What Is Resource Utilization and How Do You Calculate It?

Resource utilization is a key performance metric for professional services firms. It indicates how effectively teams are deployed for billable work across an organization. Measuring resource utilization helps firms accurately forecast staffing needs, uncover efficiency gaps and make data-driven decisions. It also enhances accountability through organization-wide performance metrics.

Organizations that consistently track resource utilization benefit through:

1. Optimized operations through accurate capacity planning
2. Plugging in revenue leakages
3. Ensuring high customer satisfaction by delivering projects on time and within budget

All this fosters sustainable and profitable growth, making resource utilization a crucial performance metric for professional services firms to consider.

Why Tracking Resource Utilization Is a Strategic Priority

Professional services firms have reported a consistent decline in resource utilization over the past three years, reaching a low of 68.9% in 2024. This downward slide suggests that organizations have been unable to match capacity planning with fast-changing client priorities. This mismatch has affected annual revenue per consultant, impacting the organizational bottom line.

As revenue growth and profitability come under pressure, effectively turning utilization into a competitive advantage will be a business differentiator. Firms that act quickly to align employees with in-demand skills will consistently deliver greater customer value. Unfortunately, irrespective of their size, a vast majority of firms don’t fully comprehend the strategic significance of measuring resource utilization rates.

In this blog, we will unpack why improving resource utilization matters and how organizations like yours can measure it accurately. Plus, we will answer commonly asked questions such as:

• What are the best strategies and approaches for efficient resource utilization?
• What are the ideal methods for calculating resource utilization?

What Is Resource Utilization?

As discussed earlier, resource utilization refers to the percentage of an employee’s available time spent on billable and non-billable projects and tasks. It is a key performance indicator (KPI) that reflects how effectively each resource is used, based on individual capability and availability. This metric provides a strategic way to measure workforce efficiency and monitor daily productivity across an organization to ensure optimal resource management.

Maximizing utilization involves planning projects, allocating resources based on their skills, ensuring availability and utilizing them efficiently. This approach helps leaders:

• Track employee assignments
• Optimize resource return on investment (ROI)
• Identify over- or under-utilized resources, and
• Reassign them to other projects when needed

Ultimately, these insights help managers ensure accurate client billing across all projects.

Why Is Resource Utilization Important? The Significance of Resource Utilization in Project Management

Resource utilization must remain a priority metric for professional services firms since resource allocation directly impacts project performance. Resource utilization rate helps firms gain real-time visibility into projects, reducing the risk of oversight. Plus, you can actively identify and rectify errors before they escalate into major issues.

Optimal resource utilization offers several benefits for project-based firms, including:

• In-depth visibility into resource productivity and enhanced project management
• Optimized resource use while preventing over-utilization and burnout
• Reduced risk of project cost overruns
• More accurate planning and forecasting
• Improved overall project profitability

Effective resource utilization is a key factor that determines the success or failure of any project. Resource utilization rate provides managers with a clear view of capacity needs, enabling proactive planning. If a project requires additional resources, managers can allocate them either through internal channels or by hiring them. Such planning helps firms boost productivity, achieve strategic goals, and maintain a healthy resource index, all while upholding high performance standards.

How to Calculate Resource Utilization in a Project?

Calculating resource utilization manually or through a spreadsheet for each team member can be error-prone and extremely time-consuming. Using an advanced professional service automation solution can automate the process and ensure accurate, real-time insights.

Formula to calculate the resource utilization rate is as follows:

Utilization Rate = Billable Hours Worked/Total Available Hours* 100

Let us understand this with an example.

Suppose an employee should work 8 hours each day for 5 days a week.

Total available work hours: 8*5 = 40 hours/week.

However, if the employee worked only 36 hours (billable hours) in a week, while he or she engaged in non-billable activities such as general administration and meetings for the remaining 4 hours, then the employee’s resource utilization will be calculated as:

Utilization Rate: (36/ 40) x 100 = 90

This means the employee’s resource utilization, i.e., the billable hours utilized toward billable projects, is 90%.

Project Scope and Costing

Let us assume that this employee is paid an annual salary of $90,000. In that case, working 8 hours a day would cost the company approximately $45 per hour. Technically, the hourly billing rate can be calculated by working backwards and accounting for margins. However, this information alone is not sufficient to accurately calculate the billing rate. For such a calculation, firms need to track both billable and non-billable hours accurately.

One of the simplest ways to monitor resource utilization is by accurately tracking employees’ time. Using a PSA solution or an AI-powered, unified time-tracking system, firms can gain a real-time view of employees’ work time data. This gives firms visibility into both billable and non-billable hours across different projects. Additionally, they can calculate the productivity of each resource over any duration.

