Utilization rate vs Achievement rate

Foreword

Every professional services organization should closely monitor its utilization rate . This is a good way to understand how productive an individual or team is.

Utilization rate is a key indicator of productivity in professional services organizations, reflecting the percentage of time an individual or team spends working on billable projects or tasks relative to the total time available. Monitoring utilization rate on a regular basis, allows an organization to understand the productivity of its employees.

Calculation of utilization rate and realization

Utilization rate

Here's how to calculate the utilization rate :

All hours invoiced for a period / total hours worked over the period

For example, if an employee logged 30 billable hours in a week, and the number of workable hours in a week is 40 hours 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 per week
• It does not provide any information on how the non-billable time was used.

Completion rate

Here is the achievement rate:

Billable hours in a period / total number of hours recorded by the employee (billable + non-billable).

The achievement rate gives the fair billable performance of this employee, regardless of the number of hours he spent over the period. And if you use the right time tracking software , you'll be able to better understand how your employees are using their time.

Discover the completion rate in video:

The importance of recording non-billable hours

There are many reasons to record non-billable hours in a professional services organization: The employee may be working on a business proposal or an internal project. In both cases, it is important to have data on your non-billable time. Because it would be a mistake to note that your completion rate is low and to conclude that your time is not optimized. In many cases, internal business activities and projects have a high return.

To calculate rates, time tracking is essential

Make sure you're using software that helps you track time accurately and track your team's productive results.

Accurately recording and reviewing the correct 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 present a very useful KPI: we call it production rate.

It takes everything into account (past and future time, expenses) and tells you if you can anticipate overperformance or underperformance of the project. Here's how we calculate it:

–> Project costs / [Actual and future work time spent on the project x Daily rate].

Of course, the denominator takes into account the different daily rates of each member involved in the project.

So, if you sold the project at the exact value of each team member's expected time, multiplied by their day rate, you plan to achieve a 100% production rate.

This does not mean your margin is negative, as your daily rates may include a significant margin compared to the actual cost of your employee. But this means you are underperforming your original plan, by 16.3%.

You need to find ways to speed up the project or justify a price increase to your client.

It also happens that during a project, your client requests additional services. In this case, you must review the initial plan, adjust the package sold and take it into account in your performance analysis. In Stafiz you can do this by adding as many new “production plans” as needed.

Analyze your projects to increase profitability

There are many reasons why a project becomes unprofitable:

• the costs of doing business were underestimated
• expenses were not included in the margin calculation
• or you are simply stuck on the project and spend more time on it

In some cases, it will be the opposite, and you will end up being much more profitable than expected. The most important aspect of all this is to ANTICIPATE . You need to have reporting tools to have real-time visibility into your project's finances. This will help you set the appropriate hammer price and give you enough time to react and make decisions. This is to speed up the project or reduce costs when still possible.

Are you interested in project analysis?

Find out how to plan, monitor and evaluate your projects effectively with our comprehensive guide to project monitoring.

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.

Download the e-book!