Non-billable business in the mix

I’m a services software developer, which means that my company makes money by building custom systems for organizations that need systems’ solutions. These projects are typically priced based on man-hours required to build the system, so the billable hour is king in a company like ours. The philosophical problem is determining what value a non-billable activity brings to the company and/or the employee performing that activity, and how (and whether) the company should incentivize or dissuade employees from performing those activities. (I was an economics major among other things in college, so this philosophical question holds particular interest for me.)

Three somewhat concrete examples: taking training, writing proposals, and participating in technical leadership communities. No client is interested in paying for these activities, as they don’t benefit them directly, so any hours spent here are non-billable. In each of those cases, the company receives some benefit from its employees spending time in these non-billable activities. In each of those cases, the employee receives some benefit from spending time in these non-billable activities. In the case of training, I’d say the benefit lays most heavily on the employee’s side; for proposal writing, more heavily on the company’s side; and for technical leadership, it’s more of a mix.

Our company’s policy, given its reliance on billable hours for cash flow and profitability, is that non-billable activities occur above and beyond billable hour activities. For an employee that’s fully tasked (e.g., 40 hours a week are billable), that means any of these other non-billable activities occur “on their own time”. The company retains the maximum revenue benefits of the employee’s time. Since employees are salaried, there’s little additional cost incurred by having an employee work beyond their regulated work week.

The problem I see here is that any individual employee believes that their “own time” is valuable. Whilst I’ve heard of companies where the pursuit of geek nirvana rules (Microsoft), ours isn’t one of them. We are all, for the most part, very interested in being great developers/architects/project leaders/managers. We are also interested in being great parents, great friends, great volunteers, great people who spend time pursuing their various interests. The presumed rewards for doing these non-billable tasks, and thus taking away from our own time, are opportunities for professional advancement and challenges. But those opportunities and challenges aren’t guaranteed: they’re our visions of a probable future. As any little kid can tell you, though, a pleasure enjoyed today usually beats out some promise of a potential unknown reward in the future.

So, weighing the balance, the employee chooses to avoid the non-billable work, knowing that its load takes away from his or her current enjoyment of things outside work. But that non-billable work benefits the company, and so if the non-billable work doesn’t occur, the company doesn’t get those benefits. The employee hasn’t really lost anything – they’ve enjoyed today, and there was no guarantee of tomorrow’s reward – but the company has lost. In the short term, the company benefited from the single-minded focus on billable hours, but at the expense of the benefits brought by an investment in non-billable hours. (Those were also future benefits, so not as tangible as current benefits, but presumably a company managing their investments in non-billable can presume to be getting a good return on that investment.)

I need to learn more about financial models. It seems to me that there should be some way of figuring out the best mix of billable/non-billable activities, and the necessary incentives to accomplish that mix. Presumably, activities that benefit the employee more would need to be incentivized less than activities that benefitted the company more. But I haven’t figured out how to express all of that in a business case – all I’ve been able to do so far is comment that I don’t think we’ve got the mix quite right. Not nearly so constructive as “and here’s what I think a better mix would be, and here’s why”. Boy, wouldn’t I be the cheese if I could solve that problem!

Hmmm…. muenster or cheddar or swiss – which should be on my business card??

1 comment

  1. Unless you’re also going to be getting your ducks in a row in order to increase organizational functionality by better leveraging the collaborative synergies of everyone being on the same page, please don’t EVER say “incentivize” again. :)

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