We’re Profitable and Cash Is Good. Do We Really Need Timesheets?

If you run a profitable engineering consultancy with healthy cash flow, it is probably reasonable to question whether timesheets are really necessary. If the business is making money, clients are paying, salaries are being covered and there is cash in the bank, what problem are timesheets actually trying to solve?

Having spent much of my career working in engineering consultancy, including leading and growing a consultancy business, I can understand both sides of the argument. I don't think I have ever met too many engineers who particularly enjoy completing timesheets, and if they are introduced simply as another administrative task, with no explanation of why the information matters, it isn't difficult to understand why they can be met with resistance. Equally, from a management perspective, it can be tempting to look at a healthy profit and loss account and good cash position and conclude that the business is already performing well, so why introduce another process?

The challenge is that being profitable doesn't necessarily mean you fully understand where that profit is coming from, or where some of it might be disappearing.

Not every profitable business has profitable projects

One of the things I learned from running an engineering consultancy is that the overall financial performance of the business only tells you part of the story. You might have a very healthy profit at company level, but underneath that there can be significant differences between the commercial performance of individual projects, clients, sectors and teams.

Take two projects, each generating a fee of £40,000. Looking purely at turnover, they appear to be equally valuable to the business. However, if one requires £18,000 of staff resource to deliver and the other consumes £35,000, they are clearly very different projects commercially. The first has generated a healthy contribution towards the overheads and profit of the business, while the second has contributed relatively little despite generating exactly the same level of revenue.

If the business is performing well overall, this can be surprisingly easy to overlook because the better-performing projects effectively compensate for the poorer ones. The danger is that you continue winning more of the wrong type of work, perhaps even regarding a particular client or sector as commercially successful because it generates significant turnover, without really understanding how much resource is being consumed in delivering it.

Timesheets aren't the complete answer to project profitability, but they provide an important piece of the information needed to understand it.

Better information should lead to better fees

Pricing engineering consultancy work is rarely straightforward. When preparing a proposal, you are effectively trying to predict how much resource will be required to deliver something that hasn't happened yet, often with imperfect information about the programme, scope, client expectations and how smoothly the project will progress.

Experience obviously plays a significant role in this, and experienced engineers and directors will often have a good instinct for what a project should cost. However, that judgement becomes considerably more powerful when it is supported by information from previous projects.

If you know that the last three projects of a similar type required considerably more engineering resource than was originally allowed for, that should influence how you approach the next fee proposal. Perhaps the fee needs to increase, perhaps the scope needs to be defined more clearly, or perhaps the project needs a different mix of senior and junior resource to make it commercially viable.

Without that information, there is a risk that the same assumptions are carried from one fee proposal to the next. The consultancy may still make money overall, but it could be systematically underpricing certain types of work and simply not recognising how much potential profit is being given away.

Scope creep is rarely obvious when it happens

Anyone who has spent time working in consultancy will probably recognise how easily additional work can creep into a project. It is rarely one significant event that suddenly adds hundreds of hours to the job. More often, it is another meeting here, another design iteration there, a few additional drawings, some contractor queries, a change requested by the client or a programme that extends well beyond what was originally anticipated.

Individually, these things often don't feel significant enough to warrant a commercial discussion. Over the course of a six or twelve-month project, however, they can add up to a considerable amount of additional resource.

This is where good time recording can become particularly valuable. It allows project managers and directors to see when the level of resource being consumed is moving away from what was originally anticipated. More importantly, it gives them the information to understand why and, where appropriate, have a sensible conversation with the client about additional fees.

Without that visibility, there is a danger that additional work simply becomes absorbed by the consultancy. The project may still show a profit at the end, but again the question should perhaps be whether it made the profit it should have made.

Being busy isn't necessarily the same as being productive

Another phrase I heard regularly throughout my consultancy career was, "We're really busy." Usually everyone genuinely was busy, but from a management perspective that statement alone doesn't tell you very much.

If teams are under pressure and project managers are asking for additional resource, the natural response can be to recruit. Sometimes that is absolutely the right decision, particularly in a growing business, but recruitment is also one of the biggest financial commitments an engineering consultancy makes. Before increasing the permanent cost base, it is useful to understand where the existing resource is actually being deployed.

Good timesheet information can help management understand how much time is being spent on chargeable project work compared with business development, management, administration, training and other non-fee-earning activities. It can also highlight where expensive senior resource is consistently carrying out work that could potentially be delegated to more junior members of the team.

