Qualitative research question, as I am investigating the motivation that partners and managers may have to influence reporting of hours and other statistics that affect compensation and other KPI reviews that affect performance reviews.

What is the incentive from a management point of view to encourage associates to under-report charge hours and/or admin/non-charge hours? Is compensation at management level based on utilization and/or realization? Other KPIs? General answers are fine (or PM).

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From the broader firm’s perspective, their concern is the amount of cash generated relative to the cost. Majority of our cost is fixed, including human capital since it’s on an annual salary basis. KPIs such as margins are used to optimize allocation of resources (I.e. where the firm can generate most amount of revenue per dollar of cost).

On a more granular level, each engagement is aligned to a Partner and is akin to her book of business. In practice, most engagement codes are on “fixed” fee basis even if fees are tracked on a time and material basis internally. This is because buyers are only willing to pay a certain range of fees and would never agree to an open ended fee structure (ex. Success fees). The hours and rate cards associated with such fees are just a way to conceptualize the components of said cost. Therefore, given that partners are only able to collect fixed amount of fee, they have an incentive to minimize hours charged on their code.

While this may help window dress the Partner’s performance, over an extended amount of time, leads to lower overall revenue and inefficient resource allocation.

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Partners don’t want to admit the economics are awful and the client should be cut (assuming the client won’t agree to a significant increase in fees to make it worthwhile for the firm). It is to their advantage to keep the revenue on their ledger even if it’s not a large account. That pressure is just pushed downward.

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Agreed. What’s crazy is that every project is budgeted assuming 45hr/week economics, when in reality people work more than that. The consulting industry has the opposite problem of overtime. What I mean by that, is if you have 1 person working 60hours, they are not likely to charge that full amount. However, if they have 2 people working 60 hours, that is likely to be realized. To your point, a broken structure.

Isn’t their bonus partly tied to realization? Wasn’t there a post months before about a senior manager (maybe director?) who told their team to eat hours in order for them to get a nicer bonus?

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