Resource utilization rates are a great way to take the pulse of a professional services organization. Besides telling you if your resources are overworked or underutilized, utilization rates usually give you clues about how well the company functions in generating proposals, planning projects, and hiring resources.
Yes, the utilization rate needs to be high enough to generate sufficient revenue. But you also want to make sure you don’t overwork your resources. Running the business on all cylinders may enable you to cover your customer needs during the short term. Over the long term, however, resources will likely burn out, and your capacity may suddenly drop.
In this blog, we cover the basics and some of the best practices for professional services companies to track utilization. We also discuss how the utilization rate is usually an indicator of underlying operational issues that need to be addressed. Ultimately, the goal is to maximize efficiency and profitability while also nurturing resource production capabilities—so your experts can continue to deliver superior solutions to your customers.
How to Calculate Utilization and Realization Rates
The basic formula for the utilization rate of a resource or group of resources is simple enough:
Total Hours Worked
Total Available Hours
If John is available 40 hours per week, and he works 20 hours, then his utilization rate is 50%. But it’s important to also break those hours down further. For example, of those 20 hours, how much time was billable? This is John’s realization rate. If 5 of those 20 hours were spent providing free services, John billed 15 hours for the week—for a realization rate of 38% (15 ÷ 40).
As managers scrutinize data like this for each of their resources, they will, of course, want to determine why 5 of those billable hours did not generate an invoice. Did Sales provide a special offer? Was the company making up for a mistake? Did John make a mistake in submitting his hours?
Managers want to take an even closer look at the 20 hours that John did not work. Was he sitting idle at home or in the office? Was he was engaged in some form of training? This is why it’s important to track and categorize all 40 hours of John’s week.
Utilization Rate Indicators
A key to increasing utilization rates is to align appropriate resources to each job. This requires tracking resource skillsets, their current status (idle or at a client site), upcoming workloads, and geo-locations. If two resources are available with the same skillset, for example, and one is 1 hour away from a customer location while the other is 4 hours away, the first resource can turn the utilization clock on 3 hours sooner.
Getting back to the rate, managers can more easily spot trends tracking utilization by skill level. This may indicate that certain skill levels consistently come in at a higher rate. It can also help project resource availability for future projects. If a new installation requires 5 senior technicians, and the utilization rate among the current pool of 15 senior technicians has been 95%, then there will likely be a resource bandwidth issue.
Another handy stat to track is utilization by customers. This can indicate which customer partnerships are profitable, and which customers relationships drain resource bandwidth due to large amounts of unbillable time—perhaps due to long travel times or aging systems. Management can then investigate the reasons and possible remedies.
Utilization Rate Interpretations
Your utilization rate will also give you insight into the mental health of your professional services teams. If the rate runs consistently high, you likely have overworked employees and need to consider giving them a cushion of downtime each week to recharge their batteries. By targeting a rate of about 80%, you can usually strike a balance between the profitability of your resources and relieving the stress people feel when overworked.
If utilization runs consistently low, such as less than 50%, your team is likely feeling bored. And if their salary is tied to utilization they will also be frustrated and perhaps worried that they may lose their jobs.
Whether your rates run high or low, it’s critical to investigate the factors contributing to those numbers. A high utilization rate should be accompanied by a high realization (billable hours) rate. And if the numbers are low, is there simply not enough work, or do resources get caught up in wasteful, non-billable activities? If it’s the latter, is the wasteful activity the fault of the resources, or is it caused by the workflow processes or technology systems used by the company?
And in cases where utilization goes above 100%, that’s an indicator of the need for careful resource planning on projects. The company may need to hire more full-time resources or turn to a pool of short-term contractors.
The Link Between Utilization and Billing Rates
A major factor influencing your utilization rate is your billing rate. If utilizations rates are too high or too low, adjustments to your billing rates or adding more tiers to your billing rates might do the trick.
For example, you can set billing rates for specific job types based on the required skill level. You might also create price breakpoints, depending on the number of hours required for a project or according to annual billing minimums that customers agree to.
As you adjust your billing rates to establish acceptable utilization rates, you will find you can bid on projects more accurately and submit RFPs that allow you to remain competitive while still maintaining a sufficient profit margin. You can also plan your recruitment and hiring strategy based on the utilization rates of your current staff and the projected deals the sales team expects to close on.
How Technology Helps Track Utilization
Power BI is an industry-leading reporting and business intelligence analytics solution offering dashboards with customizable, interactive charts and graphics views. You have the ability to compile data from a variety of sources in order to understand utilization levels or billing rates in real-time, empowering you to make smarter business decisions based on current information.
In addition to seeing the overall utilization and realization rates for the company, you can drill down into the rates of any sub-group—by region, business until, skillset, client, or project type. And when integrated with Microsoft Dynamics 365 in the cloud, Power BI reports are easy to share. Managers can access the information from the corporate office, at client sites, on the road, and at home.
With greater insights into utilization rates, you will be able to take an accurate pulse of what’s going on in many areas of the company. You will also gain the information you need to make decision that help drive profitability while also managing the well-being of your valuable resources.
5 Tips to Increase Resource Utilization
- Reduce App Switching – utilize an integrate software platform that allows users to access all the forms and data they need from one application—rather than forcing them to bounce back and forth between multiple applications.
- Simplify Time Entry – the easier you make it for staff to enter their time and expenses, the timelier and more accurate that data will be, and the faster they can get back to helping customers… increasing their utilization.
- Minimize Administrative Tasks – automate workflows to eliminate manual administrative tasks for billable resources, or provide your professional services team with administrative resources to help track their activities.
- Simplify Communications – reducing the time resources spend calling, texting, chatting or emailing with colleagues gives them more time and more information to share with customers.
- Provide Relevant Information – consolidating information and giving resources only the data they need to do their jobs allows them to sort through their tasks and get to work faster. And with real-time access to utilization, billing rates, and task status, they can make informed decisions to prioritize their time.
Learn More During Our Upcoming Webinar
Retain Resources and Increase Revenue with Dynamics 365 for Professional Services
Wednesday, March 9
1:30 – 2 p.m. ET
With a tightening labor market and increasing pressure from competition, professional services organizations need to find ways to better utilize their current resources and outpace the competition. Join this upcoming webinar to learn how leading professional service organizations are using technology to:
- Lead a more productive team
- Take control over your revenue
- Make better decisions with advanced business intelligence
Unable to attend live? Register to receive the recording.