Your employees’ time is your most costly resource, but how well does your consulting firm manage hours? And just how important is effective time management in driving profits? In this post, we’ll explore why time is essential for profitability in the consulting industry, and how you can implement easy time management initiatives in your business.
Looking after your employees’ time is essential to running a profitable business. But many organizations fall short when it comes to looking after their team members‘ work-life balance. In pursuit of profits, consultants often find themselves with heavy workloads and tight deadlines. But this short-term gain has negative long-term effects, as team members risk burn out which affects employee engagement and turnover.
Here are some of the most common ways successful consulting firms manage their employee’s time without losing money in lost projects.
Let’s use an example to help us understand how time affects profitability. We have two management consulting firms, Firm A and Firm B. A marketing agency has approached them to complete a small, but important, project with a tight deadline.
Firm A has been using time tracking tools for the past two years. This means they have their own database of previous work and how long it took to complete. They can use this data to help them accurately forecast how long future projects will take.
Firm A has worked on similar projects to what the marketing agency is requesting, and so they use this information to determine the exact hours required. As their software automates reports, this information is available at the click of a button, which helps them quote in less time.
The client has a tight deadline, but Firm A uses this data to explain why the delivery time is what it is. This means they set a realistic deadline with the client from the start of the project, which helps them manage expectations.
The firm completes the project on schedule, leaving the marketing agency a satisfied client and source of repeat and new business from referrals. This is an example of how time tracking has a positive effect on profitability.
On the other hand, Firm B doesn’t use time tracking software and their consultants don’t proactively log their hours. As there’s no data to back up their time estimations, they have to guess how long they think a project will take.
To help them determine project delivery time, consultants rely on their own, as well as colleagues’, past experiences. This raises several challenges for Firm B. Firstly, memories fade over time and they’re only rough estimates, not data-backed figures: “It took me about a week to complete” or “That should only take two weeks”.
The next issue is if employees leave the business, there’s no continuity of this information as there’s no software to record it and make it accessible to all employees. And crucially, when consultancy firms don’t track time, they often don’t invoice for all billable activities, like admin. Nor do they factor in unforeseen delays, such as consultant illness. Therefore the consultants don’t have an accurate idea of completion times.
Now, Firm B knows the marketing agency has a tight deadline, but they believe they can meet it and so agree on an unrealistic completion time. And of course, that means it’s underquoted which negatively impacts the entire project:
It’s clear to see the negative effects not tracking time has on a project’s profitability. If not addressed, there’ll also be long-term consequences for the consulting firm.
High turnover, low-profit margins, and a bad reputation are all factors that affect a consulting firm’s profitability. And these issues all arise from poor time management.
Contrast this with Firm A, which enjoys the following long-term benefits from time tracking:
As we can see, the small “micro-action” of time tracking has far-reaching advantages for the entire consulting firm.
Effective time management also helps business owners to improve their operational excellence. By tracking time over an extended period, bosses can analyze data to see which tasks their team members spend their time on. This allows them to build a picture of how many hours are spent on billable vs non-billable activities, which gives an idea of the overall operational efficiency.
Consultancy firms can then look to automate the more manual admin tasks, freeing up their employees to spend more time on billable work. This efficiency improvement means consultants can take on more work and complete projects in less time. By improving the workflow, business owners increase their operating profit margins which directly impacts their bottom line.
Now we’ve seen how time affects profitability, let’s look at the importance of tracking time for employees in the consulting industry.
The consulting sector, in particular, has changed over the past few decades, and these changes have made time tracking even more important. To understand why, let’s define how the consulting industry works.
Consultants provide their clients with a strategy, which can be broken down into four key consulting services. These form the backbone of their work:
Traditionally, these areas were packaged together and sold as one service to clients. However, the emergence of the internet, social media, and ever-evolving tech trends have led to a change in the way clients engage with consultants.
For example, the wealth of market research tools now available makes information more accessible than ever. Businesses no longer need to hire management consultants to extract large volumes of data, they simply use their tools.
As for expertise, many businesses are now hiring their own, in-house consultants. Traditionally, strategists worked in large consulting firms and interacted with clients on a per-project basis. These days, with platforms like LinkedIn, it’s easier than ever to hire freelance consultants and start a business strategy team within an organization. The internet is also full of expertise and anyone can look up information in blogs, white papers, and resources.
In the age of big data, businesses now have almost instant access to insights thanks to platforms like Google Analytics. On a bigger scale, larger organizations are investing in their own technology to read data and provide insights, meaning they no longer need to hire management consultants to help with these tasks.
And execution is also being brought in-house by larger businesses, while smaller firms work with freelancers and subcontractors to help them implement their strategies.
So why does this make time tracking important in the consulting industry? It’s because the internet has enabled businesses to own parts of the consulting process, meaning consultancy firms can no longer easily “package” together their prices.
This has led to a restructuring of the industry and strategists are now more focussed on the execution side of their consulting services, being hired on an on-demand or part-time basis. The age of information and data has also led to a greater need for transparency. All these changes to the consulting industry mean consultants now charge per hour, which means time tracking is essential to achieving profitability.
Pandemic: Easy ways to implement time tracking in your consulting business
Now we’ve established why time tracking is essential in the consulting industry, let’s look at some simple ways to implement it in your business. These steps are particularly important given the global covid-19 pandemic and emergence of remote working trends.
Tracking time is an essential practice if consulting firms want to avoid high turnover, dissatisfied clients, and low profits. It allows businesses a greater degree of transparency over their operation, which allows for workflow improvements and optimizations. While it can be tricky to introduce such a large change, time tracking tools that automate the process make it easier to implement and adhere to.