Articles

Measuring the right stuff

Most accountants love measurement and there are plenty of things that can be measured in an accountancy practice. However, just because it can be measured doesn’t mean that it’s useful. John Haylock, BankLink's Practice Performance Manager, discusses how measuring some things can be downright harmful.

The measurement that I would particularly love to ban is the percentage of chargeable hours worked. Most accountants incorrectly call this ‘productivity.’

Productivity is normally a measure of how efficient a business is in producing its outputs against the level of required inputs (for example revenue/team member). The percentage of chargeable hours worked is different though. It is simply a measure of inputs and cannot be a true measure of productivity.

This is a fundamental strategic mistake that restricts the performance of accountancy practices. It makes accountants think that working harder is the way to increase productivity whereas, as I will explain, the opposite often occurs.

Yes, I know in many practices there is an apparently obvious correlation between the input of chargeable hours and the output of revenue. But there are plenty of high performing practices that do not have high chargeable hours.

There is also a correlation in many practices between an excessively high percentage of chargeable hours and a whole range of obviously unproductive factors such as a slow down in job turnaround and increases in work-in-progress, debtors and write-offs.

Why is this?

Once a team member is aware their performance is being judged on the basis of the chargeable hours worked, they will naturally try to maximise their percentage of chargeable hours.

If a job has to be stopped for any reason – for example if some further information is needed from the client – the team member will do the easiest thing possible to keep busy. Normally, this is going and starting another job, which leads to more open jobs and an increase in work-in-progress.

More jobs open also leads to a slow-down in job turnaround, and this is where the slippery slope really gets going. A slow-down in job turnaround leads to grumpy clients. It also encourages interim billing, leading to even grumpier clients who are slower to pay their bills. This causes debtors to increase and cash flow gets worse.

With more jobs underway there is often an increase in the number of times, each job is put down and picked up again. ‘Re-familiarisation time’ increases which feeds through to an increase in time written off. Team members don’t like being pushed to work harder and longer, so they get grumpy. They may also become dishonest by expanding jobs to fill the time available.

So what is the ideal approach?

I suggest that you should instead focus on job throughput. This is a genuine measure of productivity (jobs finished/team member) that encourages finishing jobs as quickly as possible after they have been started. It is about the rate of completion of jobs – an outcome that clients’ value. 

Completion of jobs is directly linked to the production of revenue and to cash flow, which are other vitally important measures of productivity.

Once you decide your focus is on increasing job throughput you will make decisions that mean you will run your practice differently. For example you will work with your clients to get the best possible information from them (so you waste less time chasing up information later in the process), and try and maintain as smooth and even a flow of jobs as possible (so new jobs are being started at the same rate other jobs are being finished).

When you change to this type of management style you will recognise that spare capacity is a vital resource. Spare capacity gives you the flexibility that is necessary to manage a smooth, even flow of work. It also gives you the time to improve your processes and capabilities so that you can complete jobs even quicker and produce even more spare capacity. This is a virtuous spiral of improvement which may well lower your percentage of chargeable hours – and that’s good.

Because your clients are happier as a result of your improved turnaround you also have the potential to increase your prices. That further improves your bottom line.

I suggest four key measures for job throughput:

1. Completion of planned jobs on time. This ensures team members are completing an appropriate quantity of jobs.
2. Revenue per team member per week. By measuring revenue weekly you will encourage jobs to be completed and billed continually throughout the year as well as good debtor management.
3. Median job turnaround time. This should be as short as possible. Many accountants currently achieve six or eight week turnaround on annual accounting jobs. I recommend moving to four weeks and then improving towards a two week turnaround.
4. The number of jobs underway per team member. This should be as low as possible – ideally no more than five jobs per person. If this number starts blowing out you will get an early signal that problems with throughput are developing. This means it is a vital indicator that should be monitored daily.

Shifting your focus from chargeable hours to job throughput may take some adjusting, but by measuring the right stuff your practice will have a more focused team, more loyal clients, and ultimately an improved bottom line.

Does one size fit all?

BankLink Regional Manager, Pam Renfrey, uses her family as a case study to show how different BankLink solutions suit different clients – and why you shouldn’t be afraid to suggest they make a change. read more >

Driven by the heart, but measured with the head

Some SMEs are looking beyond the bottom-line by establishing altruistic goals for their business. But each cause should be evaluated using a commercial approach. Published in AB+F Magazine. read more >

How ‘one-piece-flow’ can transform your practice

Lean production techniques can improve your efficiency and the quality of your customer service. read more >