How To Calculate Resource Utilization Percentage
How To Calculate Resource Utilization Percentage – What resource utilization is and how to calculate it Only 58% of agencies track how hard their teams work. Keeping better tracks can drastically increase productivity.
Resource utilization helps managers understand how their teams spend their time, so they can make more efficient resource decisions that maximize productivity and profitability.
How To Calculate Resource Utilization Percentage
Project leaders know that projects do not move from one end of the pipeline to the other without careful organization.
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There are many moving parts, and careful planning is especially important when teams are working on multiple tasks simultaneously. This juggling act requires project managers to be on their A game, as they need to know how productive their team is, what jobs they’re working on, and whether they’re using their time effectively.
And while careful planning and scheduling of resources is critical to ensuring a project is successful, so is another part of the process that is often forgotten: resource utilization.
Resource utilization measures the productivity of your team’s work and monitors if it’s working too hard (or too little).
Resource utilization is a term used to describe the percentage of an employee’s available time that is used for billable tasks.
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Resource utilization rates show how much of your team’s time is spent on billable tasks, as well as how productive each team member is. Ultimately, these numbers allow team leaders to measure billing efficiency and determine if you’re pricing your project correctly to cover your costs and turn a profit.
According to Gartner analyst Robert Handler, that sweet spot is 70-80% utilization of a team member’s scheduled time. If team members spend more than 80% of their time on billable tasks, they are less productive than necessary and ultimately cost your company time and money.
The problem is that not enough teams know where they stand in terms of resource utilization percentage. HubSpot’s 2018 Marketing Agency Growth Report found that only 58% of agencies are tracking their team’s utilization rate.
John Doherty, founder of Credo, helped contribute to the report and says that 42% of agencies don’t know if their clients are profitable, finding it impossible to streamline projects and keep their staff happy.
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“These agencies would do well to spend a month understanding where their employees’ time is going. Then they can make the necessary changes to make projects profitable and understand their true use, as well as what areas they need to hire or cut. Profitable Business Get back to running,” says Doherty.
Managing multiple projects simultaneously requires cross-collaboration and juggling resources within teams. Although project managers work hard to ensure that their team members do not overwork the process, keeping track of resource usage can make the process smoother.
The resource assignment process involves assigning specific tasks and activities to team members to complete a project. As projects progress, project managers monitor how these tasks are progressing and transfer workloads to other team members as needed.
On the other hand, resource utilization refers to the measurement of these efforts. By tracking a team member’s billable/non-billable hours, a project manager can get an idea of the overall productivity of his team and ensure workload management.
What Resource Utilization Is And How To Calculate It
For creative agency Kobe, juggling multiple projects at once is part of their team’s job.
Kobe has been using it for its resource management since April 2019. Bruno Bulso, the company’s co-founder, says it has made it easier to forecast the team’s resource capacity and predict the success of its projects. Together, the Kobe team can monitor multiple ongoing projects and ensure that their tools are being used effectively.
Measuring your agency’s resource utilization may seem difficult at first, but it’s easy with the right tools. Once you’ve calculated your target usage and billing rates, you can use a resource management tool to automatically track your team’s productivity.
At this point, it should be pretty clear how project teams can benefit from resource utilization rate calculations. Fortunately, the typical formula used to calculate resource usage is not overly complicated:
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If a designer on your team works 8 hours a day, 5 days a week, their availability is set to 40 hours a week. If 34 of those hours are billable, with 6 remaining for other tasks (such as administrative work), the calculation you make is 34/40 x 100 = 85. Designer utilization rate is 85%.
It’s important to note that utilization rates should be used as a baseline that can be modified based on your team’s unique needs. For example, you may want to consider other factors when calculating the formula, such as:
The great thing about calculating your team’s usage rate is that you can then use it to calculate the billing rate across the project.
Suppose the designer above earns an annual salary of $85,000 for his work at the agency. The agency’s overhead for hiring a designer is relatively small, $4,000 per year, because the team works remotely (wow!), and their ideal profit margin on the designer’s time is 25%.
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To put a dollar figure on that markup, we need to multiply the designer hours by the ideal markup ($85k x 0.25%), so we’re left with $21,250. Taking his full-time hours (52 x 40) gives us the designer marking 2080 hours a year on his clock.
Billing Rate = (Salary / Hourly Cost + Overhead Cost + Desired Profit Margin) ÷ Total Hours Worked
An agency employing a designer will need to charge at least $42 an hour to cover their costs and reach their ideal profit margin. Unless there’s a problem with this formula… can you see it?
Let’s be honest: no team leader wants their people working at 100% capacity. It’s bad for productivity and will probably burn out the team. A quick adjustment to the calculation allows us to use the usage rate we calculated earlier to keep the agency profitable and prevent designers from frying their keyboards.
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With resource management software, you can calculate and monitor utilization rates in real time. Reports give you a single view of your team’s available hours (its capacity), compared to its scheduled hours (assigned tasks), to make data-driven resource decisions.
Ideal Billing Rate = (Wage/Hourly Costs + Overhead Costs + Desired Profit Margin) ÷ Total Hours Worked ÷ Utilization Rate
As long as the agency bills clients more than $50 per hour for their designer’s time, they can comfortably schedule them at an 85% utilization rate and maintain their desired 25% profit margin.
These calculations are essential because they allow team leaders to understand utilization rates and make smarter decisions with their team’s schedules. After you figure out each person’s ideal usage and billable rates, you can use that to create a schedule that makes sense for both your team’s time and your agency’s bottom line.
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Once you’ve calculated your resource utilization rates, you need to understand your team’s time.
The easiest way to do this is to invest in a time tracking tool that handles things automatically. Tracking your team’s time without the right tool means a lot of manual data entry and messy spreadsheets.
With the time tracking feature, you can track how many hours your team works on billable and non-billable tasks by completing their digital time log. This information is then stored and used to generate reports that show you how productive your team has been over a period of time.
Team leaders can immediately see that a staff member is only working at a 67% utilization rate and use this data to assign the team member to other projects or which non-billable tasks are taking up too much of their time.
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Time tracking lets you see how long it took your team to complete tasks, so you can monitor resource utilization rates in real time. Try it free for 30 days.
While it may seem like a daunting process at first, the rewards far outweigh the work. By using cold, hard data and creating a unique resource utilization formula for your agency, you can determine your team’s ideal billable rates.
With resource utilization statistics, you can ensure your team is working more productively without the risk of burnout, while still reaching your ideal profit margin. In fact, calculating your resource usage can simplify your scheduling decisions—forever.
“We can better understand the resource management, utilization rates and financial health of our projects, to assign the best team for the job.”
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