e. fixed price contracts and menu of services) For example, a manufacturing company does not discard its inventory costing system simply because the information does not represent costs perfectly. No, management recognizes the weaknesses in its costing system and uses the information as only one of many sources of data to run it business. Well run manufacturing companies do not base their pricing strategy on their costing system. They base their pricing strategy on customer perceived value of products and services delivered. While doing this, they do not discard their costing system. CPA firms should do the same.”

    Here was my reply:

    “First, timesheets are not ?costing? tools, since they have a profit component built into the hourly rate. No cost accounting theory I am aware of allocates profit (except the concept of opportunity cost used by economists, but that?s not a cost accounting function).

    “Second, as for manufacturers not scrapping their costing systems, really? Toyota has never had a standard cost accounting system, and they are very well run. This is explained in the book I recommend at the end of the article, Profit Beyond Measure by accounting professor H. Thomas Johnson. The firms in the article have read?and been inspired by?this book.

    “I?m not suggesting cost accounting is completely unimportant. It?s a question of when that cost accounting is performed. These firms do the cost accounting up-front, before they begin the work. It?s also based on marginal costs, not average costs that you get from tracking hourly costing rates, an enormous difference. After all, what good does it do to track your costs to the penny if the client disagrees with your price? Even Henry Ford makes this exact point in his 1922 autobiography, My Life and Work. I discuss this topic at length in my book, Pricing on Purpose, especially Chapters 8, 9, 10, and 11.

    “Third, and most importantly, CPA firms are not manufacturers. They are knowledge firms, one of the main points in the article. The difference between efficiency in a factory and effectiveness in a knowledge firm is enormous. Enlightened firms focus on the latter, not the former. Was Einstein on budget? Was he efficient? Who cares?, as Tom Peters once asked.”

    Your costs in a professional knowledge firm are largely fixed, so allocating them in 6-minute increments to every single customer is an incredibly low-value function. It does not make us better pricers, no do we seem to change anything based on timesheet information.

    I’m sure Ed will have more to say. We certainly have written a lot on this cost accounting defense for timesheets, such as these posts:





    If you can read the above and not be convinced that you don’t need timesheets, I’m not sure what evidence would ever persuade you. All I can say is their are well over 600 firms worldwide–across all PKF sectors–that have ditched timesheets and are doing quite well.

  12. Jim, thanks for continuing the dialogue on this post. I think this is an important topic. Let me try to answer your questions directly:

    Q. But the manufacturing company still needs to know what it costs to create that value, don?t they?

    A. So, the question is about cost allocation, and as Ron mentions above, using a timesheet to allocate costs is crazy because it still presumes a unit of VALUE (cost or price) is a hour. This is clearly not true. The “value” idea could come after 2 minutes of 2 hours of thinking, is it any less valuable? Besides, there are much better ways of allocating costs, since in a knowledge firm cost are primarily fixed.

    Q. How else will they judge product and/or customer profitability?

    A. No, judge away, I agree with this, but timesheets are a measurement not a judgment. Individual project or customer profitability is misleading. A firm could make a strategic decision to take on a project knowing they will lose money, but gain knowledge that they will use in the future.

    Q. Isn?t that why activity-based costing was developed, to understand what is driving an organization?s costs, down to the product and/or customer level?

    A. Maybe, but so what and who cares? Understanding your cost better does NOT help you create customer value and/or become a better pricer.

    Q. If we don?t know where time is going in a professional services firm, how can we judge whether we have too many people or not enough?

    A. If your costs outweigh your revenue in aggregate. To judge the effectiveness of your team, do you really need a timesheet? I have asked a version of this question at nearly every program I have delivered in the past three years and no one has ever argued that they could not tell their good people from their bad people unless they looked at the utilization reports. In fact, couldn’t you make an argument that for a knowledge worker more hours are bad, not good? Don’t incompetent people take longer to do things?

    Q. Isn?t it possible that certain clients are requiring more time and attention from an administrative standpoint for reasons other than quantifiable scope changes? And if so, don?t we need to know this?

    A. Sure, it is possible, but who cares. Again the primary question is are we creating value for this customer? If in your judgment a customer is requiring too much attention for the value provided, change your arrangement with them. Ron and I talk about this extensively when we talk about service level agreements.

