September 26, 2022
General
Libby Marks

Improving Resource Efficiency: The Ultimate Guide for 2022

Wondering how to use (human) resources more efficiently in your agency or consulting firm? Here’s what you need to know about improving resource efficiency.

If you want to improve profitability and productivity in your professional services firm - and who doesn’t? - then you need to use your resources efficiently.

Monitoring and managing resource efficiency maximizes the ROI of your human resources. It ensures your people are ‘earning’ more than they’re ‘burning’ when it comes to your budget. But it’s about more than just money.

It’s about delivering the best project outcomes by allocating the right resources to the right projects at the right time. And managing their workload so they can work creatively, productively, and happily.

Resource efficiency is also about optimizing your processes so that you can spot and seize opportunities for your business - confident that you have the resources in place to deliver great work. 

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What is resource efficiency?

Resource efficiency - in the context of using human resources in an agency or consulting firm - is about using your people to deliver the best ROI for your business. Like any type of efficiency, it isn’t about doing things cheaply, it’s about doing them well while also controlling costs.  

Your resources are how your business makes money. But they’re also its biggest expense. Resource efficiency is about striking the optimal balance between what resources cost and how much revenue they generate. 

But it isn’t as simple as working people longer and harder to extract more work for their wages. That’s proven to be counterproductive.

It’s about optimizing how you use your resources to derive the best value for your business - both in terms of delighting clients and securing repeat custom, and being ready to seize opportunities and realize strategic objectives.

And that’s not just expressed as plusses and minuses in a spreadsheet.

Whilst increased productivity and profitability are two highly desirable outcomes of resource efficiency, others include improved project outcomes, increased agility, and higher staff morale and retention. 

benefits of resource efficiency

The challenge of resource efficiency

Even with the best intentions, resource efficiency can be hard to achieve. That’s because resource allocation is such a complex process.

Depending on the size of your agency, it can involve dozens of resources, each working on multiple different projects at different times. You need visibility into a matrix of different metrics to make informed decisions. And not every organization has that - thanks to siloed systems, unfit-for-purpose tools, etc.

This complexity means organizations are sometimes forced to make two-dimensional resourcing decisions. They just don’t have the time or transparency to do it differently. If a resource is suitably skilled and has availability, they’re assigned to a project.

But this misses other key factors that determine resource efficiency. Such as their current workload, their productivity, and the balance of cost and value to a project. Without the info and insights needed to take a more strategic approach to resource management, your agency might not be using resources efficiently.

This means you could be spending more than you need on staff and eating up your project profits. And your employees could be suffering at either end of the spectrum of inefficient resource management - bored or burnout - which leads to productivity losses and staff turnover. 

How to measure resource efficiency

There are several resource management KPIs you should be tracking to measure and monitor your resource efficiency. 

1. Utilization rate

Utilization rate is how much an individual is used. If they’re getting used too much, they’ll get burnout and unproductive. If they’re not being used enough, they could be costing you more than they make. By tracking utilization, you can spot who’s under pressure, who needs more work, and see what skills you need to hire next.

2. Billable vs non-billable hours

Non-billable hours are unavoidable - things like meetings and training - but they can eat into your project profits. You need to track billable vs non-billable hours to keep them in balance. You may need to adjust what you charge clients. Or change processes to minimize non-billable work.

3. Schedule variance

Schedule variance is how well a project sticks to the planned schedule. Often, more time means more expense. Monitoring schedule variance helps you spot bottlenecks, overspend, and correct your course before the costs mount up. 

4. Scheduled vs actual hours 

Your scheduled hours predict how long a particular task will take. If the actual hours are over, it could indicate that your prediction was inaccurate or that your resources aren’t working optimally. Either way, it can eat into profits. Monitor this weekly to measure productivity (and improve future forecasts/budgets).

5. Revenue per resource 

This calculation works out revenue realized per hour worked. Simply divide their total sales by total hours worked. It can vary over time, depending on the ratio of billable to non-billable hours. If you see this number dropping, you know you need to take action. 

How to improve resource efficiency

Match skills to manage costs

When choosing the best people for your project, remember that BEST doesn’t necessarily mean MOST SENIOR. Sure, they might be the very best software engineer on your team. They’ll bring a whole heap of ideas and experience to the table. But does THIS project need that?

If your project could deliver the same outcome with a more junior resource, it makes sense to use them instead. [In fact, this is #3 in our list of cost efficiency best practices]. Not only will you protect your individual project budget and profit margin - your senior software engineer will be available for another project that really needs them, which benefits the wider portfolio.

How to do it

To match skills to projects effectively, your project manager needs to assess the skills required for the individual project, and then find available resources with the right skill level. 

This is much easier when your organization has a centralized pool of resources - including information about their skills, level of competency, cost to the business, availability, and utilization rate.

It’s also helpful to have data about similar past projects, as this can help your PM accurately estimate what each task requires.

