In the Aug. 7-20, 2006, issue of Accounting Today, Gary Boomer's article, "The time sheet is only one measure of performance" (page 24), gives me hope there may be light at the end of our tunnel vision.In my books, I have logically, empirically and thoroughly refuted the three common defenses for maintaining time sheets, which are:

1. We need them to price.

2. We need them to determine the productivity of our team.

3. We need them for cost accounting.

Most consultants finally concede that the first defense is erroneous. The value of something is simply not determined by how long it takes to produce. This idea was absolutely refuted by the 1871 Marginalist Revolution in economics, which basically stated that value drives price, and price drives costs, not the other way around. It's nice to see the consultants finally catching up to the dead economists.

It's the second and third defenses that firms and consultants alike still cling to like barnacles. Boomer states that the time sheet is nothing more than an accountability tool. But is it? Can't someone look fantastic on a time sheet - either by recording a lot of hours or coming in under budget - but still be a complete hack whose work has to be redone? Or, more sinister, whose interpersonal skills are so poor that he alienates everyone he comes into contact with?

In other words, the time sheet doesn't measure the most important traits of a successful CPA - interpersonal skills, communication skills, customer service, ability to change, risk-taking, innovation, creativity, pride, passion and a host of other characteristics that cannot even be measured. Rather, they must be judged.

Gary further claims that the profession erred, "because the time sheet was never intended to be a measure of value or a pricing tool." This is correct. The time sheet was introduced to the profession as a way to perform cost accounting, not pricing. What started as a way to track the inventory - i.e., time - became the inventory.

But it's not just the profession that has erred. It's the consultants as well, since they continue to perpetuate the mentality that everything revolves around the almighty billable hour. All of the metrics used in the surveys, benchmarking studies and strategies that they tout revolve around charge hours, realizations rates and increasing efficiency.

Gary also writes that the time sheet as a measure of value is a holdover from the old "effort-based economy."

That's not quite correct.

There has never been an "effort-based economy," since customers have always paid for results. It's just that the efforts and inputs are far easier to measure than the results and value. We can count the bottles, but it's much harder to describe the wine. But the latter, especially in a knowledge economy, is critical to understanding value.

The time sheet is actually a holdover from the time-and-motion studies of Frederick W. Taylor from the 1880s.

Taylor's obsession with his stopwatch certainly increased the productivity of factories around the world, largely contributing to our current standard of living. I'm not bashing Taylor; he did wonders for creating wealth. But he studied manual workers, and then his metrics were brought to service workers in the 1920s.

But "knowledge workers" - a term coined by Peter Drucker in 1961 - are different. They don't work to the rhythm and cadence of an assembly line. Rather than being slaves to the assembly line, they are masters of their environments. Taylor's time-and-motion studies - embodied by the time sheet - are simply irrelevant in determining the effectiveness of knowledge workers.

New equations

Boomer suggested the Balanced Scorecard, but many of these are flawed, since most of them are full of nothing but lagging indicators - like the time sheet itself. Further, many of the key performance indicators on the Balance Scorecard are simply measurements, not testable theories, providing no insight into the processes that determine results. We don't change our weight by weighing ourselves more accurately or frequently. What firms need to put in place are leading indicators, which have predictive power to peer into the future.

Boomer then proposed his Performance3 Formula (planning x people x processes). It's not a bad start, but it doesn't go far enough. It fails to recognize the true levers of what makes firms successful - that is, intellectual capital. A better formula is what we call "The New Practice Equation," which is: Profitability = intellectual capital x price x effectiveness.

The Performance3 Formula confuses efficiency with effectiveness. Do you want your heart surgeon to be efficient or effective? Effectiveness doesn't lend itself to processes. It's hard to flowchart knowledge worker creativity, because it is iteration and reiteration, a process of the mind.

All that said, I commend Gary for refuting Defense No. 1 and, even if only partially, Defense No. 2. It's a good start, and gives me hope that the consultants to the profession are finally beginning to recognize that we live in a knowledge economy, not an industrial economy.

There are some 350-plus firms around the world operating without time sheets. It's no longer just a theory, it's a fact. Most firm leaders and consultants, sorry to say, still lack the intellectual curiosity to explore how it's being done, preferring instead to be mired in the metrics of the past.

In 1984, when I joined then-Big Eight firm Peat, Marwick, Mitchell, I was told, "Baker, you sell your time." I was young and naïve enough to believe it. But no customer buys time, and if they did, I'm fairly sure they'd buy it from someone cheaper than CPAs.

I don't want another generation of CPAs to be ill-informed like I was. It forces them into a union employee mindset, where they worry more about what they make per hour than the value they create for the customers they are privileged to serve. Worse, it keeps our profession mired in the mentality that it sells time.

It also turns CPAs into galley slaves on the SS Billable Hour. This is one of the reasons that firms are having such a hard time attracting and retaining talent. The present-day leadership and the consultants to the profession share the responsibility for this sad state of affairs. Knowledge workers are not bags of cement that they can simply process and shuffle around to their whims in order to maximize "efficiency."

Let's recognize that the time sheet is not even one good measure of the performance of knowledge workers, and that there exist much better indicators to evaluate their effectiveness. Let's stop betraying the next generation of CPAs, and create a better quality of life for the posterity of our profession.

Let's bury the time sheet next to the billable hour, two ideas from the day before yesterday - two ideas whose time has passed.

Ron Baker is the author of Professional's Guide to Value Pricing, Sixth Edition and Pricing On Purpose: Creating and Capturing Value. His forthcoming book, Measure What Matters to Customers: Using Key Predictive Indicators, is due out this month. Reach him at

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