Step by step

**5 steps to maximizing your current utilization levels**

STEP 1

What exactly are we measuring?

The vast majority of professional services companies take a fairly simple approach to measuring utilization. They simply require all employees to keep track of the hours they spend working on billable vs unbillable tasks – usually via a timesheet. They then calculate utilization according this simple formula:

But this method fails to take into account the nuances of professional services work. It doesn’t take into account non-billable projects that are vital to the health of the company, or billable hours wasted due to badly performed work, duplication, and erroneous billing.

To make sure your metrics aren’t clouding your judgementit can sometimes be wise to granulate the way you track time. This might include measuring not only chargeable hours, but “productive” non-billable utilization – the strategic and operational work that helps the company keep running. It may also involve a measure of “total” utilization – the active tracking of all hours worked by everyone in the business, whether billable or non-billable.

What does 100% look like?

You’ll also need to determine what each employee (and the organization as a whole) can get done over your reporting period. For instance, there are 260 working days in a year, and 8 working hours in a day. But that doesn’t mean you should assume each employee has 2080 utilizable hours in a year – or even 40 in a given work week.

It’s important to factor in foreseeable downtime (like holidays) and some degree of error for unforeseeable downtime (like time off for illnesses and emergencies). This will help you avoid situations where utilization targets aren’t met because they can’t be met.

STEP 2

What should you aim for?

Different industries within professional services will have different answers to this question. Realistic attainable levels range from as high as 98% in law firms to around 60% in some parts of the communications industry.

You can determine which rate of utilization is right for your business by exploring industry averages and by studying the habits of high performers.

Our experience at Unit4 suggests that across all professional services sectors, a billable utilization of around 85% is a solid target to aim for. This allows a margin of error for necessary non-billable work, and a buffer for unplanned downtime.

Know your limits

It’s tempting to shoot for the moon when it comes to raising your utilization rates. But it’s worth remembering that over-taxing your people can lead to an erosion in performance, mounting dissatisfaction, and ultimately higher attrition over time.

For this reason, setting minimum and maximum targets is better than simply trying to push utilization as high as you possibly can. It also has the added advantage of allowing partially-billable staff (like managers) to set aside appropriate time to engage in organization-building activities like training and development.

STEP 3

What’s in it for me?

To truly optimize your utilization levels requires more than squeezing extra work out of your people. It requires fine-tuning your company’s culture and building reward and incentive structures that make hitting the target worthwhile.

At the most obvious level this can take the form of utilization-based incentives. But these can only be part of a strategy in which utilization becomes a part of your organizational culture.

Transparency of real-time project data across the organization is essential. Your project managers will need tools that show them exactly what time is being queued into a project before it begins. How this will impact cost and profitability. And how they can make changes to the way they plan to affect more efficient workflows. Your consultants must be able to see how their work at various points in a project impacts its overall lifecycle.

Keep an eye on utilization from the start

Organizations often strive to maintain or raise utilization levels, but fall short because they look at the metric from an operational perspective, rather than a strategic perspective.

It’s virtually impossible to micro-manage the expenditure of time when a process is in motion (and it’ll likely lead to frustration of everyone involved.) Therefore, it’s vital to go into every project understanding utilization targets required by each Project Manager in order to be profitable.

This can mean making some difficult decisions – up to and including refusing to take on unprofitable work. For many, this will be a difficult step to take – and you shouldn’t try without the correct blend of project planning, forecasting, and project management tools.

STEP 4

Start small

As with most major change initiatives, trying to implement too much too quick will often lead to disillusionment. Your journey to better utilization begins with you biting off much less than you can chew.

It’s tempting to set yourself ambitious goals in short spaces of time when you realize just how much keeping track of utilization can do to your company’s bottom line. After all, if a 3.5% increase can generate a 33% increase in total profits, why not aim for 10%? Or even 25%?

To avoid burnout among your people and “project fatigue” among managers, start your attempts to improve utilization by using individual new business projects as test cases.

It’s much easier to experiment without legacy to hold you back, and targeting new projects lets you work to head off the major hidden project killers.

Underutilization begins before the project begins

Often, it’s not failing to work smart enough or hard enough that prevents improvements in utilization. It’s the following “hidden killers”, the problems that – if they’re not headed off at the pass – will bog down projects for their entire lifecycle.

Lack of visibility – either into resource requirements or expenditure.
Scope creep – projects taking up more than their fair share of resources as requirements expand beyond the original brief.
Bad allocation – using resources in a way that’s counterproductive, or which draws attention away from areas where it’s really needed.

Solving these issues is only possible through the right blending of operational behavior and adopting the correct management and collaboration tools.

STEP 5

Picking the right tools for the job

It’s virtually impossible to make significant improvements to a company that’s already performing well without bringing in new technologies to help integrate operations. This is truer of utilization than perhaps any other performance metric.

The right tools will be different for different organizations. Depending on size, maturity, and the extent of your digital transformation efforts.

Many companies are still using Excel spreadsheets to track utilization and bill time. In these situations, migrating to a professional services automation solution can pay real dividends almost immediately as information is integrated, visibility increases, and it’s possible to make more informed judgements about how to pursue opportunities.

Migrating from spreadsheets to an integrated solution can lead to a 5% jump in utilization without further intervention.

Using our example company and 70% starting point from above, this would represent an increase in profit of around $2.2m – a nearly 48% increase in total profit, and a margin nearly 21%.

More mature companies which have already integrated and automated some of their time tracking upgrade to a full ERP solution can see even more impressive results.

Professional services is an employee driven market and providing the best tools that provide the best insight underlies all performance improvements. Time and expense capture and billing simply cannot be managed effectively with antiquated spreadsheets.

Service Performance Insight