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Nicole Tiefensee

The (Better) Guide to Resource Utilization for Service Businesses

Learn why resource utilization is an important business metric and follow five easy steps to analyze and optimize your team's billable utilization.

If you run a professional services business - be it a software company, a design agency, or any other project-based business  -  your biggest asset is your team of knowledge workers. Without them you wouldn’t be able to operate and deliver value to your customers.

Needless to say, a big part of your business’ success and profitability is linked to how well your team is performing and how much of its time is spent on generating revenue for your organization.

Time not spent on generating revenue will cost your business money.

Sometimes that’s okay and necessary. But other times it’s due to a project start date being delayed, a gig that’s fallen through, or a fixed-price deal that sees your team work long hours that cannot be billed.

In order to optimize what your team is working on, it is really important that you understand and have visibility of your team’s utilization (also known as resource utilization in project management) and efficiently plan their capacity. Learn everything there's to know in this guide.

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What is resource utilization?

Resource utilization is a metric in resource management that tracks time employees spend at work and on projects. Resource utilization can be calculated by dividing the hours a person or a team spends working on a project or task by their capacity, which are their total available hours.

As a professional services business, it is useful to understand both, a person or team’s total utilization and their billable utilization.

Total utilization is the time your team spends working on all the things valuable to you  - this includes billable and non-billable work, internal projects, training, workshops and conferences. It's expressed in percentage terms that shows the amount of time that resources are being productive.

The resource utilization formula is: (Total Registered Hours / Total Hours Available) x 100

Billable utilization purely includes time spent on billable and revenue generating work. In other words, it's the time someone actually spends on projects, known as billable hours. Billable utilization shows how much time resources are being productive AND generating revenue for your business.

The billable utilization rate is calculated with the formula: (Total Registered Billable Hours / Total Hours Available) x 100

tracking resource utilization
With Runn, you can streamline your utilization reporting

➡️ Check our guide on how to build a resource utilization report here. 📖

Resource utilization vs resource allocation

Resource utilization sounds similar to resource allocation, and the two concepts can be easily confused. However, there is a significant difference between them.

Resource allocation is the concept of appointing resources to tasks. It's the planned working hours for a particular resource on a project that happens in advance of the work.

Resource utilization is usually defined as the actual working hours that were required. It is seen in real time in terms of time spent on a project.

At Runn, you can track planned utilization on a People Planner. For actual utilization, just look at the past data in our reports.

resource utilization software
Turn on Charts on our People Planner to see billable and non-billable utilization of a group of people, or filter down to a specific person, role, or skill.

What is the optimal level of resource utilization?

In a perfect world, every resource in a business would be able to be productively utilized 100% of the time. However, this is neither possible nor realistic. Non-billable hours are necessary to get work done, and team members need time off in order to be at their best and avoid burning out.

So what is a good level of resource utilization to aim for? In fact, if you're measuring total utilization using the formula we described above - (Total Registered Hours / Total Hours Available) x 100 - then an optimal level of resource utilization to target would be 80-100%.

When calculating billable utilization, you only focus on time employees spend on projects. In that case, the ideal utilization level would be 70-80%. Work environments are beset by different administrative duties, so it's improbable that someone can spend all the available time they have on projects.

Gartner analyst Robert Handler believes the ideal billable utilization rate is between 70-80%. He advises to calculate utilization targets for all project resources below 80%, and use that data to limit the number of active projects. "While resources working below the target may seem inefficient, resources working above that target are likely to introduce costly delays and errors into the project," Robert explains.

It's important that project managers measuring resource utilization are careful not to demand too much from their teams.

That being said, the ideal ratio of billable utilization to non-billable utilization in professional services industries is anything around 80 percent. That means out of a five day work week, four of those days are spent doing work that is invoiced to clients. The higher the billable utilization ratio, the more profitable you are - more on that point shortly.

Interpreting utilization rates

When interpreting your business' resource utilization rates, there are two common pitfalls to avoid.

The first relates to the previous point, where business utilization rate targets are too ambitious. From a purely economic point of view, it makes sense to try to maximize productive utilization. However, as mentioned, it's simply not realistic (or even beneficial) to have every resource working full battery all the time.

Optimal resource utilization occurs where staff don't feel stressed or over worked, which they inevitably do when too much is being expected of them. It's important to keep this in mind when making a resource utilization plan.

Secondly, it's important to remember that resource utilization is not a metric that can be used to judge someone's productivity. As Gary Ward, Director of Global Staffing at Guidewire Software suggested,

Resource utilization is an important metric for organizations from a revenue and profitability perspective, but is not a reflection of productivity per se. It cannot be understood in isolation, rather as part of a more holistic set of KPIs. There are so many forms of utilization which inform the overall picture from decisions, adjustments, and improvements - billable, chargeable (internally funded from other parts of the org), non-billable, productive (billable + chargeable) & client (billable & non-billable customer only effort). Each have value as they tell a different story. Most organizations have billable targets as standard but fail to level set on the others to understand the mix of that utilization.

To Gary's point, each of these categories tells a different story about how resources are being used. While many companies focus on meeting billable targets, they often overlook the importance of understanding and balancing the other types of utilization to get a clear picture of overall efficiency and effectiveness.

