Utilization rate vs Achievement rate
Foreword
Every professional services organization should keep a close eye on its utilization rate. It's a good way to understand how productive an individual or team is.
The utilization rate is a key indicator of productivity in service companies. They reflect the percentage of time an individual or team spends working on billable projects or tasks compared with the total time available.
Monitoring utilization rate on a regular basis enables an organization to understand the productivity of its employees.
Calculation of utilization rate and realization
Utilization rate
Here's how to calculate utilization rate:
All billable hours in a period / total workable hours in the period
For example, if an employee has logged 30 billable hours in a week, and the number of billable hours in a week is 40 in your company, then the utilization rate is 30 / 40 = 75%.
Now, this method is not always accurate because :
- an employee can work more than 40 hours a week,
- it provides no information on how the non-billable time was used.
Stafiz is a solution from resource planning that lets you manage employee schedules, optimize utilization rate, and improve your performance!
Completion rate
Here is the completion rate:
Billable hours for a period / total number of hours recorded by the employee (billable + non-billable).
The completion rate gives the fair billable performance of that employee, regardless of how many hours he or she has spent over the period. And if you use the right time tracking software, you'll be able to better understand how your employees use their time.
Discover the completion rate in video :
The importance of recording non-billable hours
There are many reasons for recording non-billable hours in a professional services organization: the employee may be working on a business proposal, or on an internal project.
In both cases, it's important to have data on non-chargeable time. After all, it would be a mistake to conclude from a low completion rate that your time is not optimized.
In many cases, commercial activities and in-house projects generate high returns.
Time tracking is essential for calculating rates
Make sure you use software that helps you track time accurately and monitor your team's productive results.
Accurately recording and reviewing the right reports is the first step. The next step is to optimize your resources, which will be the subject of another article.
At Stafiz, we like to introduce a very useful KPI: we call it the production rate.
It takes everything into account (past and future time, expenses) and tells you whether you can anticipate project over- or under-performance. Here's how we calculate it:
- Project costs / [Actual and future time spent on the project x Daily rate].
Expense management with Stafiz
Of course, the denominator takes into account the different daily rates of each member involved in the project.
So, if you've sold the project at the exact value of the scheduled time for each team member, multiplied by their daily rates, you expect to achieve a 100% production rate.
What other elements are you looking at?
Let's take an example:
- You've sold a €100,000 project, and expect a junior to work for 60 days at €1,000/day.
- a senior 20 days at €1,500/day
- and a 5-day manager at €2,000/day
- = (60 x 1000 + 20 x 1500 + 5 x 2000 = 100,000)
- So, in your plan, the production rate is 100%.
But, let's say you're one month into the project, and you now anticipate that :
- the junior will spend 70 days
- senior 25 days
- and the director 6 days
- Now, the value of your production is (70 x 1000 + 25 x 1500 + 6 x 2000 = 119,500)
- The production rate is therefore 83.7%.
This doesn't mean that your margin is negative, as your daily rates may include a significant margin over your employee's actual cost. But it does mean that you are underperforming your initial plan by 16.3%.
You need to find ways to speed up the project or justify a price increase to your customer.
It also happens that, during the course of a project, your customer requests additional services. In this case, you'll need to review the initial plan, adjust the package sold and factor this into your performance analysis.
In Stafiz, you can do this by adding as many new "production plans" as you need.
Analyze your projects to boost profitability
There are many reasons why a project becomes unprofitable:
- business activity costs were underestimated
- expenses have not been included in the margin calculation
- or you're simply stuck on the project and want to spend more time on it
In some cases, the opposite is true, and you'll end up being much more profitable than you expected. The most important aspect of all this is to ANTICIPATE.
Analyze the performance of your projects
Find out how to plan, monitor and evaluate your projects effectively with our comprehensive guide to project monitoring.
You need reporting tools to give you real-time visibility of your project's finances. This will help you set the right bid price, and give you enough time to react and make decisions. This will help you speed up the project or reduce costs where possible.
What other elements are you looking at?
A solution from resource planning helps you optimize your employee load and improve your profitability. To learn more about resource planning management in Stafiz and how to improve retention, read our e-book.
