The Cost of Poor Time Visibility

Costing out a project is arguably the most important step to do well. Being able to track the costs of materials and labour accurately is necessary to determine which projects are profitable, both historically and going forward. Being able to peer into these data also allows for more accurate estimates and proposals, and to forecast and mitigate cost overruns. What many business owners overlook is the value of time in cost tracking.

Time and Labour

Time's role in determining labour costs should be obvious - the more hours put into the project, the higher the labour cost. However, the factors that contribute to the number of labour hours usually aren't visible, because the time capture method isn't sophisticated enough to provide that visibility.

Many project-based companies have a big hole in their time capture systems, because their consultants are out in the field and manually enter their hours on time sheets or cards. Employees with fixed work sites, such as a warehouse floor, may clock in and out timely, but do they track the time spent on each project throughout the day? The information which is entered into the company's payroll system is usually insufficient for tracking a project's costs.

These systems may meet payroll needs, but fall short in other ways:

• delays to payroll and labour reports
• additional time spent entering and verifying the data
• increased errors due to copying from time sheets to payroll system
• risk of losing the only copy (the time sheet) of the hours worked
• low integration with systems beyond payroll

Visibility into labour data starts by ensuring that it's entered only once and is integrated fully into all systems. Consultants in the field can capture their time via their own mobile device, for example. Warehouse staff can be equipped with handheld devices that integrate time capture, order-picking, and inventory management functionalities.

Once your staff is able to easily capture their item, it's easy to tie those hours in to specific projects. This allows for real-time comparisons for projected vs. actual labour costs. The device can also prioritize tasks for the employee, minimizing down time while direction is sought. Time can also be captured for equipment, as well as employees, so equipment time can be tracked per project.

Time and Materials

The time factor for materials may not be as obvious, but is just as important. Some ways time impacts material costs include:

• delivery time
• vendor billing cycle
• project milestones

Being able to integrate accounts payable and receivable with your ordering system will make the planning process much easier. Integration of data from bookkeeping, project planning, and inventory management systems gives you the visibility you didn't have before. The visibility that makes it possible to prevent delays by having materials arrive too late and to save money by avoiding having them arrive too early.

How does an integrated CRM help? In the planning stages, milestones can be developed that integrate information about lead times and vendor credit terms. Reaching a particular milestone will trigger the ordering of materials for future stages of the project, based on the lead time needed for the particular materials. The customer is invoiced for the materials immediately or upon some other agreed-upon interval, and the vendor's payment is issued when it comes due. This allows for just-in-time ordering to rein in the expenses that often accumulate during the mid-stages of a long and complex project.

In effect, management of materials costs is accomplished by managing time.

The Cost of Poor Time Visibility

Spending excess time on a project raises costs. That time can be in literal hours of labor, or it can be time spent idly waiting for the delivery of a key component. Time carries a cost; it could be overtime hours or extra days with a shipment of widgets in the warehouse, but it always carries a cost.

Time only becomes expensive, though, when you can't see how much of it you're spending. Visibility into labour and materials costs is the best way to rein in the cost of time. If you're interested in learning more, please feel free to contact us to discuss.

Check back every Monday afternoon for a new blog entry discussing how business management software can help solve issues for small and medium sized businesses.