If You Want Profitability, You Cannot Ignore Resource Utilization

After an enormously challenging year, professional services firms are trying to get back on track to achieve their growth and profitability goals. To do so, it has become more important than ever for them to focus on their biggest resource: their employees. No matter what space a professional services organization operates in, its people are the heart of its business. The organization’s ability to leverage and utilize this resource will be key to its success.

Of the many KPIs used by professional services organizations, resource utilization is often overlooked or even misunderstood. However, once the organization unlocks this metric’s potential, the impact is enormous. Let us take a look at how your organization can do exactly that.

Resource Utilization: What Is It And Why Does It Matter?

In simple terms, resource utilization is the percentage of an employee’s time spent on billable tasks. It can also be calculated at a team or organization level.

According to the 2018 Marketing Agency Growth Report from HubSpot, only 58% of survey respondents tracked utilization rates. The failure to track these rates makes it harder for firms to optimize projects for maximum profitability and cause other problems as well.

However, there is more to resource utilization than just profitability. For a professional services firm, managing multiple projects is a given. Successful execution of multiple projects can necessitate cross-team collaboration and assigning resources to different teams for multiple projects. This can lead to overutilization when a resource is assigned to more work than what his/her scheduled hours allow for. In some cases, the opposite might happen but this scenario is unacceptable as well. To navigate this massive challenge, tracking resource utilization is vital.

When you start tracking resource utilization, your firm can start experiencing the following benefits and more.

  • Improved project management with help of productivity data
  • Increased ROI due to optimized resource utilization
  • Better cross collaboration as a result of better scheduling

How Can You Improve Resource Utilization?

Now, you might be thinking of how you can get your resource utilization rate up to 100% but that is the wrong way to go about it. 100% utilization is a bad thing since it means that your resources are fully engaged in billable activities without any room for anything else. There is no scope to even engage them in a meeting. As you can imagine, this can quickly lead to burnout which will drastically reduce employee morale and productivity.

According to Gartner, the ideal resource utilization rate is generally around 70% to 80% per employee. Any more than that and your employee productivity will start dropping, leading to a loss of time and money for the firm.

Here are some steps you can take to improve resource utilization.

  • Enhance Project Visibility: While projects may be executed independently, they still affect each other, particularly if individuals or teams are assigned to multiple projects simultaneously. A lack of visibility into each project and user makes it difficult for everyone to allocate their time and effort effectively between projects.
  • Leverage Work Breakdown Structures: Implementing work breakdown structures allows projects to be divided and organized into smaller activities that are more manageable. Creating an activity or task list simplifies tasks allocation to resources with relevant skills, increasing the overall efficiency and productivity of the team.
  • Tackle Scope Creep: Unless properly tracked, scope creep can quickly derail a project. However, it can be a challenge without the proper tools in place to accurately track time and resources. It is essential to constantly monitor project status to quickly identify issues that can result in scope creep.
  • Global View of Resources and Skills: A global view of all resources and skills is essential to maximising their utilization. The enhanced visibility allows you to correctly forecast what resources are available, giving you the opportunity to take on projects accordingly.
  • Simplify Resource Allocation: Knowing what each resource is capable of can be of enormous benefit when allocating to projects. It simplifies the process of allocating tasks to resources with the requisite skill set. Create a skill catalog with location and expertise information to easily allocate resources when projects come in. This resource management setup will also allow you to forecast future availability and hiring requirements.
  • Set and Track Billable Targets: Considering the importance of utilization rates, it is a good idea that you share it with your employees and empower them. Let them know what their billable targets are. Make it easier for them to fill up timesheets and track their hours against billable targets on a weekly or monthly basis.

How to Calculate Utilization Rates?

Ultimately, none of the above steps can help you unless you are tracking utilization rates. Make it a priority to monitor these rates on a weekly or monthly basis. This helps you quickly identify problem areas and, thereby, prevent over or underutilization of resources. You can maintain your projects’ financial health and improve productivity.

Of course, to track utilization, you must first learn how to calculate it.

The simplest method involves dividing billable hours by the total hours recorded in a given period. For example, consider 30 hours were billable in a week where 40 hours in total were recorded. That gives us a utilization rate of (30/40)*100 = 75%.

You need to accurately track billable and non-billable hours for this method to work correctly. However, the above method will not work for everyone. Every organization has its own unique needs. For professional services firms, the focus is usually on billable utilization. Therefore, work with your team to come up with your own ideal resource utilization measures.

Intelligent Automation is the Way Ahead

As you can imagine, it can quickly become a massive challenge to implement such calculations at an organizational level if you are doing it all manually. Using manual data entry and spreadsheets is not only time-consuming but also messy and prone to errors. An automated system can take the effort out of this process while enhancing the accuracy of the data collected and saving time and labor.

Polaris is not just another automated time tracking system. It is the first self-driving PSA offering advanced intelligent automation capabilities, covering everything from resource management to financial modeling to time intelligence and more. Here are a few ways Polaris can power up your resource utilization, making it more efficient, streamlined, and accurate

  • Intelligent Resource Allocation: Get intelligent resource allocation with SmartMatch. The built-in recommendation engine helps quickly identify resources based on availability, skill set, location, or other criteria. Discover future allocation with resource forecasts, improving resource utilization down the line.
  • Improved Project Management: Polaris helps you gain immediate understanding of all essential project metrics through SmartBeats. The system will bring together data about work progress, completion estimates, and more from the users, giving you an in-depth look at all projects and tasks.
  • Smarter Bidding: Utilize historical project data to inform your next project bid, resulting in better estimates. You can also use historical data to gain accurate information on costs, billing and margins by creating appropriate work breakdown structures.
  • Early Warnings: As Polaris continuously gathers information from users, managers get early warnings on all critical project metrics through the Project Pulse system. This helps you take the necessary steps to bring your project metrics back on track.
  • Advanced Analytics: Polaris gives you a real-time holistic view of all critical business metrics, with the ability to easily analyze the data as per requirements. The granular visibility of the historical and real-time data helps you plan and forecast more intelligently.

Through Polaris, you get all the relevant data in an easily digestible format, enabling you to leverage your resource utilization figures to the benefit of your organization. You can easily and efficiently improve productivity and profitability while minimizing allocation conflicts and employee burnout.

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Arpan Patra
ABOUT THE AUTHOR
Arpan Patra
Arpan is an assistant content marketing manager at Replicon. He enjoys learning and writing about technologies that are making the world a better place. Replicon provides award-winning products that make it easy to manage your workforce. With complete solution sets for client billing, project costing, and time and attendance management, Replicon enables the capture, administration, and optimization of your most underutilized and important asset: time.
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