Given the ever-evolving market landscape and shifting customer preferences, it can be challenging to prioritise profitability amidst these ongoing complexities. However, maximising profits is not just a standalone objective. Instead, it is a crucial aspect of managing your company. There are various strategies you can put together to optimise the resources you have already allocated.
Specifically, our attention is directed towards utilization as a flexible lever. Keep reading to understand the importance of this measure for a service provider and how AccountSight has assisted teams in maximizing their time spent on billable tasks without much organizational changes. Before proceeding further, here are a few questions to you:
What is the utilisation rate of your employees?
What proportion of their time do they spend on non-billable projects?
How much time the team is spending on non-productive work?
You risk of losing out on opportunities to increase your revenue if you are unsure of the answers to these above questions.
Discovering what a utilization rate I will allow you to focus on each team member utilization.
The utilisation rate of an individual refers to the percentage of their total working hours dedicated to client work that can be billed. At its most fundamental level, employees utilisation rate is a metric that quantifies the time employees dedicate to revenue-generating activities for your company. This statistic plays a crucial role in a company’s profitability.
As a corollary, the employees utilization rate is the ratio of billable client hours worked to total available employee hours.
With utilization ratio, you gain a better grasp of:
- If there is enough amount of billable tasks for your employees to work on.
- In the event that you anticipate a significant amount of time spent by your team on non-Delivery administrative duties or unproductive work.
- Your revenue-earning and scoping capacity.
- If you find that your team is being stretched too thin and could use some additional support, it may be time to consider hiring new members.
- Help you to better plan and strategize your work allocation.
As businesses strive to enhance their bottom line and make the most of their resources, project management is becoming an increasingly strategic practice. Therefore, it is crucial that adequate utilization of the resource must be tracked and reported accurately.
Utilization rate = Billable hours/ Total hours*100
For instance, let’s say a consulting firm commits one of its resources to a client project with a one-year deadline and 1,500 billable hours to finish. The total number of hours that can be used or is calculated by dividing the 52 weeks of the year (excluding vacations) by a 40-hour work week. In hours, this is about 2,080.
Utilization rate = 1500/2080*100
Utilization rate = 72.1%
After gaining a thorough understanding of how to compute utilization and use it as a metric, it is simple to comprehend the impact that it has on the profitability of your organization. You are passing up opportunities to make a profit if you are not making full use of the resources at your disposal. If you dig deeper, you will discover that your utilization rate has an effect on almost every facet of your business.
To ensure efficient resource allocation and accurate tracking of billable utilisation trends, it is crucial to have a comprehensive understanding of the time dedicated to work that can be billed. In order to effectively track utilisation trends over time, it is essential to establish a reliable time tracking software. Timely and accurate tracking of resources’ hours dedicated to projects is of the highest significance. The resources, clients, and overall success of the company can all benefit from business decisions or modifications that are based on developing trends, provided that these trends are backed by accurate data.
Every company has its own specific goal utilisation rate. Given the diverse needs of different businesses, it is impossible to find a one-size-fits-all solution that can be used as a standard calculation.
Profitability does not always rise in direct correlation with utilisation. Excessive focus on activities that don’t generate revenue or having too many employees could lead to a significant difference between the amount of work done and the amount of work that actually brings in revenue.
According to the advice of a Gartner’s VP Analyst, Robert Handler, it is recommended to keep the average utilisation rate below 80% to avoid overwhelming workloads and reduce the risk of errors that could cause additional problems for the business. By effectively managing the allocation of labour, this rate ensures optimal productivity and safeguards employee well-being.
If you can accurately track and analyze utilization indicators for all resources and projects over time, you will easily identify areas that could benefit from adjustments to enhance productivity or profitability. You can efficiently maximize the potential of your resources to generate revenue. On the other hand, if resources are being excessively utilized, it will be simple to predict when they will require a break from their billable tasks to avoid burnout.
Increasing utilization rates is possible in a myriad of ways; nevertheless, the five strategies outlined below serve as an excellent foundation.
1. Invest in user-friendly time tracking tools.
To enhance time tracking in services organizations, streamline project plans, standardize methods, and facilitate effortless input from any device. Ensure that all team members are equipped with comprehensive policies and procedures. Regular audits of time tracking and utilization are crucial to ensure that all resources consistently submit accurate time entries and monitor trends in utilization. Assess and emphasize team members who may not be fully utilized, and promptly address the situation to ensure they become billable once more. This will assist organizations in efficiently analyzing resource utilization and maintaining compliance with time tracking processes.
2. Gain insight into project and resource data to empower your team.
Having complete visibility into current project and resource data significantly improves billable utilization rates. This data is valuable for making informed decisions when allocating resources to projects, leading to more efficient utilization rates. Many organizations utilize SaaS solutions like AccountSight with automation and business intelligence capabilities to store this data, including timesheet information and progress against milestones or initial scope. An efficient tool like AccountSight for managing resources is available to professional services organizations, enabling easy access to accurate and current information. These tools can also give you a heads up or warning when a project might require additional time or resources. This increased visibility and immediate access to project and resource data helps to avoid any unforeseen issues that may arise towards the completion of projects.
3. Maintain resource pool and proactively allocate resources
Reactive resourcing can be inefficient as it involves frequently reallocating resources or leaving them idle. Implementing a proactive approach to resource allocation can have a significant impact on project timeliness and utilization. Through the integration of purpose-built resource management software and CRM, organizations can enhance their visibility into the balance of demand and supply. This allows them to uncover billable time opportunities that may have been isolated within different departments or teams. By implementing this approach, resource managers can optimize time allocation, making the most of their employees and ensuring that the right teams are assigned to each project.
4. Reduce non-billable hours by monitoring them.
Keeping track of the hours spent on billable tasks is essential for maximizing efficiency, but it is equally important to diligently monitor and analyze non-billable work for further improvement and optimization. Recognize activities that are not billable, such as pursuing new business opportunities, marketing initiatives, or administrative duties, and meticulously monitor the time spent on them. Streamline this task as needed to enable resources to concentrate on work that generates revenue. Identify areas for improvement and optimize tasks to priorities activities that drive value, enhance utilization, increase revenue, and improve margins.
Service-based businesses are recognizing the importance of implementing advanced platforms to enhance resource and project management. This is a result of the necessity to bridge the divide between inadequate IT systems and their approach to manage resources, leading to enhanced performance and client contentment.
Calculating employees utilization rates not only provides insight into their available and billable time but also evaluates a company’s profitability, capacity, and potential for expansion.
Is your team prepared to maximise its utilisation ratio? We provide cutting-edge technologies driven by data enabled software for managing resources, including planning, tracking, and forecasting, and we’ll assist you in making the most of your available assets. Schedule a demo with our team now!