Ruthlessly Efficient Workflow – Slaying the WIP Monster

Ruthlessly Efficient Workflow (REW) accomplishes two goals for CPA firms.  First, REW reduces turnaround time for projects and thereby increases client satisfaction.  Second, REW reduces costs by matching the right staff with the right tasks, thus increasing firm profitability.  This article deals with reducing turnaround time.

REW borrows extensively from Lean Six Sigma, and many of the ideas in this article are adapted from the book, Lean Six Sigma for Service by Michael Gerson.  Gerson introduces a basic formula for determining project turnaround time.  Turnaround time equals WIP (work in process) divided by capacity.

Applied to tax returns, this equation states that the average turnaround time for tax returns is WIP divided by tax return preparation capacity.  Logically, if you have two hundred returns in progress and your capacity is twenty completed returns per day, your clients will get their returns in ten days on average.  Of course, you can use any units of measure as long as consistency prevails.  For instance, if you have $20,000 in WIP and your capacity to complete work is $2,000 per day, you again are completing tax returns in an average of ten days.  Of course, while turnaround time varies throughout tax season, reducing it is always a priority.

This equation roadmaps the path to improving turnaround time very simply.  There are only two ways to reduce turnaround time: reduce WIP or increase capacity.  Increasing capacity, by hiring more staff, can certainly reduce turnaround time but in so doing will raise firm costs.  There are imaginative ways to increase capacity, but let’s first start by attacking the WIP monster.

WIP in a CPA firm, that concentrates primarily on tax returns, consists of tax returns in various stages of completion.  As a tax return moves through the stages of preparation such as scanning, data entry, and review, the return absorbs costs.  Most of us vaguely remember principles of cost absorption from our cost accounting classes.  We remember these principles as applied to manufacturing, but they apply to CPA firms as well.

The moment a return comes into a firm, it starts consuming staff time from admin staff to preparers to partners.  If a return sits around too long, it absorbs even more time as the client will call and tie up staff to check on status.  Anything we do to reduce WIP not only reduces cost but increases client satisfaction.  There’s an easy way to reduce WIP during tax season – better scheduling of tax returns.  Here’s an example of how we reduced WIP, and thus turnaround time, by better scheduling.

Almost since our firm’s beginning, we scheduled no personal tax return appointments during the first two weeks of March.  We did this to concentrate intently on the March 15th corporate tax deadline.  Of course, personal tax clients couldn’t care less about our corporate tax deadline. So our admin staff scheduled as many personal tax appointments as possible in the last week of February to get the clients at least in the door.  An in-charge preparer might have ten or more appointments per day during the last week of February, and basically no corporate tax work was completed during this appointment week from hell.

What happened to all of the personal tax returns that came in the last week of February?  For the most part, they waited for the March 15th deadline to pass before preparers switched focus back to personal returns.  Of course, what happens to WIP when you bring in a bunch of returns that are going to sit for two weeks?

It goes way up, and according to the Lean Six Sigma equation, turnaround time goes up.  Most veteran preparers know that the magic turnaround time for personal tax returns is fourteen days.  If you have not contacted the client by then, he will call for a status check, further removing precious available preparation time from tax season.  The vicious feedback loop known as “what’s the status of” hell results.  Preparers can’t get over the busy season hump, because they are stuck returning phone calls and e-mails.

After reading Lean Six Sigma for Service, I realized that we had a classic too much WIP problem caused by forcing personal returns in process before we could process them.  The solution was a shift in scheduling that required no additional firm resources and increased client satisfaction.

Instead of shutting down personal return appointments the first week of March, we opened up that week to half days of appointments, and we restricted appointments the last week of February to half days.  Thus, no net appointment time was lost.  However, since we were bringing in personal returns a week later, WIP went down, and returns that would have been sitting for two weeks only sat for a week. We already knew that clients bringing in their tax data in March would be better prepared than previously with February meetings, because they have received more tax documents..

A happy side effect of moving appointments from the last week in February to the first week in March resulted.  Freed from full day appointments, preparers had time the last week in February to expedite corporate returns.  So not only did we reduce turnaround time for personal returns, business returns benefited as well.

This was just the beginning.  We realized that if half days of appointments worked great the last week in February and the first week in March, they would probably work great for the entire tax season.  We would actually have time during the work day to prepare returns.  Of course, this required a net decrease in appointments.  How could we do this without sacrificing client satisfaction?  Technology came to the rescue.

Our cloud based workflow management software allowed clients for many years to post their tax documents electronically for us, and the number doing this was nearing critical mass.  We then took the electronic documents and started return preparation.  The problem, and opportunity, for us was that a second workflow stream resulted for these clients.  The front end of this process was fundamentally different from the process for tax return appointments.  The opportunity was that the workflow stream for electronically posted returns was shorter and involved less staff time.  So we leveraged this to reduce tax return appointments.

Last year, instead of getting appointment notices in January, our clients got an e-blast explaining that we were not prescheduling them.  If they wanted appointments, they could call or e-mail their requested time frame.  Two happy developments resulted.  First, many clients were delighted to not fight DC metro area traffic.  Some expressed that they only met with us, because they thought that was the only option.  Second, we had fewer meetings in February where clients came in with next to no useful tax information.  These returns had consumed time and increased WIP with no possibility of timely completion.

We accomplished our goal of fewer appointments.  Yes, we had more returns come in during March, but many of the returns that had been coming in February were sitting until March anyway.  So our turnaround time on these returns actually got better, and we were working on them when we would have anyway.

If you construct a graph with WIP as the Y axis and the X axis as the weeks of tax season, we had flattened the WIP curve, lowering the previous peak WIP point.  Next, draw a horizontal line across the graph representing our capacity.  A flatter WIP curve meant that we exceeded our capacity less and over a shorter period than previously.  We better matched WIP to our capacity.

Once again, there was a side benefit.  Getting more clients to post documents electronically gave us the shorter workflow for more returns.  Our logical next step will be to shorten the workflow for returns we receive by mail or drop off by eliminating the routing of these to preparers for scan preparation.  We are hiring an admin person to prepare information for scanning.

As you can see, the opportunities to reduce turnaround time are nearly endless by manipulating the variables in the Lean Six Sigma turnaround time equation.  Better scheduling was just the starting point for us in reducing WIP. While we may not have slain the WIP monster, we have certainly mortally wounded him.   Shortening our workflow process will finish him off.

Ruthlessly Efficient Workflow gives firms a competitive advantage in both client satisfaction and cost.  With REW, you apply 21st century management techniques to the once static world of CPA firm management, resulting in better profitability and happier clients.

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