Time Tracking: Why Do Companies Do It?

What is time tracking and why should companies do it?

Most people have worked a corporate job where they’ve had to punch in and punch out. This is to keep track of people’s working time. Then it’s possible to calculate leaves correctly, figure if the person has flex hours, and so on. In the old days, it was the most used, and sometimes even the only way to figure out what people had been up to at work, and if they showed up to begin with. Obviously, times have changed, and companies have come up with sophisticated ways to evaluate employee performance like peer reviews, client feedback, and more. Let’s dive a bit deeper to time tracking.

Time Tracking is essential to keep track of attendance

The number one reason time tracking was invented, was that employers needed to know, if employees work as long as it says in the contract. That might be self-explanatory. So time tracking is done to keep track of attendance. If the employee works as much as was agreed upon, they’ll get the salary that they agreed on with the employer. Time is the simplest (and the most vague) way to track performance. Obviously, how long someone has worked, doesn’t have anything to do with the actual output of the work, and that is/was often then evaluated qualitatively.

However, time tracking can also reveal insights on company performance.

Time tracking is performed to optimise company performance‍

In many professions, how quickly someone can perform a task still plays an important role in valuing the goods and services being sold. If there are two people making a sweater, from the same yarn, and the other is able to finish it twice as fast, they can push the price down, or keep the price the same as the peer’s and sell twice as much more sweaters (if there’s a market for that). What they can even do, is get more customer feedback and learn more by having more repetitions. Eventually, this person can hire someone else to help with making the sweaters, and the business will grow even further.

The only thing that changed in the example, was that the other person was faster at making a sweater. If you take 10,000 people together, who are faster at making that sweater, you’ll get competitive advantage. This is why companies are obsessed with tracking time. If you can do things faster, you’ll be more competitive. If you’re able to identify tasks, projects, and the types of work that take longer than anticipated, and people that perform faster than other, you’re able to optimise the business to the right direction.‍

How time tracking metrics can be misleading

Time tracking metrics can sometimes lead to the wrong direction. Someone finishing a task miraculously fast is no guarantee of quality. In product based businesses doing things too quick might result in poorer quality goods. In services-based businesses doing something too fast might result in dissatisfied clients. If you only measure your company based on the velocity of goods or services being produced, you’re in for a bad time.

Most often there is some sort of an equilibrium, where the speed of delivery and quality meet. The more you’re able to charge while still producing good enough or excellent quality, is what matters.

Time tracking in professional services

In professional services, where the value provided often comes from intellectual work, strategic thinking, and expertise, time tracking plays a nuanced but equally crucial role. These industries, which include fields like consulting, legal services, software development, and design, rely heavily on understanding how time translates to value for both the company and the client.

Time Tracking for Accurate Billing

One of the primary reasons professional services organizations track time is for accurate client billing. Many firms operate on a billable hours model, where clients are charged based on the amount of time spent on their projects. Without precise time tracking, it’s nearly impossible to ensure transparency and accountability, which can lead to disputes or revenue leakage. Robust time tracking ensures clients are charged fairly for the work delivered while protecting the firm's bottom line.

For example, a consulting firm working on a large-scale strategy project might divide tasks among team members, each with different hourly rates. By tracking time meticulously, the firm can provide detailed invoices that show the breakdown of work, demonstrating the value delivered.

Understanding Resource Allocation and Efficiency

In addition to billing, time tracking offers insights into how resources are allocated across projects. Are certain team members consistently overburdened, while others have idle hours? Are some tasks taking longer than planned due to bottlenecks or inefficiencies? With time-tracking data, firms can make better decisions about resource allocation, training needs, and workflow optimization.

For instance, a design agency might find that their senior designers are spending too much time on basic tasks that could be delegated to junior staff. By addressing this imbalance, the agency can maximize productivity and profitability.

Enhancing Project Management and Client Satisfaction

Time tracking is a powerful tool for project management. It helps teams monitor whether they are staying within the estimated time and budget for a project. This ensures that projects are delivered on time, fostering client trust and satisfaction.

For instance, a software development firm might use time-tracking data to ensure a project milestone is met within the sprint timeline. If the data shows delays, the project manager can quickly reallocate resources or adjust expectations to avoid missing deadlines.

Balancing Billable and Non-Billable Work

Professional services firms often have a mix of billable and non-billable work, such as training, administrative tasks, and business development. Time tracking helps organizations understand how much time is being spent on non-billable activities, allowing them to strike a balance between investing in growth and maximizing revenue.

For example, tracking how much time senior consultants spend mentoring junior staff can highlight areas where the firm's training program might be streamlined.

Summary

Time tracking is a simple way for companies to keep tabs on what’s happening in the workplace. Originally, it was all about ensuring employees worked the hours stated in their contracts, but today, it goes far beyond that. Companies now use time tracking to improve efficiency, figure out where resources are being stretched too thin, and identify bottlenecks in workflows. In professional services, it’s crucial for accurate billing and managing the balance between billable and non-billable tasks. But it’s not without its pitfalls. If you focus too much on speed, you risk sacrificing quality. The real trick is using time tracking to strike the right balance between productivity and delivering great results.