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Shannon Toe

Full-Time Equivalent (FTE) Explained

Looking to calculate staffing levels for projects or teams? Enter a full-time equivalent, also known as FTE.

In project management, a full-time equivalent (FTE) is a unit of measurement that allows you to match personnel with projects. 

It is an alternative to headcount, and it allows you to better manage your project's resource requirements by calculating how many people are needed based on the work they are expected to do within a given time frame. 

It also helps you track any changes to your project's workload and personnel needs as time goes on.

In this article, we’re going to break down the very concept of FTE and explain why it is so important in project management.

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What is a full-time equivalent (FTE)?

Whether you're a seasoned project manager or just getting started, it's important to know the ins and outs of your job and the language associated with it. One term you may have heard in passing but weren't sure about is full-time equivalent (FTE) — it's one that you'll definitely want to look into if you haven't before.

FTE is used to determine staffing needs for projects by comparing the time that a person would work if they were working full-time to the number of hours they will actually work.

A full-time equivalent (FTE) is also a way of quantifying the workload of a project or team in terms of the amount of time it would take to complete. It's the most common unit of measure used when calculating staffing levels for projects or teams.

FTEs are most commonly used to describe any kind of work that requires more than one person, such as designing and building a new website that requires both programmers and web designers. Larger organizations calculate the size of their projects in FTEs for budgeting purposes — what kind of expenses can we afford? How many people are we going to need in order to have everything completed by the deadline?

FTE example

First, let’s answer the question “what is an FTE employee”?

If your full time equivalent definition means 40 fte hours a week then this is the scheme that is applicable:

  • 1 full-time employee who takes on 1 official full-time schedule = 1 full-time equivalent employee
  • 2 part-time employees, each working half of what you established as fte employment = 1 full-time equivalent employee
  • 4 part-time employees, each working 10 hours a week = 1 full-time equivalent employee

For example: If someone works 20 hours per week, their FTE is 0.5. This also means that if someone works 30 hours per week, their FTE is 0.75.

Using this system, you can quickly calculate how many people are needed for a project that requires X amount of labor hours — just divide the total hours by each person's FTE and you'll see how many people are needed overall.

That said, there are limitations to this calculation method — for instance, employees may be unable to work more than 40 hours per week due to their company's policies or other factors outside of the project itself. 

It can also be ambiguous when considering employees who don't work fixed hours every week, such as hourly employees or freelancers contracted on a per-project basis. In this case, you can use this calculation method as a general guide but should also consider the possible limitations.

The difference between FTE and headcount?

Compared to FTE, the concept of headcount is more general. 

It doesn’t look at the actual hours worked. Instead, it focuses on the number of people working on your projects, whether they are full time employees, part time employees, contractors, interns, students, freelancers, advisors, etc. 

FTE vs headcount

The importance of FTEs

The value of knowing your FTE depends on whether you're looking for something specific in your business or organization. 

For example, if you want to compare the efficiency of different departments in your company or organization, you might want to know which departments are using more than their share of resources, based on the amount of work they're doing compared to other departments. 

In this case, knowing your headcount and comparing it to other metrics (like sales volume) will help you figure out where there may be inefficiencies within your organization and make decisions accordingly. 

What’s more, measuring your FTE is an excellent help in project planning as it helps estimate how many hours of work go into a project. Based on it, project managers can decide whether they want to hire full-time or part-time help and how many of each would be the most cost-effective.

Once you’ve a time estimate of the project work, you can also use it to calculate the cost of resources for project execution. In turn, this assists in effective project budgeting.   

What is FTE beneficial for?

The full-time equivalent model is great for organizations hiring resources based on the projects they take.

Such a work model ensures you only hire people that are the best skill-fit for the projects in your pipeline.

In a typical (headcount) scenario, you assess the work that’ll go in a project that you’re planning. From there, you determine the skill and experience levels required to get the project off the ground and to complete it. 

Based on the skill assessment, you go through your resource inventory to assign work to employees that have the right skills needed for the project. In case you don’t have the skills you need for the project in-house, you hire more people.

However, in an FTE model, you only hire people as per your project pipeline’s need — never having to assign work to employees just because you’ve employed them. Put this way, you’ll see that the FTE model helps with efficient resource allocation. It also prevents resource wastage.

Most of all, FTE aims to ensure the quality of the project deliverables is high-standard. With time, you also improve your project budgeting skills as you determine the budget based on the resources you’ll need to hire for the project.  

How to calculate a full-time equivalent

If you're planning a project, whether it's a large-scale development or a small business endeavor, you'll need to account for the time spent on it. But how can you calculate the time it takes to do something that isn't necessarily a full time job?

FTE calculation is much simpler than it might seem, as long as you get the actual FTE meaning. 

In simple terms, 100% FTE equals 1.0 FTE — it might be used to identify an individual employee who’s working full-time or a few people who work the equivalent of one FTE. 

This distinction is needed because a 40-hour work week is common, yet it is not universal. At some companies and in some countries, a 36-hour work week is also a viable option so for them, 36 hours of work equal 100% or 1.0 FTE. 

For a more rounded calculation, you can use the following formula:

  • Hours worked a day * days worked per week = weekly FTE
  • Weekly FTE * weeks worked in a year = yearly FTE

Here’s how this formula translates into numbers:

  • 8 hours a day * 5 days a week = 40 hours a week
  • 40 hours a week * 52 weeks a year = 2080 hours a year 

Now, it’s important to note that this FTE result does not necessarily reflect actual FTE employees. After all, people take time off work, vacations, sick leaves, etc — all of which reduces their hours worked and has an impact on your workforce planning process

Manually calculating and then recalculating your FTE can lead to errors and discrepancies in data, this is why it is a good idea to use workforce planning tools and automate this process from the very beginning. 

Understanding your FTE can be very beneficial for project success, but if you consistently get it wrong it can lead to project miscalculations and delays.

Want to make sure all your FTE calculations are accurate? Runn can help.

All you need to do is to go to your Project Planner and use the toggle to see your projects in FTEs.

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