15% of chargeable consulting work is not billed to clients

29 March 2016 Consultancy.uk 4 min. read
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Around 15% of consulting work for clients, chargeable hours, is in practice not billed to clients, finds a new study by London Business School and a software firm. The ‘leakage’ in billable hours may come with a considerable cost to firms – internal operations are advised to scrutinise the chain of activities, with large efficiency gains potentially looming around the corner.

For every consultant in professional services, time tracking is notoriously regarded as one of the most tedious and frustrating tasks. Despite time tracking being such a critical part of all consulting firms’ operations, project managers and finance teams continue to struggle with resistance to time tracking tasks. This resistance stems in most cases, besides the dull nature of the task, from the poor user friendliness of IT systems and the inefficient processes that support project management and internal operations. Time tracking is typically, therefore, postponed until the very last moment and people have to rely on their memory and things like their notes and e-mails to figure out what they’ve worked on in the last days, weeks, or even months.

A new study by TIQ and London Business School reconfirms the low popularity time tracking enjoys among professional advisors. The study, which explores time tracking behaviour within the professionals services industry, finds that “only” 20% of surveyed professionals record their activities multiple times a day and 18% does so once a day. Around 40% of professionals track their time once or twice week, while 22% indicate that they only do so once or twice a month.

The nature of time tracking, however, differs across the professional services domain. Management consultants for instance are highly billable (on average client work accounts for 75% of their workweek) yet across the board consultants work on few different clients or projects during an average week. The number for consultants stands at only 2.4 different clients per week, compared to 6.1 different clients/projects a week for accountants or 5.0 for lawyers. This means that consultants have a fairly easy job filling out timesheets – they typically spend 15 minutes a week. Laywers spend nearly six times as much time inputting data in their time tracking systems, while accountants on average lose 45 minutes a week on time tracking.

Hours leaking off the bill
Another difference between the three segments studied is the degree of ‘leakage’ – billable work not charged to clients. Across the sectors, and this is well known, a relatively large share of billable time is foregone. 22% of the respondents of the study indicate that they record less than 70% of the time they spend on client work, implying that more than 30% of all their billable time goes unrecorded. Around 38% of professionals indicate recording between 70% and 90% of their billable time and 40% of the advisors indicate recording between 90% and 100% of the time they spend on client work.

The leakage follows from a variety of tasks – three that stand out as key drivers. Reading and answering e-mail leads the leakage cycle: a whopping 58% of advisors indicate that they record less than 20% of this time. A similar trend is visible for phone calls with clients – 50% record less than 20% of this time – and to a lesser extent also for client meetings, with 38% of respondents indicating that they track less than 20% of the time they spend in meeting spaces. According to the authors, the results illustrate how “normal” it has become for professional services firms to consider (electronic) communication as a ‘standard’, or even free, part of their integral engagements with clients.

Again, differences are visible between lawyers, accountants and consultants. The latter group on average records 85% of the time they spend on client work, accountants do so in 87% of the cases, while lawyers, known to record shorter chargeable lapses (e.g. 15 minutes instead of 1 hour for the other two professions), bill 86% of their client-related time spent.

The 15% or so billable time that is not charged comes with a considerable cost, state the authors. A management consulting example: assuming a 40 hour workweek, a consultant leaks an average of around 4.32 hours a week. With an average hourly billable rate of €212 (sourced from the reports’ authors), leakage costs an average of €915 per advisor per week in lost revenue. With 48 weeks used as a resourcing benchmark, this amounts to an average annual loss of around €44.000 per consultant.

Important to keep in mind however is what explanatory factors sit behind leakage. In some cases it stems from sloppy time tracking behaviour, such cases cost firms dearly as the foregone revenue is completely written off. In other cases leakage can be part of client agreements, i.e. fixed price agreements, or part of a wider strategy to over perform vis a vis expectations, down the line proving effective for retaining client work.