Factors To Consider While Calculating Resource Utilization Rates

Project leaders and managers must consider that the resource utilization rate acts as a baseline metric. They can adjust or refine utilization rates based on project-specific requirements. Here are some key factors to consider when calculating a project’s utilization rate:

• How many billable hours are included in the total available hours?
• Is the calculation based on planned or scheduled working time?
• Is the calculation based on actual time spent or reported working hours?
• How should the total available hours be calculated for part-time employees?
• Has team members’ time off been accounted for in the utilization rate?

Once firms have considered each key aspect, the calculation is likely to be more precise. Resource utilization charts help visualize all available resources along with their productivity and efficiency levels.

As every project is different, there is no one-size-fits-all formula that guarantees success. Hence, decision-makers must consider all key aspects of resource utilization, including data projections and scenario analysis, to efficiently calculate overall utilization rates.

After calculating the overall resource utilization rate, assessing the team’s billing rate and productivity becomes much easier. This ensures accurate billing rate calculations across projects and helps maintain profit margins on a resource’s time.

Tips for Calculating Resource Utilization Accurately

Resource utilization calculation can get complicated, especially for large firms. Below are a few key tips that firms can help calculate resource utilization charts accurately.

1. Comprehensive Visibility

Any project may have multiple tasks, and project managers may allocate numerous resources to specific tasks. Additionally, these resources may work either collaboratively or in silos. Hence, it is critical to gain comprehensive visibility into each resource’s time, which can help determine their efficiency, productivity, and performance.

Viewing a resource’s contribution to a project in isolation may not provide a clear understanding of their utilization rate.

2. Scope for Flexibility

Projects often face unforeseen complications, regardless of how efficiently they are planned. Some projects demand significantly more time and resources than originally anticipated.

Similarly, many projects require revisiting budget outlines, and project managers often find it difficult to justify cost overruns. Allowing for flexibility while tracking the resource utilization rate is a great way to accommodate such challenges.

3. Analyze Thoroughly

Things often do not go according to plan, highlighting the importance of thorough analysis. Experts advise project managers to compare and analyze the difference between what was initially planned and the actual outcomes. This helps firms identify whether their project management plan needs any adjustments before anything goes wrong.

Best Practices for Optimal Resource Utilization

Project managers and leaders must embrace a systematic approach to optimize resource utilization in a project. Below is a list of best practices for optimal resource utilization in any project.

1. Gain Complete Visibility into Future Availability of Resources

Comprehensive and real-time visibility into resource availability, both current and future, is key to successful project management. Firms must consider employees’ time off, work-life balance and contractual obligations for freelancers and part-time employees when forecasting resource availability.

2. Clarity on Future Project Demand

Proactive resourcing decisions, or resource planning, help firms align the right resources with the right tasks. Poor resourcing decisions often disrupt overall resource utilization. To avoid this, project managers should maintain clarity on future project demand, which enables them to maximize the billable utilization of resources.

3. Revisit Employees’ Schedules

Managers need to revisit employees’ schedules to identify gaps between what was planned at the beginning of a project and how employees are performing during execution. Proactively tracking schedules can help firms meet project goals on time and within budget.

4. Multidimensional Resource Scheduling

Firms should ensure a well-thought-out resource allocation before the start of any project. Real-time insights into employees’ skills, interest costs, competencies and availability can help project managers in multidimensional resource scheduling, which means matching the most qualified resources to each project.

Improved Resource Utilization Reinforces Bottom Line

Resource utilization plays a pivotal role in shaping a project’s financial outcomes, which can be regulated in a timely manner. An effective resource utilization plan pays close attention to employees’ health index, directly influencing the quality of project deliverables. This, in turn, contributes to an excellent client experience—a key strategic business objective.

Completing projects on time and within budget is a powerful way to build lasting customer relationships. As a result, improving resource utilization can strengthen a firm’s bottom line.

How a PSA Software Can Improve Resource Utilization

Data shows that professional services firms are under increasing profit-related pressure, with EBITDA dropping from a peak of 16.1% in 2022 to 9.8% in 2024. One of the key challenges they face is the inability to optimize available resources. This issue has been compounded by the rise of productivity and collaboration tools, globally distributed teams, and diverse employee types, working across time zones.

The use of multiple ERP systems to track and manage project metrics has led to data silos, limiting real-time visibility into resourcing. These challenges have made data management more complex and are costing businesses significantly in opportunity costs.

Using an AI-powered PSA solution, such as Replicon Polaris, can help firms gain real-time visibility into important metrics. Polaris can streamline resourcing, financials and project information, offering a live view of the business and complete control over your resources, schedules, and costs.

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