    Again, Jim, thanks for continuing the dialogue, I hope this has helped you gain more insight.

  13. Jim Caruso says:

    Ed and Ron,

    Thanks for your responses. I hope you are still up for continuing the dialogue with the follow-ups below. Again I will say that I definitely am on board with value pricing. But as to eliminating timesheets, I like the concept but need to be further convinced. As the partner overseeing one particular practice in our firm, I am going to have to convince the managing partner and the other partners, and I can?t do that if I haven?t reconciled these questions and issues in my own mind.

    From Ron Baker?s post: ?I?m not suggesting cost accounting is completely unimportant. It?s a question of when that cost accounting is performed. These firms do the cost accounting up-front, before they begin the work.?

    I agree this needs to be done, but then how do you know if you were right? It?s like having a budget for a company and then not tracking actuals against it to see where you went wrong. Or like having a standard cost in a manufacturing environment and not tracking actual usage.

    From Ron Baker?s post: ?Your costs in a professional knowledge firm are largely fixed, so allocating them in 6-minute increments to every single customer is an incredibly low-value function. It does not make us better pricers, nor do we seem to change anything based on timesheet information. ?

    True, but how do you know if your fixed costs are too high (i.e., that you have excess capacity) if you don?t track peoples? time? How do you know which clients are profitable and which aren?t? If you consider payroll to be fixed, then it?s analogous to overhead in a manufacturing firm, and like activity-based costing shouldn?t we know which clients are driving that overhead ? for example, the client that calls every day with some new request under a fixed-price consulting arrangement?

    From Ed Kless?s post: ?Jim Caruso Question. How else will they judge product and/or customer profitability?” Ed Kless Answer. ?No, judge away, I agree with this, but timesheets are a measurement not a judgment. Individual project or customer profitability is misleading. A firm could make a strategic decision to take on a project knowing they will lose money, but gain knowledge that they will use in the future. ?

    Agreed, but the timesheet measurement is still relevant; you need the measurement before you can make the judgment. You have to first know how much you?re losing, before you can make the subjective decision to keep the client.

    From Ed Kless?s post: ?Jim Caruso Question. Isn?t that why activity-based costing was developed, to understand what is driving an organization?s costs, down to the product and/or customer level?” Ed Kless Answer. ?Maybe, but so what and who cares? Understanding your cost better does NOT help you create customer value and/or become a better pricer. ?

    Agreed that knowing your cost better might not help create customer value, and it might not help become a better pricer (because the market determines the price), BUT knowing your cost better can certainly help improve profitability.

    From Ed Kless?s post: ? ?To judge the effectiveness of your team, do you really need a timesheet? I have asked a version of this question at nearly every program I have delivered in the past three years and no one has ever argued that they could not tell their good people from their bad people unless they looked at the utilization reports. In fact, couldn?t you make an argument that for a knowledge worker more hours are bad, not good? Don?t incompetent people take longer to do things??

    Sure, but how do I know it?s taking too long to do things ? and what things are taking too long to do ? if I don?t track their time? We have an outsourcing practice where we multi-task among multiple clients all the time, so it would be hard to judge what?s taking too long and what isn?t, especially if someone is still meeting deadlines by working (unpaid) overtime.

    By the way, do you think it?s possible to implement value pricing WITHOUT eliminating timesheets, at least as a first phase? I can implement the other tenets of value pricing without partner consensus, but getting rid of timesheets is going to be enormously tougher.

  14. Jim, thanks again for your thoughtful follow-up, but your response is a clear example of something we at VeraSage deal with all the time. In short, you don’t understand the theory.

    As an aside, we get criticized at many of our sessions for being too theoretical (what is it) and not talking about the practical (how do you do it). We argue (usually in vain) that it is more important to understand the theory than it is to know “how”.

    Jim, all of your questions come back to the Labor Theory of Value – value equals rate time hours. On the time sheet side you are saying the value of cost equals pay rate time hours. Once again this might be true of factory workers, but it NOT true about knowledge workers.

