Time and attendance data is a necessary part of any organization’s operations, but it is often misunderstood and underutilized. Outside of payroll, many business owners fail to see the benefits this data can provide to their business, whether in the form of measuring progress, increasing billable time or optimizing project profitability. In this two-part series, we will look at how you can put this data to work for you.
Key Performance Indicators
A ‘key performance indicator’ (KPI) measures an organization’s progress towards a goal. When leveraged correctly, KPIs can have a huge impact.
The first step is to determine what your organization’s goals are. It may be increased profitability, reduced number of defective parts per thousand, maintaining a certain percentage of customer satisfaction or increased revenue per store. Once this is established, you can create a KPI to help you measure your progress.
The second step is to make sure your KPI is measurable. “Make customers happier” is not an effective KPI without some way to measure the satisfaction of your customers. “Be the most convenient drugstore” won’t work either if there is no way to measure convenience. In addition, it is essential that your KPI definition remain stable from year to year. For example, “increase utilization rates” needs to be more specific and address such things as whether to measure by hours or by dollars.
Keep in mind that a KPI is part of a SMART goal—one that is Specific, Measurable, Achievable, Relevant, and Time-based. For example, consider the goal, “Increase average revenue per sale to $10,000 by January.” In this case, “average revenue per sale” is the KPI. This goal wouldn’t be SMART if it wasn’t achievable, if the word “January” was left out, or if it was not relevant (e.g. if this was a portion of the organization that had nothing to do with sales or marketing, such as human resources).
Simple and Useful KPIs
There are three basic KPIs that you should be able to calculate from any time and data labor source.
- Billability. This is often termed the utilization rate. It is the percentage of time in a given period during which employees are working in a revenue-producing capacity. You must configure your timesheet system to track whether or not work is considered billable to the customer. Once you have this information, utilization for any period, group or person is found by the formula “B divided by T”, where:B = Billable hours for the employee/group in the period
T = All hours worked for the employee/group in the period
Most organizations try to keep their utilization rate above 70%. A higher rate is better, until you reach a point where administrative tasks that are necessary to the business—like tracking time—are not being accomplished. Then you know you’ve pushed it too far.
In our next article, we’ll consider the remaining two basic KPIs: adherence to estimate and percentage of projects profitable.