Should you bill the customer for non-productive hours?

Posted By Pankaj on December 12, 2007
Filed Under Project Management

May be, this question needs a bigger forum than this. Since the answer requires the breath and depth of the knowledge in project management field along with general practices in various organizations. Also one may think that it is more of a ethical question than anything else.

Nevertheless, I am raising this question without trying to answer or pass my verdict, simply because I alone can not. All I am trying to do here is to write my experiences and express some of my thoughts which were hovering around for few days. I would like to make a request though to all of you project managers, consultants, sponsors and anyone and everyone reading this blog post (if any) to share their experiences and their point of view. Probably your point of view could be as simple as that that there is no such practices or this question itself is invalid, but do share.

To start with, what are these non productive hours anyways? I am sure everyone has a fair idea about what are productive and what are non productive hours. As I see it, any time spent on tasks or activities (in working hours of-course) which do not really create any value to the customer or sponsor can be put under the non productive category. Some of them could be …

- Personal Blogging (Writing a post or reading other blogs/articles to write one for own blog)
- Blogging for company (Company blogs have become a tool for marketing nowadays)
- General surfing on the web (news sites, dating sites, reading dieting articles, orkut etc)
- Reading / Responding to personal emails
- Extended breaks in cafeteria for tea / coffee, smoking, lunch etc
- Meeting with insurance agent, financial brokers etc
- General gossips at work
- Non productive meetings (unscheduled, uncontrolled meetings)
- More than average time spent on a given task (usually non-performing or not skilled people take much more time finish the task)
- Any task not covered in the project schedule
- Attending training (competency/technical) not related to project

On the other hand, examples of productive hours will be those where in time spent on task creates the required value to the customer such as
- Tasks included in the project schedule
- Researching / surfing on the web to find a solution to complete the task
- Team building activities (customer should be aware of this if she is being billed for this)
- Training sessions to enhance the skills of the team (if the customer permits for it)

If the type of contract used is Fixed Price Contracts, then it really doesn’t matter as customer has agreed to pay a fixed amount for the work he has asked for. It is the performing organization’s responsibility to look after their profits by making sure that they increase the productivity of the team and include the cost for these “leisure hours” in the cost estimates itself if required or mandated by the company policy. Ideally, cost estimates should specifically state the methodology based on which the cost estimates has been prepared.

This question is more relevant where the cost is not fixed but variable like cost reimbursable and the Time & Materials (Money) contracts. These contract types are commonly used in outsourcing and off-souring model. In these scenarios, the cost is not fixed but only the rate of unit like person cost per hour. The organization bills the customer based on the total number of hours spent on doing the tasks for the client. For example if the team consists of 5 people then 5 * 160 hours (40 hours / week) = 800 hours will be billed to the customer. Number if billing hours can decrease (if there is holiday in the organization or the person himself is on vacation for few days) or increase (if person puts in some extra hours to meet a tight deadline). But based on whatever experience I have in various organizations, the calculation of these “to be billed hours” does not really reflect the non productive hours. Situation, I believe, could be explained with the following reasons …
Organizations have to worry about the top line and they have to plan for the cash inflow/outflow and profits. Simple assumption is made of minimum number of billing hours (160 hours with an assumption that everyone is working for full 8 hours everyday anyway) in their calculations and a hit on it (below 160 hours) can disturb the entire calculation. So why should they even bother? This very pressure directly / indirectly is passed on to project managers by the top management.

Lets look at it from team members perspective. Why would an individual team member admit to 5 hours (actual productive hours) instead of 8 hours (Time spent in office / sitting at their desk) in his time sheet. The employee could face the risk of being categorized as non performer just for not ‘working’ 8 hours.

I feel, normal employees, don’t really think in terms of productive and non productive hours. They worry more about the number of hours spent in office. Correct me if my observations are wrong.

The problem is much bigger than it looks. Because the number of non productive hours being billed (money paid but value not earned) in one milestone will add up to the next milestone of the project or will appear under some other heading in the contract management. And if the practice continues, the customer ends up paying much more than what he actually should have.

Well, don’t get me wrong here, as I am certainly not suggesting that organization or project managers should ask their teams to work like robots. In IT industry, I don’t think this method will work as it is about people and people need to relax and take various types of breaks to give their best . They face mood swings, trouble at home / office. They definitely need to have fun and relax. So expecting “8 hours of productive work” everyday, just doesn’t seem possible.

So what can be done? I think the organizations needs to be aware of the situation and put some conscious effort and not just by including fancy words in their mission and value statements. They need to build a culture where honesty is practiced, customer’s interests are put into actions and promises made to them are kept. It is not easy by any means but at least, everyone can go a step forward to deliver the value to the customer for which he is paying and deserves.

There are examples where larger organizations have tried and trying to correct this situation but I still feel numbers will be far too less.

Once again I would request you all to share your views and experiences.

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