➡️ Further reading: A Kinder Way to Interpret Utilization Rates

Why calculate resource utilization?

Calculating resource utilization is the first step to earning your business more money.

With a bill rate of $200 per hour and a workforce of 300 individuals, for example, a single point increase in utilization could potentially yield an additional $1,248,000 in revenue.

The importance of calculating utilization extends beyond mere revenue generation. For businesses with internal service focus, where cost optimization is paramount, the implications can be equally profound. Considering a conservative cost rate of $50 per hour, a one-point increase in utilization could lead to a whopping $312,000 in cost optimization.

Resources are our greatest investment, and resource utilization is one metric that illustrates this point.

There is a range of other benefits of knowing utilization rates.  Let’s look at these benefits in detail.

The benefits of measuring resource utilization

Better project planning

By keeping tabs on your employees’ workload, you can accurately forecast the capacity available for taking on more projects. To add, resource utilization ensures you create realistic project and employee schedules, which is key for keeping both stakeholders and employees happy.

Identifying resources that are under the most pressure

Having a clear view of utilization rates will reveal if any one person, skill, or function is consistently overutilized - and, therefore, under pressure. This vital information will allow you to act swiftly and decisively to reduce workloads where needed, protecting your team members from overwork and burnout.

With Runn, you can also track Group Utilization across roles, teams, employment type, skills, etc. to uncover more insights.

See that red mountain on the Project Manager role on the screenshot above? George is clearly overbooked with work.

Informing staffing decisions and opportunities for new hires

With the utilization figures in your back pocket, it's a lot simpler to make the case for new hires. Overutilization pressure-points may signify areas where additional resources are be needed, and so this can factor into your staffing plans.

Note: Use resource utilization reports intelligently to predict resource demand on projects and inform your hiring decisions. The demand is where resource utilization is higher than expected.

Improving the quality of project deliverables

An essential aspect of resource utilization involves proper resource allocation. Meaning: you assign tasks based on employees’ skill sets and availability. This increases the odds of the project deliverable turning out excellent as all employees work on tasks that are their strong suit.

Motivating employees by helping them do meaningful work

Managing resource utilization well means that employees will spend an optimal amount of time on billable work - the work that actually involves their skillset and offers opportunity for learning. Getting bogged down with admin is nobody's idea of a good time, but if you track and manage utilization well, you'll be taking steps to reduce unnecessary admin anyway (more on that later).

By doing meaningful work that helps employees finetune and grow their skills, you can engage resources better — improving employee retention along the way.

How to measure resource utilization

Like every other business metric, you should track, monitor and analyze your resource utilization rate and establish business objectives around it.

There are many different ways of measuring resource utilization. Whatever method you use, it's important to be consistent. Inconsistencies will mean it's harder to compare results from different periods. However improving resource utilization is much easier with the valuable insight you get from consistent, comparable reporting.

Here’s a simple three step approach on how to measure resource utilization:

1. Track time

You can’t manage what you can’t measure. So start collecting data.

Timesheets are vital in calculating resource utilization. Planned working hours almost always differ from the actual working time, so it's important that timesheets are accurate and made available to whoever is responsible for tracking resource utilization.

Set up time-tracking for your team and break down your team’s activities into meaningful categories. Generally, it’s helpful to break this into client and internal project activities, as well as billable and non-billable tasks. It’s also good practice to break down your internal work further so you can see where time is being spent, e.g. on training, business development, internal meetings, etc. Keep this high-level enough so you don’t overwhelm your team but detailed enough for you to get the insights you need. To find the set-up that works for your organization it might require some experimenting and refinement.

Tracking hours is a great start, but it won’t give you the full picture.

In addition to looking into the past, you should also look at your planned utilization. Say Peter, your Solution Architect, had a 10% billable utilization in March. This is great to know, but without looking at what was planned for Peter, it’s not very meaningful. Bringing actuals and planned utilization metrics together is the key.

Lastly, calculate your people’s costs (e.g. what each employee and contractor is costing you per hour) and track the charge-out rates for all billable activities. When calculating your costs, make sure to use the same baseline across all employees and don’t forget to factor in a person’s work schedule, annual leave and public holidays.

2. Analyze and optimize

Looking at your team’s actual AND estimated utilization and costs — especially when plotted on a timeline — will quickly show you how busy your team is and when it will become available again to take on new billable project work.

You will be able to identify bottlenecks early, both from a project and people’s perspective. If, for example, your two JavaScript developers are constantly over-utilized, and you have more work for them in the pipeline, it’s probably time to go out and hire a third one, or get a contractor in to help out. Equally, if you have a project coming up that requires a specifically skilled employee, and that employee is busy until the end of the year, you’ll need to move things around, up-skill or hire.

Having visibility over your utilization will help you make these decisions early, optimize the pipeline of upcoming work and set client expectations. You can do this by using group utilization charts, which are great for illustrating resource utilization at a team level.

resource utilization charts

You can also get more specific by setting up and monitoring people utilization reports, that allow you to track resource utilization rates for individual team members. This includes billable, non-billable and total utilization rates, both in advance and retrospectively. However, as previously stated, it's important not to use these reports as performance indicators without context.

