In consulting, billable hour adjustments often happen at the end of the billing cycle, when the amount of hours actually worked exceeds what is reasonably expected by the client. Those hours are usually just dropped from the invoice silently, while work for the next billing cycle ramps up.
Every hour that is dropped from the invoice not only negatively affects your profitability, but also contains signals that can warn you of impending trouble with the project plan or client relationship.
Having the ability to capture and analyze these dropped or adjusted hours is essential to scaling and profitability. But too often, any information about the reason for these adjustments is lost once the invoice goes out and the next billing cycle starts.
Hidden Dropped Hours Are Destroying Your Margins
If your firm is using spreadsheets for time tracking, the dropped hours at the end of a billing cycle are rarely documented. For example, if your team worked 100 hours but only billed 80 to the client, you have no idea how the other 20 hours were spent, and why they were dropped from the invoice. The reasons for the write-offs are critical to understanding how your company is actually operating. Was it a case of scope creep? This could be caused by a demanding client, not effectively managing expectations, or having a poorly functioning PM process. The dropped hours could also be caused by a training or resourcing issue, where work was assigned to a consultant with the wrong set of skills to complete it in time. Or it could be a technical error that caused rework to happen, meaning that your systems need to be looked at and possibly overhauled.
The cost of not knowing the reasons for your dropped billable hours extends beyond the hit to your profitability: Unless you can correctly diagnose and fix the root cause of the write-offs, the problems that caused them this month will continue indefinitely, and can possibly occur on other projects.
What You Can Learn From Your Dropped Hours And Adjustments
In order to proactively solve the problems that are causing your adjustments and dropped hours, every adjustment needs to be categorized with an “adjustment reason”. Using PSA software that integrates time tracking, resource management and invoicing makes tracking write-offs and adjustments easy and centralized, enabling you to:
- Identify profit leaks by project type and client
- Find and fix skill gaps and resourcing inefficiencies
- More effectively manage client relationships
Proactively Manage Your Firm’s Financial Health
Tracking dropped hours and adjustments is just as important for your firm as tracking hours on a timesheet. Using PSA software like Projectworks enables you to see why hours were written off and the context behind it, giving you the opportunity to address problems before they hurt your firm’s profitability. You can start building a 360-degree view of your consulting business today by signing up for a free trial of Projectworks, or let us demo Projectworks for you.
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