And - in case of clashing demands on resources’ time - it’s also good practice to have a centralized approach to prioritizing projects. This provides a standardized framework to decide which projects get which resources.

Manage workload to maintain productivity

Professional service firms sometimes struggle to find the right balance of workload. Too much work and people are earning revenue but exhausted. Too little work and they’re bored and burning through your budget. You need to find the Goldilocks point where people are working at just the right level. To achieve this, you need to look at resource utilization.

In resource management, the utilization rate is the number of hours worked by a resource divided by the number of hours in a given period, usually a week. An optimum utilization rate is 80%. This suggests your resources are delivering a significant amount of work, without being overstretched.

It’s important to keep workload manageable because you want to avoid burning people out. Burnout happens when people work long hours over a prolonged period. Although a bit of overtime is sometimes necessary to catch up with a slipping schedule - as the saying goes - it should be OVERTIME, not ALL THE TIME. Consistent overutilization can cause exhaustion, reduce creativity and productivity, increase disruptive staff turnover, and damage your employer brand.

In fact, one study - reported in Harvard Business Review - found productivity increases when staff are given protected time off from work. In some professional service firms, the always-on culture means staff never switch off. They found that designating time where staff are EXPECTED to do no work increased productivity and satisfaction.

How to do it

  • To work out your individual, group, or organizational utilization rate, divide the number of hours worked by the number of hours in a given period - usually a week.
  • Aim for 100% overall utilization - and then 80% billable utilization within that.
  • Keep an eye on resources with a utilization rate above 80% - you need to manage their time carefully to avoid burnout - and may need to recruit more people with similar skills.
  • Watch out for lower than 80% utilization rates - these resources could be used more effectively to maximize your ROI - and you may not want to hire any more staff with these skills.

Plan capacity to optimize outcomes

Poor capacity planning can introduce huge scope for resource inefficiency. Capacity planning is about looking at your future pipeline and making sure you have the right resources to deliver it. Do you have the right number of people - with the right skills - for what’s on the horizon?

If not, your future projects will suffer. Either because you have to delay them while you recruit the people you need. Or because you have to assign resources that aren’t ideally matched to the project. Or because you have to pull in-demand resources away from existing projects and onto new priorities.

Beyond project and program outcomes, there are a whole host of benefits to proper capacity planning. It lets you rightsize your resources for your future plans, allows for advance planning around recruitment and staff development, and reduces redundancy within your workforce. 

How to do it

  • There are three capacity planning strategies - lag, match, and lead. Decide which is best for your business.
  • Calculate your current capacity based on 80% utilization rate. Do you realistically have the capacity for more work? Will you be losing any staff in the next 6-12 months? Which resources are continually in high demand?
  • Map current staff skills against projected future needs - Where are the gaps? Which skills or resources regularly cause project bottlenecks? Which skill sets are underused and over-represented?

Monitor KPIs to make better decisions 

The five resource management KPIs above can help you make data-informed decisions - which will improve your productivity, performance, and profitability.

One of the major benefits of monitoring KPIs for resource management is that you can spot problems before they sink a project. For example, if you spot schedule variance early enough, you can make changes to the project to correct its course. For example, reassigning resources to avoid a costly bottleneck.

Another benefit is that historic data accumulates and informs present-day decision-making. For example, looking back at data from similar past projects can help project managers make more accurate estimates. This allows for more accurate quotes to clients, reducing the risk of going wildly over schedule and budget when a task takes longer than expected. 

Data from KPIs can also inform future planning. Utilization rates can inform more timely recruitment decisions, ensuring you have the skills you need for success now, rather than three months down the line. They can also help avoid redundancies by recruiting people on the right type of contract, according to demand. 

One last note on KPI… Make sure that you cross-reference your KPIs between teams. If there’s a difference, it could indicate a training need. For example, if one team is excellent at estimating - and delivering projects with minimal schedule variance or overspend - you can support them to share best practices with other teams. 

How to do it

The best way to monitor KPIs is to have appropriate resource management software, like Runn. Whilst you can attempt to monitor KPIs and collect data manually, it is time-consuming and more prone to human error. This can reduce people’s enthusiasm for the task - and undermine confidence in the data and decisions that result from it.  

With resource management software like Runn, you can easily collect, analyze and report on resourcing and project data. You’ll be able to go as ‘big picture’ or ‘fine detail’ as you like - with at-a-glance insights like availability heatmaps to granular detail in customizable reports. It’s fit-for-purpose software designed to take your busy project business to the next level of success.

The efficient use of resources can be the difference between a project making a profit or not. Extrapolate that across your entire portfolio and you’ll see why resource efficiency is a strategic priority for so many project-based businesses.

Runn is trusted by agencies and consultancy firms around the globe to track the health of the teams, projects, and business overall. 

Find out why. Start your free trial today.  

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