    I suggest that you move toward measuring task completion percentage. In other words, what percent of tasks assigned to KW-A does KW-A complete on or before a desired completion date. In project management this is know as focusing on duration (when does it need to be done) rather that effort (how long did it take). The former is results based (the right theory), the latter is effort based (the wrong theory).

    As Ayn Rand said, “Check your premises.” Bill, I think this is your problem, your premise is wrong.

    On implementing value pricing without eliminating timesheets – yes, you can do that, in fact most organizations do it that way. HOWEVER, they usually regret it and say in retrospect they wished they would have eliminated timesheets concurrently. So while it is a frequent practice, it is not a best practice. In short, when you keep timesheets but price on purpose, you are serving two masters, and it confuses people.

  15. Ron Baker says:


    I can’t say it better than Ed did, so I’ll just add minor points.

    Stop worrying about how long things take to do, and focus (as Ed says) on getting work out on time. This is a focus on results and output, not efforts and inputs.

    As for how you know your up-front cost accounting was accurate, you do an After Action Review after each major project. This is close enough. ABC does not have be to the minute, it’s simply to costly to track the wrong things.

    Here’s something else to consider. Look at the number of firms that are trashing timesheets–more everyday (see our Trailblazers section)–and those that have already done so. They’ve obviously figured out the answer to every one of your questions. You are far too focused on costs rather than value created. A more accurate understanding of costs does not help, in any way, capture more value through better pricing. Only by better understanding value will you be able to optimize your pricing.

    Furthermore, these firms couldn’t operate profitability without timesheets if they couldn’t answer your questions by some other means. This proves it can be done. The fact that you are not convinced doesn’t change that reality.

    Have you ever costed your time and billing system? We think it’s probably 7-10% of your gross revenue. Is this investment paying off in better business decisions, better pricing, etc? We doubt it. Wouldn’t that money be better spent on value creation, innovation, and better pricers?

    As to your last question, yes you can do start to value price without trashing timesheets, but you’ll never become a good pricer until you get rid of timesheets.

    They are keeping you mired in the mentality that you sell time. Every PKF that is excellent in pricing has another trait in common: they’ve all trashed timesheets. It’s a causal relationship, not merely correlative.

    But if you have to do this incrementally, then so be it. Start pricing, and stop analyzing and worrying about these issues. They will answer themselves as you gain more experience with pricing.

    Follow the replacements for the billable hour and timesheets from this post:


    Hope that helps.

  16. Jim Caruso says:

    Thanks to both Ron and Ed for the comments. They do help clarify the issue a bit and provide a valuable new perspective.

    One comment I have in response to Ed’s post is that I agree duration is more important than effort, but that doesn’t mean they’re mutually exclusive or that effort is irrelevant. Isn’t effort what is ultimately going to dictate how many people I need? Someone could meet a deadline because they worked 80 hours a week, but if that’s happending continually then I probably need a second person. I run an accounting and financial management outsourcing practice, and bottom line is that tasks such as running A/P checks, preparing financial statements, etc. take a certain amount of time to do. Their value in pricing may not be directly tied to the time, but I still need to know how long it takes to figure out staffing. I agree that pricing and costing are separate functions (like they often are in a manufacturing company) but not mutually exclusive.

    The fact is that there is still the practical reality of satisfying the demands and expectations of senior and managing partners, which cannot be changed overnight.

  17. Jim, if you need time sheets to understand if you are over working your people you have more of a problem than I thought. The simple answer is – observe and ask them. If every night there are a ton of cars left in your parking lot at 8pm, you need more people. Install web cams if you need to.

    Yes, effort is not irrelevant, but according to Kless’ Second Law – Effectiveness always and everywhere trumps efficiency. Likewise, (effective) pricing always and everywhere trumps (efficient) costing.

    If you measure effectiveness as I described in my previous post and it begins to decrease you have to investigate as to the reason. It means a) your people lack the knowledge they need or b) you are asking them to do too much, c)something else which can only be discovered by talking to them. Again, you do not need time sheets to tell you this.

    Focus on the right thing – effectiveness. I guess, I am saying while they are not mutually exclusive, efficiency is irrelevant.

