Utilization is a crucial metric for consultancies seeking to monitor and optimize operational efficiency and project management.
In this article, we'll delve into what utilization is, the manual calculation process, and the benefits of leveraging automation.
What does utilization rate mean at a professional services firm?
Utilization measures the amount of time a consultancy's team spends on billable work, usually shown as a percentage. The calculation involves comparing billable hours to total hours worked. A high employee utilization rate indicates that professionals are effectively maximizing their time on revenue-generating activities, positively contributing to the profit margins of your projects.
How can I calculate a utilization rate?
To measure an individual's utilization, you'll need two things: the number of billable hours they worked and how many hours they are resourced for. Here's a simple utilization rate formula:
Utilization Calculation: billable hours ÷ total hours x 100 = utilization rate.
For example, if one employee submits 36 hours of billable time for their 40-hour week, their utilization would be 90%.
Example calculation: 36 ÷ 40 x 100 = 90.
How to calculate a company-wide utilization rate?
If you want to know your whole company's utilization rate, you want to multiply all employee's rates and divide them by the number of employees.
Calculation: UR (utilization rate) x UR x UR x UR ÷ 4 = average utilization rate.
Using automation to quickly measure utilization
Use PSA software to quickly calculate utilization rates for individuals, projects, and companies.
It does this with the data submitted by employees on timesheets and your resource management plan. Saving you time when making calculations and still allowing you to keep an eye on your people's productivity. It also allows you to define individual targets for your people. This is useful for setting realistic expectations.
Your leaders may have a lower goal. This is because they have to handle their team members and do tasks that don't generate income. However, these tasks are necessary for your business. In contrast, you might assign higher targets to junior employees, expecting them to spend most of their time on billable work.
A high utilization rate will contribute towards your business success
In summary, understanding your utilization is important for consultancies aiming to enhance operational efficiency.
