On Timesheets and Cost Allocation

Earlier this week I received an email from friend of VeraSage, Kirk Bowman of Mighty Data, who, by the way, his given himself the great title of Visionary of Value in his email signature and on his business card. He writes:

At the most recent meeting of our FileMaker Business Group this week, I got a question for which I did not have a good answer. The question is, if we are not tracking time, how do I know if a specific project is profitable? They were asking for a metric to measure financial success or failure on a project by project basis. I’m going to review the slides from August but I thought I would ask your input also.

The short answer is, “If overall profit is up xx percent, who cares?”

The more detailed answer: You allocate your costs ahead of time, like Toyota does as they do not have a traditional cost accounting system. They use what is called targeted costing.

Say you plan to do 12 major projects a year and $1.2 million in overall cost. You would start by allocating $100,000 to each. Now some would argue that some projects are bigger than others. OK, fine. Let’s allocate $200,000 to two of them, $50,000 to four of them, and leave the remaining six at $100,000. Of course, you can adjust them based on your judgment, so long as the total remains $1.2 million.

Project Straight Adjusted
A 100,000 200,000
B 100,000 200,000
C 100,000 100,000
D 100,000 100,000
E 100,000 100,000
F 100,000 100,000
G 100,000 100,000
H 100,000 100,000
I 100,000 50,000
J 100,000 50,000
K 100,000 50,000
L 100,000 50,000
Total 1,200,000 1,200,000

Is it perfect? No, but allocating costs based on a time unit is just as flawed as assigning value to the customer based on a time unit. It is the same false premise: value or cost does not equal rate times hours.

Is an hour billed on a project a good thing or a bad thing? No one knows, some hours might be good others bad. It is a judgment and therefore there is no reason to measure it. Allocating costs as above will make you approximately correct, rather than precisely wrong!

Tracking time might make you a better cost accountant, but cost accountants make lousy pricers. I would rather be a better pricer.

Lastly, timesheets are the cancer of the professions. They cause us to focus on the wrong things, the inputs. Professionals should focus on the right things, the outputs to the customer: deliverables, objectives, overcoming risks, solving issues, etc.

TIMESHEETS DELENDA EST!

Considering Facebook Advertising

At the end of my recent failed political campaign for Texas State Senate, I took out a few Facebook ads which I believe to have been moderately successful.

The first was early in the campaign after launching my campaign Facebook site. The ad was to all anyone in the United States who had listed “Libertarian” in their profile. Within four days I had gone from 150 friends of the site to over 600. The ad cost me $100 and while I do not think anyone who “liked” the page from this ad donated money, several become regular contributors the conversation on the site lending it higher credibility to subsequent visitors who did, in fact contribute.

The second ad was over the five day period before Election Day. In created an ad specifically targeted at the four major cities in the Senatorial District in which I was running and it excluded people who were already friends of the page. In all, I received 1,227,893 impressions over this critical five day period. I am certain that this helped my campaign with name recognition and increased my overall vote total.

image

What I find so fascinating about this is the ad engine works 180 degrees differently that Google Adwords. With Adwords, you are trying figure out what a prospect might type into the search box, with Facebook, you are selecting the criteria of the intended target audience. It is very powerful.

imageAs an example, I created an ad for everyone over the age of 18 in the state of Texas who listed “Accounting” as a interest. As you can see this ad, if I ran it would target 8,440. Not a large number, but certainly a very targeted list.

I see this as assisting not only prospecting, but in the creation of candidate pools for jobs.

If any of you have additional experience with Facebook ads and care to share your results, I would love to hear about them.

Killing the timesheet in seven minutes

On August 5, 2010, my friend and mentor, Ron Baker  participated in the American Bar Association’s Journal’s program, 10 Ways to Build Your Perfect Practice & Career, as part of the 2010 Legal Rebels project during the ABA’s Annual Meeting in San Francisco.

The presentation is entitled Escaping the Tyranny of Time. He had seven minutes to make his point. I think he did an outstanding job!

A Challenge to My Right-leaning Friends

Two years ago, I laid down this challenge to my left-leaning friends – What, specifically, to you expect of President Obama and the Democrats in control of Congress over the next two years such that if these things are not accomplished you will consider it a failure?

I received the following answers (with my assessments):

  • Close Gitmo – (Nope.)
  • End the war in Iraq – (Nope.)
  • End the war in Afghanistan – (Actually has expended it.)
  • Nationalize healthcare – (I would say no, but I think it is more of a mess now.)
  • Increase taxes on the wealthy, roll back the Bush tax cuts – (Will happen after January 1, 2011 when they expire according to the original law, I would call this a no!)
  • Reduce unemployment to 6 percent – (Nope.)

Today, I make this same challenge to my right-leaning friends – What, specifically, to you expect of the Republicans in control of the House over the next two years such that if these things are not accomplished you will consider it a failure?

For those of you in Texas, I will add – What, specifically, to you expect of the Republicans in control of the entire state government by an overwhelming margin to do over the next two years, such that, if these things are not accomplished you will consider it a failure?