Founder in Eleven

Service businesses that bill by hours often come across the “ghosting” or “eating-of-hours” issue. Ghosting or eating-of-hours happens when consultants decide to do client work but not bill the client directly.  Ghosting happens for a couple of different reasons:

• Avoiding client discussions: Typically, ghosting happens when a client project is headed over budget, or if a project manager wants to avoid a difficult discussion with a client regarding a project’s length, time a certain task or effort is taking, or the project’s impact on the client budgets.
• Salary-based compensation: For employees on salary, billing more than 8 hours a day provides no extra compensation for the employee.  As typical overages are overtime, salary-based employees (particularly a manager that would have to report hours to their client) may find it easier not to report overtime as it doesn’t affect their compensation.  This might happen to avoid a client discussion as above or based on individual guilt that a task took longer than their own estimate.

While a manager can avoid this difficult short-term client discussion, ghosting can have the following long-term effects.

• Poor estimates: As discussed in the estimates are always wrong post, ghosting results in inaccurate samples of actual hours worked for tasks or projects.  If a task takes 100 hours and the consultant only bills in 80, a different manager might underestimate a similar task at 80 rather than the actual 100 hours.
• Low client expectations: misreporting hours to the client can lead to future misreporting.  Avoiding difficult discussions can result in scope creep and can lead to even more ghosting of hours.
• Missed revenues: Ghosted hours are never billed to the client, which affects the firm’s revenue.  Often, clients have additional funding for potential work expansions that could have been applied to overtime.   Also, ghosting one task that might be going over budget leads to other tasks going underbudget to make the overall cost and timeline still accurate.

Solving the Ghosting Issue

There are several ways Technology Services Group (TSG) found to solve the ghosting-of-hours issue, but all solutions had to be reinforced within the culture of the firm.  Components included:

• Staff compensation: TSG had a history of paying staff (below manager level) for overtime work.  TSG thought it was unfair and a difficult team-motivator if the staff from one project were working weekends or late nights without compensation while their co-workers were off the clock.  Given that management is responsible for staffing and estimates, it is not fair that staff should bear the burden of management’s issues (timeline, staffing…) that lead to overtime.  Having the staff get paid for overtime reduces the managers’ ability to even suggest the hours be ghosted or have the firm profit from understaffing jobs to make more money (see post on Underdelegation).
• Manager compensation: Managers, who were salary based, had bonus goals based on hours they and their team worked in order to remove some of the incentive to ghost their or their staffs’ hours.
• Weekly status and client communication: Managers were required to report weekly status and encouraged to present both good and bad news related to budget and ETCs  (see  previous post on client communication via weekly status).
• Write-offs: Often when a project was going overbudget, project managers would push to avoid the difficult client discussion by either ghosting or writing off billed hours. I would get involved with the client discussions to determine if a write-off was required.  Taking the difficult client discussion off the managers’ plate, alongside a billable hour team goal that included hours that were written off, removed considerable pressure off the manager to ghost hours.  In most cases at TSG, a good “Plan the Work, Work the Plan” with client discussions early-on and throughout the project resulted in minimal write-offs.

TSG took a no-tolerance approach to ghosting hours and was passionate that managers could be fired if they asked staff to ghost hours.  By removing the incentives to ghost hours for both the managers and the staff as well as good client communications, TSG was able to remove the concern about ghosting hours.