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Making Sense of Utilization in a
Services Firm
By Brian Martin (/profile-3) , Vice President of Client Management,
OpenAir - March !, "##$
(http://www.addtoany.com/share_save#url=http%3A%2F%
2Fwww.psvlla!e.com%2Fpulse%2Fma"n!#sense#utl$aton#a#servces#%rm&ttle='a"n!%
2()ense%2(o%%2(*tl$aton%2(n%2(a%2()ervces%2(Frm%2(%+,%
2(-).lla!e&descrpton=)
All servces e/ecutves and pro%essonals are challen!ed wth how they should
trac" and measure utl$aton. *tl$aton s a pertnent ssue to all servces
or!an$aton0 whether t s a consultn! %rm0 so%tware vendor0 or other pro1ect
2ased or!an$aton. 'antann! h!h utl$aton o% your employees drves
h!her 2lln!s0 h!her revenue and ultmately h!her pro%ts. 3t s a crtcal
measure o% your %nancal success and sustana2lty. 4here are three levels o%
utl$aton that can 2e used 2y companes. )ome companes wll %ocus on one
level0 whle others wll %ocus on all three.
Level One - Resource Utilization
5esource utl$aton measures the tme your resources spend wor"n! on
use%ul pro1ects and tas"s. 65esource *tl$aton7 measures the allocaton o% a
resource on a spec%c set o% wor"0 ncludn! clent and nternal wor"0 and tends
to !nore 6on the 2ench7 tme durn! whch the resource s nether wor"n! on
2lla2le nor non#2lla2le wor".
'easurn! 65esource *tl$aton7 helps mana!ers mnm$e admnstratve
wor"0 s usually the easest metrc to measure0 and s the easest to act on. 3%
a resource s on the 62ench7 and not 2lln! her tme0 at least the company can
have the resource wor" on valua2le nternal pro1ects or sales e%%orts.
Level Two - Billable Utilization
4he ne/t level down s 68lla2le *tl$aton70 whch measures the tme your
resources spend wor"n! on 2lla2le pro1ects and tas"s. 4he tme spent on
6nternal7 pro1ects or 2usness development s not ncluded snce ths tme s
not 2lled to the clent. 68lla2le *tl$aton7 s almost always less than
65esource *tl$aton70 whch ncludes hours spent on nternal pro1ects and
2usness development. For nstance0 a resource may 2e 9(% utl$ed overall
(5esource *tl$aton)0 2ut not all tme was 2lled 2ac" to the clent0 so 68lla2le
*tl$aton7 may 2e closer to +(%.
Level Three - Realization
5eal$aton s a measure o% how much o% a company:s revenue capacty was
captured. 4he !oal o% ths calculaton method s to determne 6how much o%
the tme the resource spent on 2lla2le wor" was actually 2lled 2ac" to the
clent7. 4me spent on nternal pro1ects and 2usness development s not
ncluded.
5eal$aton s a use%ul metrc snce t nvolves hours and rate and !ves some
ndcaton o% where a company !ves up money (e.!.0 n the sales process0 n
the collecton process0 or n delvery).
4he approprate 2aselne
Avala2le hours0 the denomnator n the utl$aton calculaton0 s one o% the
most h!hly de2ated topcs amon! pro%essonal servces pro%essonals. )hould
t 2e;
< 20(=( hours (>( hours per wee" ? @2 wee"s)
< 20(=( hours less company holdays
< 20(=( hours less company holdays and personal vacatons
< A more ar2trary num2er0 such as +(% o% 20(=( hours
Avala2le hours also can d%%er 2y country0 so !lo2al %rms have to 2e very
care%ul n how t s calculated. A!an0 there s no r!ht answer0 1ust what s
r!ht %or your company. 4he most common num2er used n the ndustry s
20(=(. *sn! ths 2aselne wll ma"e your utl$aton num2ers transparent n
your company as well as when comparn! your per%ormance to peer
companes.
Ahat s the r!ht tar!et utl$aton %or my company;
Bnce you decde on the correct utl$aton0 ether 2lla2le0 resource or 2oth0 %or
your company0 the ne/t step s to te ths calculaton nto compensaton. Ahat
s the r!ht tar!et %or your company; 3t depends on a %ew %actors0 ncludn!:
< 4he utl$aton calculaton method that your company s usn!
< 8enchmar"ed utl$aton rates %or compettors and peer companes
< Cour company revenue and mar!n tar!ets
For e/ample0 % the 2aselne hours that are used n the numerator o% your
utl$aton calculaton are 20(=( hours0 then D((% 2lla2le utl$aton tar!ets
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would not 2e %eas2le. Cou would need to su2tract company holdays0
vacatons0 sc" days and potentally 6on#the#2ench7 tme %rom your 2aselne to
determne the approprate tar!et. 3n ths case0 +(#=(% utl$aton would 2e an
approprate tar!et. ,onversely0 % the 2aselne hours that are used n the
numerator o% your 2lla2le utl$aton calculaton e/cludes company holdays
and personal vacatons0 then an approprate utl$aton tar!et would 2e h!her0
perhaps =(#D((%.
4here are many 2enchmar" studes avala2le0 so 2e%ore settln! on a utl$aton
tar!et0 you may want to consult addtonal sources o% n%ormaton. 3n addton
to loo"n! at peer company data0 another data pont to use s the calculated
utl$aton tar!et per resource that allows your company to meet ts corporate
revenue and mar!n tar!ets.
For e/ample0 let:s assume that your 2lla2le resources have a %ully loaded cost
(ncludes salary0 2onus0 2ene%ts and %/ed cost allocaton) o% E2((0((( per
year0 your avera!e rate per hour s E2(( and your corporate !ross mar!n !oal
s >(%. 4o acheve a >(% !ross mar!n0 each resources needs to 2ll
E3330((( to clents. At a rate o% E2(( per hour0 each resources needs to 2ll
D0FF+ hours. 3% your company uses a 2aselne o% 20(=( hours as the
denomnator n the utl$aton calculaton0 then your 2lla2le resources need to
tar!et =(% utl$aton. Gowever0 % your company e/cludes company holdays
and vacatons %rom the 2aselne hours (denomnator)0 then the utl$aton
tar!et s closer to 9(%.
,rtcal to measurn! and mana!n! a!anst 2oth overall and 2lla2le utl$aton
s the understandn! that tme capturers are o%ten not n control o% ther own
destny. 5esource mana!ers are respons2le %or sta%%n!0 and the
or!an$aton:s commtment to s"ll development can 2e an mportant %actor n
determnn! your company:s tar!et utl$aton.
3n closn!0 there s no clear answer to how a partcular company should
calculate resource utl$aton0 2ut there are a %ew 2asc prncples to %ollow
when ma"n! ths decson %or your company.
One, t s mperatve to "eep the calculaton smple. 8y ma"n! the calculaton
smple0 consultants wll understand the !oal. 3% they understand the !oal0
there s a 2etter chance they wll 2eat the !oal0 and % they don:t0 they should
not complan. 3% the calculaton s not smple0 t s understood 2y no one0 and
ultmately 2ecomes a num2er on a spreadsheet that everyone s amn!
towards0 2ut does not really understand0 whch can hurt morale.
To, ensure your calculaton s !lo2ally consstent. Ahatever you decde s
the r!ht utl$aton %ormula %or you company0 t s crtcal that you apply t
consstently and un%ormly across all users.
T!ree, the nputs to your utl$aton calculaton should not 2e controlled 2y the
ndvdual resource0 2ut rather decded at the tas" or pro1ect level. 4a"e the
human element out o% the nput0 whch wll help ensure consstency n the
applcaton o% the calculaton.
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