Comparing your actuals with what was planned will give you an indication on the progress the team is making on a specific project. There will always be a variance between actuals and planned, but looking at and learning from the past will help you decrease the gap.

Another interesting metric to track is your team’s billable utilization vs. non-billable utilization. Obviously, you’ll want to strive for a high percentage of billable utilization as that’s where the revenue is coming from. But watch out — high billable utilization does not necessarily equal high profits. If your billable utilization is high, but your profits are low, then you’ll need to take a good look at your costs, charge-out rates and how you are billing for your projects.

3. Set goals

Your business’ success rides on generating revenue, and your investors, board of directors and other stakeholders will want to know how things are going. Utilization metrics are a good indicator of your business’ health, so start adding them to the list of business metrics to track and set yourself some realistic and achievable objectives on how to make long term improvements.

Using resource utilization software

Resource utilization is a function of resource management. One of the great challenges in achieving effective resource utilization is having the visibility over all the resources an organization has at its disposal. Runn is a valuable tool for project managers and business leaders looking to improve productive utilization rates. Resource utilization software gives you an extra layer of visibility, both in planning working hours and reporting back on completed projects.

Runn provides tools, charts, and reports to measure billable and non-billable utilization both on a group and individual level.

Advantages of using a resource utilization tool

With highly engaging resource utilization charts that are easy to incorporate into your business, Runn makes planning, tracking, analyzing, reporting and goal setting more straightforward than ever before.

Runn heatmaps showcase staff availability and utilization both in real time and in the future. This helps to allocate tasks and plan future projects with an up-to-date understanding of resource capacity. You can also draft projects with an accurate idea of timeline and budget, and plan out unconfirmed resources with placeholders that define resource requirements.

Rather than manually calculating resource utilization, reports are automated based on project planning, resource booking and timesheets. Having all of this information integrated into one place means there is one clear resource utilization dashboard for every project manager and staff member to see.

Using a resource utilization formula manually is time consuming and error prone. Time is a commodity many business leaders already don't have much of, and errors in any part of resource allocation can lead to costly clashes, delays and bottlenecks.

Runn's real time planning insights enable project managers to stay on top of constantly evolving plans and milestones. This helps to deal with common resource management issues:

  • Changing project requirements
  • New client timelines
  • Competing resource demands
  • Urgent or last minute work

Real-time charts and graphs mean you can schedule, allocate and edit tasks with the very latest information.

All reports, charts and calendars are shareable and visible across all business areas, which means different business leaders can see future availability and plan new projects with confidence.

Tips for effective utilization of resources

Before we wrap this up, let’s leave you with five proven tips to improve resource utilization levels:

1. Optimize utilization by allocating resources intelligently

Although both concepts are different, they work in tandem. By creating an inventory that tracks employees’ skills, interests, and vacation time, you can assign them tasks that engage them.

In turn, this means employees can do more in less time since they’re already skilled at the assigned tasks/projects, boosting resource utilization.

➡️ Further reading: How to Allocate Resources to Projects

2. Pencil in non-billable hours as essential productivity improving investment

Non-billable hours are unavoidable, even essential for running projects efficiently. It’s why it’s important to see them as an important investment rather than as a culprit negatively impacting productivity.

The idea is simple: include creativity boosting and team-building activities as essential investments for improving overall employee and business productivity.

For instance, if you give employees a paid day off to work on their side projects, consider it an investment in their creativity, professional development, and retention. Such activities also reduce burnout, increasing resource utilization in the long haul.

In short, non-billable hours of work related to employee development and engagement are essential for improving performance during billable work hours. Therefore, in a way, they contribute to growing your bottom line among other benefits.

➡️ Further reading: Why Downtime at Work May Be Useful for Your Employees

3. Automate repetitive, manual work

Automating repetitive work can significantly increase utilization by freeing up human resources to focus on more complex tasks and strategic initiatives.

Analyze current workflows and processes to identify tasks that are repetitive and time-consuming. Look for activities that are rule-based, involve manual data entry, or follow a predictable pattern.

4. Use tools for helping employees manage their workload

The right tools in your tech stack can improve employee productivity. 

For instance, team managers and employees can use Runn to track resource availability, plan capacity, create realistic project and employee schedules, and track time. 

Similarly, a tool like Todoist can help employees create daily to-do lists and Freedom can help them block distractions to dedicate more time to deep work.

5. Organize files in an accessible way

A lot of time goes to waste just trying to find a file that a colleague shared in a recent email or Slack thread. Save time here by creating an easy-to-access and navigate internal team wiki or knowledge base. 

This lets you include all project documentation in one place, making it simple for everyone to find whatever they’re looking for, whenever they need it. 

Final thoughts

Achieving optimal resource utilization means a range of benefits for businesses, most notably saving time and money.

Being able to say a project was completed on time and on budget is a significant achievement, and hitting effective utilization rates dramatically increases your chances of doing it.

Talk to Runn about how to plan, track, and measure resource utilization today.

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