Why Actual Timekeeping is Better Than Estimated Labor Allocations

Labor is the largest and most precious resource for nonprofit organizations. Managing labor and directing how this valuable resource will be used are the bases for the most critical management decisions. However, too often nonprofits default to using estimated labor allocations, which is a disservice and often yields misleading results. Using actual contemporaneous timekeeping is the best method to track labor hours and observe and manage the impact that labor has on operations, resources, and financial health.

There are many false impressions related to using actual time tracking systems, most notably that they are difficult to manage, hard to get staff to accept, and not worth the effort. These false impressions tend to stem from misunderstanding and not attempting to implement timekeeping systems based on real-time efforts. The fact is that transitioning to actual timekeeping is a relatively easily achievable goal that yields far superior results and is a generally accepted best practice.

The main problem with using estimated labor allocations is they are inherently biased. This bias cannot be avoided. The estimates used are not based on any time study or other structured method to allocate labor aligned with expected efforts. Rather, these estimates are often based on where you hope or want your staff to be expanding efforts. This rarely matches reality and results in hiding the true cost of programs and efforts, since labor is usually the largest or one of the largest cost factors.

Both the solution and best practice is to have contemporaneous timekeeping systems in place to capture actual labor efforts as they are occurring. There are so many benefits.

First and foremost, actual timekeeping is the most reality-based approach, and directly aligns labor efforts with functional recording of expenses as they occur.

Second, as efforts change, the functional recording of labor expenses will change in tandem, moving you closer to a “true cost picture.”

Third, you will now have real-time actual data that better reflects the true cost of programs and efforts. This will allow management to be quicker with decisions that impact program continuance, pricing of services, new grant applications, and even help with staff evaluation assessments, hiring, terminations and repositioning, just to name a few.

Planning Tip – For the most success when implementing new timekeeping systems, get out front early with staff communications and messaging. Hold training sessions that highlight the benefits for both staff and the organization. Make sure to discuss how real-time information will help them to do their job, manage resources, and improve performance. Also, make sure to have staff involvement in the selection of a new timekeeping system and how new timekeeping procedures will be designed and implemented. This will enhance not only buy-in but also implementation effectiveness.

Finally, estimated labor allocations are especially disadvantageous in a rapidly changing world. When unpredictable changing circumstances arise, you will need actual data to successfully reposition programs, shift efforts, and rapidly move in new directions. With real-time recording of actual labor efforts, you will be better able to observe the impact on true costs, manage resources, and move the “chess pieces” around the board to go on the offensive and be value-added.