Back to Basics: The Dreaded Timesheet Is Crucial

by Steve L. Wintner, AIA Member Emeritus

Summary: Where can firm executives find the answer to the future prosperity of their firm? As hard as it may be for many to believe, the answer begins, in my studied opinion, with the discipline of how to complete that most-dreaded of all office tools, the timesheet.

For far too many firms, this tool is “something to be dealt with” in everyone’s minds, including and especially the firm principal(s), who often allot it to their spare time (i.e., the weekend). I assert that the timesheet is the single most important resource of every firm and its level of accuracy could spell prosperity or doom, depending on the firm’s policy about how and when timesheets are to be completed.

Consider that the firm’s profit/loss statement includes a section defined as “direct labor expense” (DL), which is simply a total of all hours charged to projects during the defined statement period multiplied by each person’s hourly salary rate (annual salary/2,080 hours). The total of all of these DL hours is referred to as “total direct labor” (TDL) and is the denominator in calculating two very important financial performance metrics: the “net multiplier” (NM) and the “overhead rate” (OH). Once the OH is calculated, then it is possible to determine a firm’s (and any project’s) profitability. That’s the bottom line for every professional design firm. Without a profit, a firm faces potential bankruptcy and could soon become extinct.

Account for time at least once a day
Now, let’s go back to the oft-maligned and greatly misunderstood timesheet. If a timesheet is not completed in a timely manner (at least once every day) before the person departs for home, the hours on the timesheet will at best be an estimate and at worst, a “SWAG” (scientific wild ass guess).

If a timesheet is not completed in a timely manner (at least once every day), the hours on the timesheet will at best be an estimate and at worst, a “SWAG”

If a person’s daily project assignment consists only of one project, then completing the timesheet at the end of the day is an acceptable minimum. I would still strongly urge consideration for the completion of the timesheet twice every day. Once, just before taking a lunch break and then again just before leaving the office for the day. This approach is especially critical if a person’s daily project assignment is spread over more than a single project or involves several different tasks and activities.

The use of a log to capture time spent at the conclusion of every task, or whenever switching to a different task, is an essential resource to enhance the accuracy of capturing project hours for the timesheet. Those who would embrace this type of resource then might conclude, and rightfully so, that if their time is captured accurately in the log, then they can complete their timesheet at the end of the week. In my opinion, this is the lazy way out and avoids the need to develop a rigorous discipline and commitment to having their timesheet be timely (daily) and meticulously accurate.

If the hours charged to projects are anything less than accurate, it will likewise render the TDL figure as unreliable, at best.

If the hours charged to projects are anything less than accurate, it will likewise render the TDL figure as unreliable, at best. This, in turn, will make the two key metrics, NM and OH equally unreliable and, finally, the number shown at the bottom of the P-L statement, “net profit,” is virtually meaningless.

Further, since the OH is unreliable, this will have an undesirable impact on the development of each staff member’s break-even and billing rate. When project fees are developed, this will become a compound error and will eventually be translated into an undesirable result in the profit earned on these projects; perhaps even a loss.

Overall, the compound problems created by inaccurate timesheets will continue to erode a firm’s profitability and all because this tool has been ignored and overlooked for what it is: the single most important resource of every firm.