What Is Resource Utilization and How Do You Calculate It?

 

Growing your service business is the main priority for every leader. And onboarding more people is not always the solution for that. The success and growth of every organization depend on various factors, of which employees are the central driving force. Project managers need to work smartly and quickly to ensure on-time delivery of their projects. They need to know how productive their team members are, what projects/tasks they are working on, their skill sets, future availability, etc. The trouble is that a lot of resource planning is required, especially when teams are working on multiple projects/tasks simultaneously and there are several elements associated with every project.

As such, the key to business success is how effectively you are utilizing your resources. Therefore, let us first understand what resource utilization is.

What is Resource Utilization?

Resource utilization is a function of allocating your workforce efficiently on different projects/tasks. Maximizing utilization involves planning a project, allocating resources according to their skills, ensuring the availability of resources, and effectively using resources to their best ability. Resource utilization will also help leaders monitor each employee and verify who is working on what project, if resources are over or under-utilized, and re-allocate them to new/ongoing projects if required.

Why is Resource Utilization Important?

Resource utilization should always be a priority in your service business since how and where your resources are allocated will directly impact the overall performance of your company. Resource scarcity will not only impair your ability to deliver projects on time, but it will also lead to trust issues between you and your customers.

Resource utilization gives real-time visibility and transparency into your projects, which means you are less likely to miss any important details and more active towards catching errors before they develop into significant issues. Your leaders and managers will get more flexibility and help make their teams more productive by keeping projects on track, rescheduling the resources when the need arises, and avoiding last-minute delays.

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How to Calculate Resource Utilization in a Project?

It may seem time-consuming and cumbersome to calculate resource utilization for each team member, especially when doing it manually or just using excel. An advanced self-driving professional service automation solution will make this task easier for you.

The formula to calculate the utilization rate is simple.

Utilization Rate = Hours worked/Total Available Hours* 100

For example, if a team member should work for 8 hours each day for 5 days a week, the total available hours will be 40 hours per week. However, if they just worked for 36 hours (billable hours) in a week, while for the other 4 hours they were working on non-billable activities, then the calculation will be:

36/ 40 x 100 = 90, which means the employee has utilized 90% of his potential towards billable projects.

Now, let’s calculate a billing rate. Assume that this employee is being paid an annual salary of $90,000. However, this data is not enough to calculate the billing rate. To do such a calculation, you need to track accurate billable and non-billable hours before applying such calculations correctly.

And one of the simplest ways to track and monitor the effective utilization of resources is tracking employee’s time with an intelligent PSA. With the help of a PSA, you can track the billable and non-billable hours for your resources across different projects and calculate the productivity of each resource over any period of time.

How can PSA increase your resource utilization?

Now let’s understand why your organization must automate its resource utilization and the value it brings to your business.

Imagine an organization with 500 employees who work for 2000 hours a year; however, these employees are currently utilized at only 72%. After digging deeper into the reasons for this under-utilization, they realize that the lack of real-time visibility during resource utilization and tracking has created a gap in allocating the right resources at the right time within professional services firms. In this case, the organization failed to utilize the time interval when resources moved out of their existing projects and joined a new one.

This means if you consider moving from manual tracking of resource utilization to an intelligent PSA platform, you will increase your employee billable utilization and drive a higher annual revenue per employee. A 0.5% change in resource utilization could increase your project revenue by $20-$30K per employee. Now, multiply that by the number of billable employees you have.

Whether you are an organization with 5,000 employees (equating to over 10 million project hours available each year) or 50,000 employees (equating to a massive 104 million project hours), this added annual project revenue undoubtedly will impact your profitability, resource utilization, and bill rates.

You need real-time visibility into allocating your resources across all your projects for optimal resource utilization. With an intelligent PSA platform, you can leverage artificial intelligence to find the right resources, identify their availability and allocate them to projects quickly. This will reduce the time to staff resources and bench time. Even at a billable rate of $150 per resource and an increase of resource utilization by 0.5%, you can gain an additional $750K that you can add to your project revenue.

Understanding the resource utilization in your organization is a critical metric to calculate the efficiency of your processes and the productivity of your workforce. A 75% resource utilization rate means that your resources spend 25% of their activities on non-billable activities, which is undesirable for any business. The math is quite simple – the greater the billable hours, the greater the revenue generated. An intelligent PSA can significantly improve your resource utilization and track your team’s progress to avoid wasting time on futile work. It can help you prioritize projects and focus on tasks that bring profitability and success to your organization while deriving the best out of your resources at the same time.

Learn more about a smart and intelligent PSA

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Measure Everything You Manage and Boost Your Utilization Rates

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Surbhi Bharati
ABOUT THE AUTHOR
Surbhi Bharati
Surbhi is Content Marketing Manager at Replicon. She is a learner with a curiosity for new technologies. 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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