Utilization

A consultant’s not so favorite word. Tracking utilization means you have to track your hours. Which is tedious. And usually there is some aspect of your performance metrics and or bonus structure that is tied to Utilization and a Target of some sort.

I’ve seen job offers that say you are eligible for X amount of bonus based on hitting the utilization target, that you must reach at least 70% of the target (and the bonus is calculated based on that) to get any at all, but the full bonus is only paid out if you hit 100%. And the target was 100% billable utilization based on 2080 hours. Oh and on top of Client work, you had to recruit and bring in sales as well. So basically there is no way you are ever getting a bonus. That means no days off (even holidays) and anything not specifically billable has to be over and above the 40 hours a week. No thanks.

I’ve seen jobs where you are bonused off meeting your utilization target on a sliding scale once you’ve hit at least 75%. But, that is calculated as Billable hours divided by Work Calendar hours. Similar to above you are penalized for PTO, but holidays are removed from the equation. (Time off is usually part of your compensation package so it’s weird that some companies penalize you for it.)  Where this one really breaks down is when you aren’t in charge of your own assignments. Should you get penalized and miss your bonus because you were on the bench and you weren’t given any billable work? Or because you were redo-ing work that someone else screwed up and your hours couldn’t be billed? None of those are fair.

I’ve seen jobs where they look at the whole picture – Productive hours (billable and things deemed productive) divided by the hours available to the resource. So you aren’t penalized when you take time off. This is great for the Resource, but companies that focus on dollars in dollars out don’t like this one because the numbers are usually higher and not 1:1 reflective of revenues.

All of these calculations can tell different stories about the health of the business depending on what you are trying to evaluate.

Let’s break down the various ways to calculate utilization:

Billable Utilization: Billable hours divided by Work Calendar hours

• This one shows exactly how billable someone was – the hours they worked that were billed to the customer compare to the standard work calendar
• I billed 10 hours out of a 40 hours work week – my billable utilization was 25%

Productive Utilization: All Hours that could be Revenue Generating (Billable hours plus Credited Hours) divided by Work Calendar hours

• This one shows the time I spent on work that is considered ‘Productive’ – whether it is billable or not – Sales calls, credited non-billable client work, etc.
• I billed 10 hours out of a 40 hour work week and logged another 10 on an RFP for sales which were credited to me – my Productive Utilization is 50% since half my week I worked on productive work

Total Utilization:  Billable hours plus Credited Hours / Work Calendar hours minus Excluded

• This one is about what I did in the time I was available to work (not based on Work Calendar – taking into account time off or excluded for some reason)
• I billed 10 hours to the client, had 10 hours of Credited work, and took PTO for 2 days – my Total Utilization would be (10+10)/(40-16) = 83%

So for the same resource in the same week I could have 3 very different numbers depending on how you calculate it:

• 25% Billable Utilization
• 50% Productive Utilization
• 83% Total Utilization

If you focus only on Billable Utilization – then you may never hit your targets because resources inevitably take time off and work on things that may be important or even client facing but not ever billable to a customer. You definitely need to know how much of your resource time is billable – you can compare that to the revenue generated to get insights into time to value, but it shouldn’t be the only indicator of resource utilization.

Productive Utilization is a great indicator of work that is deemed valuable vs work that isn’t. Work on a client project that can’t be billed because hours weren’t estimated accurately or there was a credit for some reason shouldn’t count against a resource. Often it isn’t their fault – they are doing work for a customer, end of story. When you pull a resource off a Billable Client Project to help on a Sales call. They are potentially helping to generate future revenue. Productive Utilization can help project Targets for your resources, give you an idea of the overhead time that is typical so you can include that in your plan.

If you focus on Total Utilization, you may have really great numbers but you end up not billing enough because resources are taking a ton of time off. This calculation is a great indicator to see whether resources are spending the time that is available to them on productive work. If you give people PTO, should you penalize them for using it? If you aren’t removing it from the denominator then you kind of are….but if you only look at this as an indicator of how the organization is doing, it is deceiving. On a month where a lot of people take PTO (December for example) – your Total Utilization might be projected at 85 or 90% but you end up billing a fraction of normal because so many people are taking time off.

Each of these calculations tell different stories depending on the decisions you are trying to make! Total Utilization is great for Resource performance – in the time they have are they utilized? Billable Utilization is great for Revenue projections – how billable are we expecting our resources to be? And Productive Utilization is great for assessing staff productivity as a whole.

Do you shudder when you think about utilization?

Do you geek out like me when you think about all the ways to look at it?

Have you never really thought much about it?