Most, if not all, companies track the hours that employees work. The principal reason for this, is to calculate wages. Worked hours translate to a pay slip. The second obvious reason lies on the other end of the financial process: invoicing. A worked hour converts to an invoiced hour which generates income. Further, most companies register project related hours, to see if costs are on par with budgets. In this article I dive into reason number four: business analysis. With the turn of the new year, this is a good moment to reflect on your business. And if you registered all worked hours, you are sitting on a dataset which will provide some nice insights into last year’s busy activities.
The analysis of worked hours has two main purposes. The first purpose is to gain understanding of how time is spent, and to see if the proportion of time spent can or should be changed. The second purpose is to answer the question of how to divide work amongst staff, and if it is feasible to hire new personnel, especially specialists. But let’s lay some ground work first.
Most importantly, it is good to look at which hours should be recorded. I propose registering all business related hours. And I mean this in a liberal way. Literally: register all the hours that affect business. Some examples to illustrate. Did you contemplate a new product idea on a raining Sunday afternoon? Register the hours! Travelling to a client? Register the hours! Went on vacation? Register the hours. Been sick? Register the hours! Went to a networking event? Register the hours.
Although the ‘registering all hours’ rule seems simple, the devil is in the detail. There are three exceptions that need some discussion: commuting, learning and partying. Let’s say a normal commute from home to work takes thirty minutes. No business regards these hours as work time, and nor do I. But consider a sales person who leaves home in the morning to visit a client. Where (and when) does his work day start? Does it start when he leaves home, or when he arrives at his client? This is not at all clear cut. And it gets worse. The same problem presents itself learning and partying. When taking a course with formal classes, would that be a business or private matter? It depends. Does the business insist on the course, or is the person expected to keep learning as part of his career? How about reading a book? Or reading this article while sitting in the smallest room in the house. That’s a good way to work while minding your own business. The same argument can be made for partying, as in: social events, networking events and formal business dinners. I have been to a few too many of these, and I know from experience that the entertainment and business value go hand in hand.
The arguments for tracking hours for commuting, learning and partying has two sides. The main argument in favor of tracking is for the sake of statistics and analysis. If you want to analyze data, it needs to be there, so all hours must be registered. It is good practice to split time, and consider one portion as private and track the other as work. The portion size should be representative, so that the statistics are meaningful. On the other hand, the argument against tracking these hours is compelling. They essentially come down to employee benefits. Regarding time as work leads naturally to the expectation that those hours will also be paid. Wages will go up and that is not be the intention of the employer. Especially when the ‘registering all hours’ rule is applied literally and lavishly. When making decisions about the split between private and work it is good to balance the arguments of the analyst and the employer.
Finally a remark for business owners: you should also track all your worked hours. All of them. Consider yourself, at least in this regard, as a normal worker. The reason for doing so is most eminent when valuating the company. The questions here will be: what happens when the owner disappears? Who takes over the role? And how many hours do they put in? Or to put it bluntly, the business owner is not a mythical person who stands outside the organization. The hours they put in the business matter as much as the hours that regular employees put in. It is paramount to not treat owner-hours in any special way.
At this point we are tracking as many hours as possible so we know how much time is spent on work. That means, that we can calculate the revenue and profit per hour and a few more things. But in all honesty, the total number of hours on its own is rather useless. It gets interesting when we not only know how much total time is spent, but also when we know how we spent it. We need to divide hours into categories.
The first useful and pretty obvious category is sick leave: hours spent at home due to health issues. We calculate this against the total of all business hours. That last addition is crucial since we do not seek absolute, but relative numbers: percentages. And let’s complete the quest for preciseness: we want to compare. Comparisons can be: previous periods (“Sick leave has gone up!”), other companies (“We are doing better than others!”) or targets (“We are doing as expected.”). Making comparisons is not always possible. Maybe you just started tracking so no previous periods are available, maybe data from peers is not available or too expensive, or maybe you just have no idea what a realistic target could be. In that case, keep tracking until you accumulated historic data. Practice patience.
In total there are four semi-private categories: short-term sick leave, long-term sick leave, vacation days and special days off. Notice that I split sick leave in the categories short-term and long-term. The reason for doing this is two-fold. First, short-term sick leave is typically a precursor to long-term sick leave. Secondly, solving short and long-term sick leave requires a different approach. The cutoff point is typically two weeks. Absence also comes in two varieties. Both are pretty much beyond the control of the employer. The reason for tracking them separately is to keep count of the vacation days, which have a yearly fixed limit.
All further hours are categorized by their activity. Examples include: Administration, Sales, Manufacturing and Support. The breakdown of categories really depends on the business. But whatever your categories are, you will inevitably make a subdivision between activities in the primary processes and activities in the secondary or supporting processes.
Your breakdown of categories may therefore look like the following:
- Semi-private hours
- Sick leave
- Vacation leave
- Sick leave
- Work hours
- Sales & Marketing
- General Management
- Finance & Administration
We have now come to a crucial point. A point that is admittedly hard to spot at first sight, and relates to those deviously hard to register hours: commuting, learning and partying. One may wonder if they deserve their own categories. The answer is a clear and decisive ‘No’. They are registered under the categories that they contribute to. Commuting to a client to fix a machine: Support. Learning about the new tax laws coming into effect: Finance & Administration. Visiting a networking event: Sales. It’s as simple as that. Notice also that the categories have no relation to individual projects. As said, that is useful for mapping reality to budgets, but is not needed for the sake of analysis.
When analyzing business hours the first big questions we want to answer is: what is it that we spent time on? With the category breakdown in mind, it is interesting to see what kind of ratios we can calculate. This is useful for challenging the status quo: we spend 25% of our time on Finance & Administration. Can this be less? Spending a quarter of the time on finances may seem way too much, but if the business at hand is banking, it may not even be enough. Perhaps more time should be spent in Manufacturing, to prevent time spent on Support? The verdict depends highly on the context. Further examples include:
- Sick leave compared to all work hours
- Hours spent in the supporting processes compared to the primary processes
- Sales hours compared to primary
- General Management compared to work hours
For small businesses or teams within larger organizations it is crucial to understand what work is actually done, and what expertise is required. The main task here is to determine whether there is enough work to hire extra people for a given activity (e.g. hiring a new sales person), or if it is possible to redistribute work amongst the current staff. Could we hire a full time sales person, instead of spreading sales related tasks between multiple team members? If we hire a sales person, do we have enough work for them?
Which questions are important and how to interpret the statistics depends really on your business. It is not always clear what you will learn when tracking and analyzing worked hours. In that way, diving into the data is a bit of an adventure and exploration to see what insights you may get. In conclusion, it is therefore good to recognize that it may be hard to motivate team members to be diligent. And let’s be realistic, no one likes entering time sheets. I advise to leverage any existing time registration practices that you currently have. As said at the start of this article, most businesses already have time tracking systems in place. If it is not for generating pay slips, it will be for invoicing or budgeting projects. Leverage these efforts and use this data as a starting point for analysis.