  18. Jim Caruso says:

    From Ron’s and Ed’s most recent posts, I understand the importance of first accepting “the theory” (that we don’t sell time), and I see the paradigm shift that entails. Viewing the issue from that perspective does indeed foster a new understanding. And I can see that, ideally, getting away from timesheets will drive that philosophy through an organization.

    But (and you knew there had to be a “but”), I’m still not there yet… We agree that “Time” is not the *output*, but why does that mean it can’t be measured as an *input*? In most businesses (if you’re adding any value at all between raw material and finished product), the inputs and outputs are different things, different units of measure. A person buying a car puts a value on that car, and doesn’t care how many hours it took to build it. But the automaker sure cares how many hours it took.

    Jim Caruso

  19. Jim, with all due respect, NO, NO, NO!

    Our point is that knowledge work and factory work are NOT the same. YOU CANNOT MEASURE KNOWLEDGE BY THE HOUR! Not for value, not for pricing, not for costing.

    Toyota does targeted costing, they know the cost before they build, therefore they do not measure effort. These seems like semantics, but it is important – Toyota cares how long it will take, not how long it took.

    That being said knowledge work is NOT factory or even service work. Two knowledge workers could spend the same amount of time on one project with very different outcomes.

    Lets say two programmers are given the task of writing some code that does X. They both take 40 hours to write it and both programs produce the same output (or right answer). However, the first program arrives at the result in under a second, the second takes five minutes. The first is usable in a real time environment, the second is not.

    If real time reporting is important this case, the first programmer’s code has value, while the second programmer’s code is worthless.

  20. Ron Baker says:


    Sure, time can be measured as an input. So what? I can also measure square footage occupied, or a myriad of other inputs. The real question is why do you want to measure the inputs? What better info will you get? Will it tell you that you lost money? If so, you shouldn’t have done the job in the first place. Will you raise your prices if it took longer? Then you are mired in the labor theory of value.

    Go back to basics. You only hire someone if the value of their marginal output exceeds their marginal cost. You know their cost before you hire them. Why allocate that cost over every minute? What does that tell you? Does it help you determine prices better?

    Moreover, if a car company knows how long it takes, again, so what? What does that tell them? Does it help in reducing the amount of time? No. We don’t change our weight by measuring ourselves. You have to look at the cause, not the measure.

    Your income statement is a measure of inputs. What else do you need in a fixed cost environment?

    Again, stop worrying about the inputs, which are largely fixed in a PKF (human capital). Worry about value. And Ed’s right, we’re not making cars on a repetitive assembly line, you are working with minds.

  21. Eric Fetterolf says:

    I think there is a hidden root cause in Jim’s posts. I believe that root is allocation of profit monies to the partners. I believe Jim is looking for a way to communicate to his partners the “fairness” of profit distribution is maintained in the Value Pricing Model.

    Most profit distributions between partners occurse after the project is complete. Pricing that you are describing is done before the project.

    Agreements to distribute monies as a percentage of profits generated by the specific silo would be a root of angst between partners moving to a pricing model that only looks at costs before a project is undertaken.

    Jim, feel free to correct me if I am wrong.

    Ed, Ron, perhaps you might address this hidden assumption.

  22. This is why I believe you must have a compensation system that is firm and not project or partner based.

    See –> https://verasage.com/blog/compensation_in_the_professional_knowledge_firm/

  23. Jim Caruso says:

    Eric – Your comment is insightful and does get at a potential additional issue with the elimination of timesheets. However, it does not happen to be one of my concerns. My firm does look at compensation in total, although of course practice-area profitability does subjectively affect compensation. To the extent it does, profitability information is still readily available for my practice without timesheets. My staff is dedicated solely to my practice, so payroll costs, revenues and profitability are easily determinable for my practice in the aggregate.

    My issues with eliminating timesheets pertain more to understanding client profitability – i.e., are certain clients sucking up way more time (and therefore requiring more staff) than assumed when the engagement was priced? I run an outsourcing practice, so we are expected to be the client’s accounting department, and do the things that an accounting department would normally do. I can’t stop considering the relevance of how much time the client’s inquiries and requests end up sucking up. And, even if I could get myself to agree that timesheets should be eliminated, I need to convince my partners to break the paradigm.

