You want to cut cycle time, reduce costs, or improve quality, yet...how will you go about doing this?
Who is the biggest client Todd Herman Associates (THA) has ever had? Todd Herman Associates! Being your own biggest client is likely true for most businesses, since the amount of time spent on internal Activities – such as paid time off (PTO), continuing education, and essential “behind the scenes” activities involving areas such as Information Systems (IS), Accounting and Finance, Human Resources (HR), and Marketing – dwarf the time spent on even a company's largest outside client or customer.
Why is so much time spent on “behind the scenes” activities? Because they add value to one or more areas of the company, its employees, its owners, and its other stakeholders. Want to better use technology to improve employee productivity? Well, you need the activities performed by your IS area. Want your employees to be able to take time off for illness, holidays, and vacations? Those are activities you need to include in your HR planning.
At THA, there are two basic ways we use activities, one internal and one external:
- For A Client Project – When we prepare a Time Estimate for a new project, we list all the activities we anticipate performing for the project. We then estimate the amount of time needed for each activity and the number of times that activity will be performed. Finally, we sum the total estimated hours, and add an allowance for unanticipated conditions.
- For An Internal Activity – Over the years, THA has developed a comprehensive set of Job Aids – basically, step-by-step instructions describing how to perform an Activity – for all our routine and non-routine accounting, administrative, marketing, and sales support tasks. This content is stored in a database that has become an integral part of our Knowledge Management (KM) system. In addition to the step-by-step tasks for each Activity, the database includes:
- Who – The position responsible for performing the Activity.
- Routine or Non-Routine – Whether the Activity is performed regularly (that is, having a Frequency of Daily, Weekly, Semi-Monthly, or Monthly) or with limited frequency (all other Frequencies).
- Frequency – How often the Activity is performed – Daily, Weekly, Semi-Monthly, Monthly, Quarterly, Semi-Annually, Yearly, or As Needed.
- Estimated Time – How much time it should take to perform the Activity.
- Time Code – Where the person should charge their time.
Our Time Estimate for client projects is an example of Activity-Based Costing (ABC). This is a good faith estimate of the time we’ll need to spend addressing a client’s particular issue. I’ve found this is a good technique to help clients understand why projects take the time they do. In fact, I secured a client because I “showed my work” – always important in science and mathematics courses – and another provider did not, even though my estimate was twice the other provider’s estimate! This client told me he didn’t know what the other provider would do for the lower amount, and that the activities I listed made sense and all my estimates looked reasonable to him.
The database of step-by-step instructions, which we now call our Job Aid Library, provides content for the Master Calendar we review during our Monthly Office Staff Meeting. This database really paid off in March and April 2020, when I needed to cut costs quickly to get through the Covid 19 pandemic. Using the Job Aids to scrutinize all activities performed by our Accounting Intern, I determined I could – through a combination of reengineering certain activities and streamlining others – eliminate the Accounting Intern position, while allowing my Business Development Associate and me to successfully absorb these reengineered and streamlined activities.
The Job Aid Library and Master Calendar (JAL&MC) have become an integral part of THA and its culture and is an excellent example of Activity-Based Management (ABM). By that, I mean these tools drive the “behind the scenes” work of my company, because they provide:
- A checklist to ensure all Activities are performed in a timely, accurate, and complete manner.
- A tool for determining staffing needs.
- A primer for training a new employee on their duties.
- A way to review time and task management of an underperforming employee.
- A way to document, update, and reinforce “the tribal knowledge” of THA.
What’s the difference between ABC and ABM? I think of the former as a tool for either a one-time project, or as a tool to catalog the activities and time requirements of certain areas. Once the activities and time requirements have been cataloged, then they can be managed using ABM.
To me, activities have a dual nature:
- They consume resources, such as materials and staff time.
- They produce results, such as services performed or goods made and delivered – on time, at a certain price point, and at the desired level of quality.
So, always remember – whether you want to cut cycle time, reduce costs, or improve quality, you can only do so by understanding and managing activities.
This month's case study discusses how THA manages our activities using our JAL&MC, ensuring our internal operations are performed without fail and in an efficient and effective manner.
Sincerely yours,
Todd L. Herman
