Captain’s log, stardate 20210115
Did you see my recent message about the firm owner who doesn’t bill hourly but his employees wanted to track their hours anyway because they wanted to know if projects were profitable or not?
(You can read it here if you haven’t already.)
A bunch of alert readers sent in thoughtful replies to that message that I’d like to address here. There were two main threads of conversation that I saw in the replies.
The first thread was that the owner should find out WHY the employees want to know how profitable each project is.
And yes, I totally agree!
They might want to feel a sense of contribution to the business. Or they might be motivated by competition with their fellow employees. Or they might want to create leverage to request a raise. Or maybe they’re feeling burned out and want evidence that they’re being overworked.
Whatever the case may be, keeping the team happy and productive is very important. Understanding where they’re coming from and finding a metric that would address their desire is a good idea.
That said, I stand by my original statement that the chosen metric needs to be something other than hours. If it’s hours that you measure, it’ll be hours that you get. There are loads of other things you could track that would speak to things like quality, satisfaction, contribution, happiness, morale, teamwork, etc.
The second thread I saw in the replies was that a bunch of people were horrified that I would suggest that project profitability isn’t important. I wrote:
You could also easily run a P&L to show them profitability numbers for the business as a whole. Whether or not a particular project was profitable isn’t particularly useful, IMHO.
Here are my thoughts:
My statement was in reply to a specific person in a specific situation, not a general statement that it doesn’t matter whether projects are profitable. The guy who runs this firm KNOWS that his projects are profitable, he just doesn’t know (or really care) exactly how profitable each one is. Having his employees track their time to find out exactly how profitable each project was would not be particularly useful to this owner. (NOTE: The employees seem to care, but I addressed that above.)
In my universe, projects are priced based on value and therefore they are always profitable, UNLESS you do a bad job managing scope creep. Excessive scope creep is an obvious problem and doesn’t require tracking hours to identify it. You can easily see it at the month/year level and everyone involved with the project will be getting increasingly cranky.
The thinner your margins are, the more important it is to track hours. So if you’re worried about tracking hours, then your positioning, pricing, or business model might be the real problem.
As always, thank you to everyone who wrote in! I very much appreciate it :-)