  24. Jim,

    I don’t want to rehash all this, but if time is that important to you, it’s clear to me that your aren’t doing enough up-front scoping and project management PRIOR to accepting a job.

    Also, this obsession with how much time things takes also tells me you have a pricing problem.

    Both of these will NEVER be fixed by using timesheets.

  25. Eric Fetterolf says:


    I understand your concern completely.

    Your concern is addressed by scoping out the requirements before taking on the business.

    You need to list all the concerns about trashing the timesheet. Next, you look at what is controlled by the customer and what is not controlled by the customer. Those tasks and duties controlled by the customer need to be addressed at the discovery portion of the sales process. A clear understanding of the customers needs and expectations is addressed and agreed upon by BOTH parties.

    Any changes to the agreement is by definition a change order and will be reflected as such. As your customer needs more or less services from you, your pricing will reflect those changes.

    As Ed and Ron preach, the understanding and agreement is conducted before your company incurs the “cost”. This is forward looking at your value to your customer.

    Capturing the value after the fact is much harder and more expensive. Tracking time adds to the overhead burden of your company and provides no value to your true profit centers: your customers. Think about that for a long time. You have expenses that come directly out of your pocket that provide absolutely no value to the source of your income.

  26. Jim Caruso says:

    No worries about rehashing, it’s a continuing debate and part of your effort to win hearts and minds.

    I will readily admit that we have a scoping and pricing problem, and that is why I am trying to implement many of your other value pricing principles.

    But still, even to do that better job of scoping up front, I need some historical information on how long things take. I just can’t see how you take time completely out of the equation. If I’m handling a client’s accounts payable function, I need to know how many check runs they need generated each month, and how long each check run takes. To use extreme numbers as an easy example, if it’s going to take 160 hours a month I need one person; if it’s going to take 320 hours a month I need two people. Agreed that this needs to be known up front, but the time something takes is hardly irrelevant.

    Also, the foundation of value pricing is that the client determines the price. Well, clients often are the ones that think in terms of time. When they consider outsourcing, they compare the cost to hiring a person internally. They can’t help but ask, “If I can get a full-time CFO for $X, how much time are YOU going to spend with me for YOUR fee?” Sure, we can try to educate them that it shouldn’t matter, but it’s still a hurdle, and not an argument you want to have with a prospective client.

  27. Most of what you are talking about is resource planning and we never said we were against that. Effectively, you are doing your time sheets in advance. We are good with that. There is just no reason to capture and retrospectively look back at time spent.

    We would replace this practice with the After action review. Written about here –> https://verasage.com/blog/after_action_review_the_army_way/ and many other places on this site. The AAR replaces looking utilization and realization reports.

  28. Matthew Tol says:

    With the scoping of a job like this, you need to consider (in the outsourcing example) – why are they outsourcing – clearly because they aren’t getting the VALUE they require from their current arrangements. Had this very same discussion with one of our soon-to-be customers the other week. His internal systems are not working and causing him immense frustration. He wants something that works. Why would he pay less for a solution when the existing arrangement is providing him nothing but headaches. He is so high on the value curve on real, useful and pertinent information that the cost of running his internal department is irrelevant. Be confident and also be prepared to say “we can’t do it for that” and walk away. Full stop. If you’ve positioned yourself correctly, you’ll get the job and the price will be irrelevant.

  29. Ron Baker says:


    Ok, let’s deal with your objection head on. I’m glad you see the need to know, BEFORE you do the work, whether it will require one or two people. This is just good project management, and knowing your business.

    How much historical data do you need? How long have you had timesheets? How long have you been doing this type of work?

    Value Pricing does not mean the customer determines the price. It means they approve it up-front. (It is possible in some circumstances, like with the TIP clause, that the customer does indeed set the price).

    But they don’t care about time, even though they may frame the question as you suggest. What they care about are OUTPUTS. Discuss results and outputs with them, not time and this issue dissolves completely.

    The hurdle is not the customer. It’s you and your owners. This entire Value Pricing movement grew out of a Total Quality Service movement where I was trying to enhance the customer’s experience. Billing by the hour destroy the customer’s experience, and is and leads to, quite frankly, crappy service.

    Customers love certainty of price and results up-front. Give it to them. No more excuses. They do not control how you price.

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