Another application of Figure 1 is in identifying the norm or average time to complete a task. If a task takes, on average, four hours to complete, then the firm has a basis on which to objectively determine the productivity of a particular employee as it relates to a specific work-flow task. It also permits the firm to set limits on what is deemed acceptable performance (perhaps, in this illustration, a range of three to five hours). Anything outside that range might be cause for management concern.
The overwhelming reason to embark on such studies is to determine whether the firm is getting the biggest bang for the buck, so to speak. Does it make sense to pay two employees the same where one takes twice as long to complete the same set of tasks? Does it matter to the firm if the employee who takes half as long to complete a task is making so many mistakes that, ulimately, it takes longer to finish because of corrections and/or management intervention? These are the sorts of questions that cost-control studies can answer.
The cost to a firm of not doing this type of study could be enormous. The effect of losing six hours per week per employee in a six-employee staff pool with an average wage base of $35,000 per year could be costing that firm more than $30,000 a year. That is almost the salary of another employee.
As valuable as cost-control studies are, they are difficult to implement in an impartial way. There are essentially two methods to implement cost-control studies: surreptitiously, using transparent management reporting techniques, or overtly, using micromanagement techniques (not recommended). The problem with overt methods is the bias that could be applied to the study. Employees who know they are being studied may alter their normal routine to conform to some perceived idea of what is expected, rather than what they are actually doing on a regular basis.
There are many ways, however, to implement transparent management techniques for cost-control studies. One obvious choice is in the client relationship management software that the firm may use. Depending on the software developer, there may already be a set of customizable management reports that permit viewing what the firm's employees are doing. Such solutions include existing systems that can be used for cost-control studies related to processes and employees. One is Interactive Advisory Solutions (www.IASsoftware.com), which has robust office work-flow management tools. Another is Junxure (http://www.gowithCRM.com), with its heralded actions management and custom reporting capabilities. And a third is ProTracker Advantage (http://www.protracker.com), which has a completely separate employee scheduling and work-flow management capability inside its client relationship platform.
Another potentially expensive area of cost is in office clutter. (See the February 2008 issue of Financial Advisor.) Office clutter creates lost time in finding stuff and processing paperwork, which can quickly and significantly detract from the bottom line. What if you spent a minimum of one hour each day in the handling of clutter? Over the course of an entire year, if your time is valued at, let's say, $175 per hour, this clutter could be costing you up to $43,750 (1 hour x 5 days a week x 50 weeks x $175). This is lost time that could have been used for other purposes, such as meeting new clients, servicing existing clients, or simply working on useful pursuits in the office. Because office clutter is such a benign element in the office, it is rarely recognized for what it truly is-a monumental time demander and profit drainer.
No cost-control study would be complete without a thorough understanding of the relationship between the price and cost of each product and service the firm offers. Net profit recovery is a process of understanding that relationship and making adjustments in pricing to reflect reasonable profit amounts above actual costs incurred. (See Figure 2 on page 56.)
Though this is a chart based on fictitious data, it shows how such a tool could reveal inequities in a firm's pricing mechanisms.
The purpose behind cost-control studies is to uncover and recover verifiable cost savings, increase productivity of staff and, ultimately, to improve client service. In a declining gross revenue environment, it may still be possible to sustain net profitability with such studies. (See Figure 3 on page 56.)
As can be seen from this chart, there is a slight lag in the response to declining revenue in or around 2008. However, by applying cost-control techniques, profitability is re-established and maintained. The eventual result is that when gross revenue again trends upward, the firm is poised to take greater advantage of this on a net profit basis.
David L. Lawrence is a practice efficiency consultant and is president of David Lawrence and Associates (DLA), a practice-consulting firm based in Tampa, Fla. DLA publishes a monthly subscription newsletter, The Efficient Practice, which focuses on operational efficiency (www.efficientpractice.com). David is a much-sought-after public speaker on a variety of leadership, financial and technical topics. For details, visit www.davidlawrencespeaks.com.
