Unbillable Hours Erode Architecture Profits

Wednesday, June 8th, 2016
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As with any profession, time spent working directly on projects represents the basics of what practices in architecture throughout Australia are all about.

Naturally, however, a certain percentage of time will always be spent on tasks which are not directly chargeable to projects. Given this, the success or failure of a practice will obviously be impacted by the ability or otherwise of managers to ensure that non-chargeable time is kept to reasonable levels and that time which is indeed spent working on projects is used productively.

According to Scott Osborne, chief executive officer of practice management software outfit Total Synergy, this is a significant issue. Based on research from his firm’s client base, Osborne says around 36 per cent of the time booked into Total’s system by clients from the architecture, engineering and construction sector was not charged directly to a job. Breaking it down further, 15 per cent relates to various forms of leave (annual leave, public holidays and the like) and 21 per cent representing non-chargeable time which relates to matters other than leave entitlements. Given that practices in non-creative professions such as accounting and law generally aim for non-chargeable time of around 15 per cent (excluding the effect of leave), he says this is relatively high.

More significantly, however, Total’s records show that 28 per cent of time which is booked directly to projects is in fact either written down or written off completely and not recovered through fees charged to clients – a figure Osborne says is concerning.

“That’s essentially saying that for every 10 hours I spend on a job, I can only bill 7.2,” he said. “I would say that’s a very alarming statistic. I wouldn’t say it’s huge in a creative element, but if you had an accountant or a lawyer and they wrote off 28 per cent of their billable time on a job, they wouldn’t have a job.”

Osborne says a number of strategies can be effective to counter this. In order to reduce the potential for ‘scope creep,’ he says it is important to ensure that all parties have a clear understanding of the extent of services provided within the client agreement. Appropriate software and systems, as well, enable time spent of various parts of operations to be measured and can help to identify areas where practices can be improved.

Budgeting can also help. One particular practitioner maintains a set budget for each significant element of his time spent on non-project work (such as IT, marketing and professional speaking engagements) and runs monthly reports comparing how he is tracking with regard to each area compared with what he had expected.

In other areas, Osborne says technology such as cloud-based computing can help to maximise the use of idle time whilst some work involving non-chargeable tasks can be outsourced to specialised providers – often at a lower cost when compared with the effective charge-out rate of internal personnel who would otherwise be performing these tasks.

Finally, he says, it is important to ensure that the right people were doing the right jobs – a director, for example, should ideally not be doing invoicing when this could be done by a project manager.

Robert Peake, director of Melbourne-based financial and business management consultancy Management For Design, says the most significant area of opportunity revolves not so much around reducing non-billable time but rather maximising the benefits from time spent working directly on jobs.

With regard to scope, he says problems can arise whereby either this is not clearly defined and understood or where there is no system in place to capture situations whereby the original scope is exceeded and a case for a variation could be made. He says it is important to ensure that items which are and are not included are outlined in the brief and that project staff are aware of the limitations of the particular agreement in question. In addition, he said, it is critical to develop a culture whereby workers are conscious about scope limitations and any concerns in this area are flagged without undue delay.

As for non-chargeable time, Peake says this typically represents between 15 to 20 per cent of the overall number of hours worked and that he does not feel there are generally too many problems in this area. Nevertheless, he says, there are a couple of areas to watch out for.

Whilst competitions, for instance, are part of bringing in new work, Peake says it is important to set parameters around the type of competitions which are entered and the amount of time spent on them.

Matching resources with workload was also crucial, as any case where there are more people working on a project than are needed at a given point in time will result in excess time being spent either on non-chargeable activities such as professional development or on tasks which might be related to a particular project but which in reality may not have been required. In this regard, he says it is important to look at factors such as the current backlog of work as well as the amount of new work coming in and to develop a methodology to enable the number of people required for the likely volume of work to be predicted with a reasonable degree of confidence.

Finally, he says it is important to set clear expectations surrounding the proportion of time which should be spent on chargeable activities.

As with any profession, time spent on the job is what brings in revenue for architecture practices.

By making that time as productive as possible, they will go a long way toward maximising the level of financial return which they derive from their practices.

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