That doesn't mean utilisation should become an obsession or that every non-chargeable hour is somehow wasted. Business development, training, mentoring younger engineers and managing the business are all essential activities. The important thing is understanding the balance and being able to make informed decisions about whether the business genuinely needs additional capacity.

Growth can sometimes hide the problems

I think this is particularly relevant for a successful and growing consultancy because strong financial performance can actually make some of these issues harder to see.

If turnover is increasing, the bank balance is healthy and profit is growing year on year, there is understandably less reason to question what is happening underneath those headline numbers. The business appears to be doing well, and in many respects it probably is.

However, project margins could still be gradually deteriorating. Salary costs may have increased faster than fees, projects may be taking longer to deliver, senior staff may be spending too much time on lower-value activities or teams may be carrying out additional work that isn't being identified and invoiced. If revenue continues to grow quickly enough, the business can absorb quite a lot of inefficiency before it becomes particularly visible in the overall financial results.

The problem tends to appear when growth slows down, the market becomes more competitive or a significant client or framework disappears. Suddenly the margin that previously absorbed those inefficiencies isn't quite as comfortable, and issues that may have existed for several years become much more apparent.

Good commercial information gives you an opportunity to identify those trends before they become a problem.

There are pitfalls to timesheets too

For all of the benefits, I don't think simply introducing timesheets automatically makes an engineering consultancy better managed. In fact, badly implemented timesheets can quickly become an administrative burden that achieves very little.

If you ask engineers to spend time every week recording what they have been doing, but nobody ever uses the information, it shouldn't be surprising if people begin to question the value of the exercise. Once that happens, timesheets tend to become something completed at the last possible moment on a Friday afternoon, with varying degrees of accuracy.

There is also a risk that timesheets become associated with monitoring individual performance rather than understanding the commercial performance of the business. If employees believe the primary purpose is for management to question why somebody spent seven hours on something that "should have taken five", people can become defensive about recording their time and the quality of the information can deteriorate.

That is why I think leadership has an important role in explaining why the information is being collected and, importantly, demonstrating how it is being used.

If project managers are using it to identify additional fees, directors are using it to improve future proposals, teams are using it to understand project performance and management is using it to make better recruitment and resource decisions, then there is a clear purpose behind completing the timesheet.

Timesheets shouldn't replace commercial judgement

There is another potential pitfall worth recognising, and that is treating timesheet information as if it provides all of the answers.

A report might tell you that a particular project consumed 1,200 hours against an original allowance of 900, but it doesn't necessarily tell you why. Perhaps the project was poorly managed or the original fee was simply too low. Perhaps the client's requirements changed considerably, the programme was extended, the contractor generated significantly more queries than anticipated, or the project team delivered additional value that the business failed to recognise commercially.

The numbers should therefore be the beginning of the conversation rather than the end of it.

This is where experience and commercial judgement remain incredibly important. The real value comes from bringing project information, financial information and management experience together to understand what actually happened and what you might do differently next time.

So, does a profitable consultancy really need timesheets?

I don't think the answer is quite as simple as saying every consultancy must have them. A small, well-managed business with experienced directors who are closely involved in every project may have a very good understanding of how the business is performing without sophisticated time recording. I have also seen businesses generate very healthy profits without having perfect management information.

The challenge comes as the business grows. More people, more projects, more clients and potentially more offices make it increasingly difficult for directors to maintain the same level of visibility they had when the business was smaller. What could previously be managed through experience, instinct and being close to the work gradually becomes more difficult.

That is where reliable timesheet information starts to become much more valuable, not because the business needs another administrative process, but because management needs better information to make good commercial decisions.

For me, the important question isn't simply "Are we profitable?"

It is "Do we understand why we're profitable, and are we as profitable as we should be?"

Timesheets won't answer that question on their own, and they certainly won't turn a poorly managed consultancy into a successful one. However, when the information is combined with good financial reporting, effective project management and experienced commercial judgement, it can provide directors with a much clearer picture of what is actually happening within their business.

Ultimately, that is how I would explain the purpose of timesheets to a consultancy team. They aren't really about recording hours for the sake of recording hours. They are about understanding how the consultancy's most valuable, and usually most expensive, resource - its people - is being converted into successful projects and sustainable profit.

If you're going to ask people to complete them, the responsibility on management is to make sure the information is actually worth collecting.