Growing the business and services is the topmost priority for every organization. Simply adding resources to projects does not guarantee productivity. They must be effectively utilized on billable or strategic work to get maximum efficiency of the resource.
Many cost centers set a minimum utilization target for the resources that are used during performance appraisal.
Resource utilization is a KPI (Key Performance Indicator) that affects the success of projects. It helps to evaluate and improve productivity by ensuring that all the resources within an organization are being used to their highest potential.
This article takes you through the basic concepts of resource utilization and how to track the same using an intuitive tool.
Let’s first begin with understanding the definition of resource utilization:
#1. What is Resource Utilization?
Resource Utilization is the way to measure how effectively the resources are utilized against their availability or capacity. In other words, it is the process of monitoring team productivity and analyzing whether they’re being under (or over) worked.
Resource utilization Formula = Actual/allocated work time ÷ Resource capacity
It can be measured in hours/days/percentage and FTE (Full-time equivalent).
Optimal Utilization- It is the process of maximizing the utilization of resources to achieve the most out of their available capacity. While calculating the available capacity, their planned leaves, training schedule, or any other admin related activities are also considered.
Note: A consistent higher utilization (>100%) of a resource does not inherently mean increased productivity and efficiency. Rather, it can often turn out to be counter-productive.
Managers can predict the utilization rates of the resources based on the resource schedules and implement necessary measures to optimize it.
#2.Significance of resource utilization
2.1 Better Project Resource Planning
Improving overall profitable resource utilization requires a comprehensive study of every individual’s utilization level. It allows managers to take proactive measures for better resource planning.
Real-time visibility of utilization enables the managers to monitor their resource’s performance at any given time.
2.2 Improves ROI
Getting involved with either strategic or billable tasks ensures that the resources are investing their time and effort in productive work. When resources are working on strategic or billable projects, it eventually generates revenue for the firm thereby improving the ROI.
With utilization tracking and centralized visibility, resource managers can systematically mobilize benched resources or resources working on BAU activities to strategic & billable projects. This practice drives better ROI and contributes towards the top line.
2.3 Capacity Planning for Pipeline Projects
When analyzing the employee utilization by work function or by the department, managers can plan for the future demands of the pipeline projects. They can forecast new resource requirements based on the bench report. Resources on the bench can be provided further training/ shadowing opportunities in advance to make them billable.
#3.Different types of resource utilization
Overall resource utilization is one of the main KPIs of a cost-center. It can be further split into billable utilization, non-billable utilization, and strategic utilization.
- Overall resource utilization
- Overall resource utilization is the method of measuring the total utilization of a resource against its availability or capacity. It is the cumulative time that an employee spent on billable, non-billable, and strategic activities. It can be calculated by comparing the total resource capacity against the total work allocated to an employee.
- Which means;
Overall Resource Utilization = Actual/Allocated Total Time ÷ Resource Capacity
- Billable resource utilization
- Billable resource utilization is the way to measure how much a resource is utilized for billable work against the resource capacity or availability. The time spent by a resource on billable work is termed billable time for which the client has committed to pay.
- Which implies;
- Billable Resource Utilization = Actual/Allocated Billable Time ÷ Resource Capacity
- Non-billable resource utilization
- Non- billable resource utilization is a method of measuring time spent by a resource on an activity that cannot be billed to a client. This time is generally related to BAU, internal meetings, admin, training & workshop, bidding work, etc.
- Which means;
Non-Billable Resource Utilization = Actual/Allocated Non-Billable Time ÷ Resource Capacity
- Strategic resource utilization
- Strategic resource utilization is the method of measuring how much a resource is utilized for strategic projects. It is the time spent by a resource that is related to a strategic activity to meet the long-term goal of the organization.
- We measure strategic utilization as;
Strategic Resource Utilization = Actual/Allocated Strategic Time ÷ Resource Capacity
#4.How to track resource utilization?
- Forecast vs. Actual Reports
- Keeping a tab on utilization levels is imperative to assess employees’ productivity. However, it’s not easy to do so for every resource manually. There are advanced tools that can help you track resource’s and project’s performance in real-time.
- A Resource scheduler can let managers have a periodic check on resource utilization. Moreover, managers can draw a comparison using actual vs. forecast utilization reports. The actual number of hours are drawn from the timesheets and the forecast time is taken from the resource schedule.
- Monitor the utilization for different categories
- It is important to periodically monitor and track resource utilization under different categories. Below-mentioned are three main categories in which you can track the resource utilization: Project, Team, or Individual.
Now that we know how to stay informed about utilization rates, let us understand the ways to maximize it:
#5.How to Maximize Productive Utilization?
100% utilization doesn’t necessarily mean the resources are productive. It is essential to check that they are not engaged in mundane admin activities. Thus the onus is on resource managers to ensure their utilization is productive and their skillset is used to the maximum potential.
The question is how do we maximize the utilization rate without draining the resources?
Well, the right enterprise resource management tool can help here.
- Identify under & over-utilized resources
- When the allotted work is less or more than the resource capacity, it causes underutilization and overutilization of resources. Skill shortage leads to overutilization because a particular resource may be assigned to different projects at the same time.
- Poor Visibility of resources can contribute to this cause as it can lead to double booking eventually causing over-allocation. The right resource management tool helps managers to detect under and over-utilized resources in a project
- Effective bench management
- Bench management in any organization is an ongoing activity and must be carried out strategically. Reducing bench time entails reducing non-billable hours that ensure the resources are allocated to billable or strategic work.
- The right resource management software helps managers to forecast the demands of the pipeline projects in advance. Using the project vacancy and benched reports, they can go ahead and fill the vacancies with the competent benched resources.
- Reduce Non-Billable Activities of Resources
- It is important for an organization to monitor the overall billable utilization of its highly skillful resources with the optimal resource allocation. A resource is profitable only if it’s working hours are carried out on billable or strategic work and is fully utilized against its capacity.
- Resource managers should keep a check on resources that they spend minimal or no time on mundane tasks such as meetings and discussions. It helps them enhance billability, prevent below-par employee performance, and gain maximum productivity and profitability.
#6. Conclusion: Track Resource Utilization Smarter than Ever
Resources are the most important asset for any organization and efficient resource utilization is crucial to improve productivity and profitability. If you are facing difficulties to monitor resource utilization, step back and think if you are using the right tool !!
Gathering reliable insights is one of the best ways that help managers to optimize the workforce and maximize utilization rates. The tool’s real-time utilization data allows managers to understand the challenges and adopt strategies in advance.
When did you last hit the ideal utilization rate?