The Value of an Hour?

I was recently interviewed by Kate Burgess of BRW, an Australian business magazine. She was working on a story regarding the billable hour and timesheets in accounting firms.

I told her the philosophy of Value Pricing, contrasting the labor theory of value with the subjective theory of value. I also told her what the 400 or so firms are using instead of timesheets—namely, Fixed Price Agreements, Change Orders, KPIs, and good project management skills.

In the April 19-25, 2007 issue, the article was published titled "The value of an hour: Timesheets may seem old-fashioned and a burden on employers and employees, but they can also add value."

It starts by introducing Barry Lindback, principal in Lindback Partners, who had eliminated timesheets 10 "glorious" years ago. But Barry couldn't reconcile his "staff costs against the amounts he was billing clients." What did he do? He brought back timesheets. He estimated he could have charged up to $220,000 more in the financial year, or 30% of his revenue.

Here is how Barry explained his decision:

I had been doing value pricing for a number of years without timesheets. I didn't know my work-in-progress balance because I had no way of accounting for it. You have no way of knowing whether you're inefficient or not.

The article proceeds to quote Ric Payne, and then myself on the benefits of Value Pricing and what replaces timesheets, and it does a very good job in a short space making my arguments.

I had no idea that Barry Lindbeck would be quoted, but I am confident I know why he was leaving money on the table without timesheets. He wasn't really Value Pricing. If he truly believes that he left money on the table because of uncaptured hours, then he is missing the point completely.

There is no correlation between hours and value. I don't know how many times we have to repeat this for it to sink in?

I further conjecture his firm wasn't utilizing, or capturing, Change Orders, which will put a damper on a fixed price contract. I would also bet his firm was, shall we politely say, substandard with respect to project management skills.

To argue you can't compute WIP without timesheets is nonsensical. I'm sure Barry studied percentage of completion accounting, and you don't need timesheets to do that.

What's truly annoying about the tone of the article is there is no recognition that accountants are knowledge workers. Quite frankly, we are too talented to waste our time accounting for every six minutes of our day, especially since it has NO relationship to value.

Firm leaders that don't understand this treat their employees like waiters, not chefs. Is it any wonder our profession is losing talent, and not attracting the best and brightest? Who wants to work for someone who insists they account for every minute of their day? Stars don't work for idiots!

Barry wheels out the old canard of measuring productivity, but this is preposterous. A timesheet does not measure the productivity of a knowledge worker. I've written entire books on this subject. Someone can look excellent on a timesheet while being an ineffective knowledge worker.

A timesheet can't measure the bedside manner, communication skills, pride, passion, creativity, innovation, and all of the other intangibles that comprise an effective knowledge worker. To believe it can is an illusion our profession has suffered under long enough.

The article ends by quoting David Connell, a consultant to the profession in Australia, and one whom with I've crossed swords in the past. With respect to timesheets, here's David's advice:

As a one man band I can do it pretty easily, but you start to introduce partners into the equation and they all have a different view of value. I advise accountants to fix the price of their services but still keep timesheets so they can measure staff performance.

This is nonsense on stilts. David hasn't had a new idea since the Soviets launched Sputnik. It's time he realizes we live in a knowledge economy. The fact that he wants to impose Frederick Taylor-type measurements on my fellow colleagues offends me to no end. With advice like this, we don't need consultants.

Study the difference between a knowledge worker and factory/service worker, David. These people deal in ideas and intellectual capital; they don't crank out widgets in a factory. You're failure to recognize this is malpractice and ignorance, disregarding the reality that exists all around you.

If Nobel Prize winning economists have trouble measuring the "productivity" of a knowledge worker—not to mention their effectiveness and capacity to create value—then certainly filling out a timesheet is not the solution you seem to think it is.

Study the Toyota Production System, and ask yourself—if you have any intellectual curiosity left—how they operate without a standard cost accounting system? A timesheet will never be able to tell you how much money you are leaving on the table. And that sum, I guarantee you, dwarfs any marginal gains you will make in "efficiency" by tracking every minute of your day. You are confusing being busy with being effective and creating value.

Businesses don't exist to be efficient; they exist to create wealth for their customers. I'm sure the buggy whip manufacturers were efficient. So what? In a knowledge environment, effectiveness is far more important than efficiency.

The existing leadership and consultants to the profession are the problem. They wonder why no one wants to enter or stay in the profession. Ritz-Carlton believes its dishwashers are knowledge workers; it treats them as such. Toyota does the same, implementing over 1 million ideas per year from its front-line workers.

Isn't it time the leaders and consultants to the profession recognize accountants are knowledge workers? Unleash their brains, give them the autonomy they need to add value, and stop micro-managing them to make up for the lack of your pricing and project management skills. Until we do, our profession is not going to attract stars.

In short, there is no value to an hour becasue customers of professional knowledge firms don't buy time. Oh, and by the way, stars don't work for idiots.