This emphasis on hours has to stop.

April 15th.

I've been interacting with a number of leaders within the CPA industry in the last few weeks and there's been a familiar recurring theme...

"Alan, I'm swamped right now, let's connect after the 15th."

Each January, too many CPA firm team members get the dreaded email from management reminding them of the expectation that everyone has at least 55 hours each week.

55 chargeable hours.

In my many years of experience, I can't remember a calculation of the amount of total output needed (audits, tax returns, etc) by April 15th which results in 55 hours weekly.

So where does it come from?

For decades, professional services firms have been fixated on hours.

We track hours.
We enter hours.
We bill hours.
We plan our years around hours.
We manage people according to hours.

Really? That's the best we can come up with?

From where I sit, it begs the question: Why do so many professional services firms (not just CPA firms) manage their business in such an archaic way?

I know why AND I'm confident there's a better way...

A better way for professional services organizations to structure their business to create a work environment more focused on getting work done, allowing team members a better work-life balance, and helping people grow and advance their careers.

And it starts by putting a stop to the emphasis on hours.

How We Got Here & Why It's Not Working

So, how'd things get to be this way where hours are the foundation of how so many professional services businesses operate?

Simple answer: It's easy.

A system based on hours (units) is easy to account for. Easy to digest. Easy to plan for. Easy to report on.

It's just easier.

And so the whole system has been built around annual cycles that place an emphasis on annual projections and earnings to appease stakeholders, shareholders, the IRS, etc.

And how do we build those projections and reports?

Based on hours. Because…

"It's the way we've always done things."

(one of my all-time least favorite phrases)

Then it leads to the next question... Is this system really working?

I mean, take a look at the shortage of college graduates wanting to enter the profession. We blame things like the 150 credit hour requirement to sit for the CPA exam, but from my 'in the seat' experience, I believe the real issue lies with storied firms continuing to run their businesses the decades-old way.

Hours.

Let’s remember, there's many businesses that have peak work seasons. Others, like investment banking, PE, and Finance require long hours.

I don't hear too many conversations about those industries suffering from a talent shortage or an image issue. Do you?

Look at the way we're developing our people... are we really setting them up to thrive personally and professionally?

As I look back on my career, all too often, success was determined by how many hours I could generate.

And how many of those hours had nothing to do with building my career?

I'd say at least a third.

A third of the hours I produced were not career value added. They were based on a budget or financial forecast.

Did that help me to become a better professional and develop in my career? Not from my perspective.

And by the way, can we confidently say we're producing the best work product for our clients?

When you mandate a certain number of hours (sound familiar? Like post-COVID mandated hours in the office), you just may get what you don't want—low-quality hours.

Hours to meet the mandate rather than to complete a project.

Is that really what's best for our clients? Billing them for a bunch of low-quality hours that were simply to meet a forecast?

I can confidently say no, it's not.

This archaic system has been broken for a long time and this emphasis on hours has to stop.

"Ok 'smart guy', what's the better solution then?"

I'm glad you asked.

Moving from production to outcomes.

Defined: Production -> Outcomes

Moving from production to outcomes means moving from a unit-based production model to a value-based production model.

It's a system where we no longer plan, track, and bill based on hours.

We plan, track, and bill based on value.

Why can't we start with the result we want—deliver a valuable product to our client at the cost they have agreed to pay—and work backward to operate the production aspect of the business?

It creates the opportunity for us to get creative on how we go about production and empowers us to embrace technology and AI to help us do the work more efficiently.

As a result—what if we could become more profitable?

By a show of hands, who would prefer to be less profitable as opposed to more profitable? (I'm assuming none of your hands are up)

By the way, this isn't some revolutionary concept.

Every time you buy a shirt, a watch, or a new iPhone, you are engaging in a value-based transaction.

The manufacturer sets the price of the item and you agree it provides enough value to you that you are willing to buy it.

Could you imagine showing up to the Apple Store and asking the salesperson to provide you with a report of the total hours that went into producing the phone you were considering purchasing? That would be insane.

Great, so let's apply the same principles to professional services firms.

A former colleague of mine jumped at the chance to eliminate billable hours during the winter busy season.

His premise was that he knew the valuable projects he needed to deliver by April 30th. He had a sense of how many hours each project would take and so he built a team to accomplish the tasks.

He told clients how much their project was going to cost, they accepted, and he got to work feeling comfortable he didn't need to track chargeable hours.

The key success in this model? Effective project management.

This is where a lot of proponents of an hourly-based system claim that chargeable hours helps with project management. Hogwash!!

Effective project management has nothing to do with hours.

It's about understanding what a project will take to be completed, aligning the team based on milestones to achieve the desired outcomes, and tracking and effectively communicating progress.

Hours aren't required to do any of that.

And now, team members can focus on getting the work done as efficiently and effectively as possible—without worrying about fulfilling some metric of time.

Now they are spending more time on career value-added tasks and once their work is complete, they can carry on with their lives.

Where To Go From Here

It's time to have the conversation in your organization:

"What will it take for us to move from a production-based system to an outcome-based system?"

"It's too difficult" or "It will take too much" aren't acceptable answers here.

I recognize it's likely going to mean planning differently, thinking about people's careers differently, and going about development differently.

It's not going to happen overnight, but if you want your organization to thrive in the future, this shift needs to happen sooner than later.

This is where the future of the industry should be headed.

With intention,
Alan D Whitman