FTE vs Hours: What Should You Use and When?

Last updated on November 23, 2022

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Resource planning is a critical pillar for efficient resource management. Gauging the resources’ availability, scheduling, and keeping track of their utilization is key to accurate resource management.

However, this cannot be done when your firm does not have a standardized procedure to track and measure these parameters.

Moreover, the absence of a unified measure can lead to inaccuracies in project planning, causing billing loss in the future. It’s high time to put an end to these inadequacies and give your resource management process an edge.

This blog entails an in-depth description of two different measures- FTE (Full-time equivalent) and Hours, that benefit specific industries and give you precise, useful insights into their KPIs.

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Let’s begin with understanding all about the full-time equivalent,

1. Unraveling FTE

A. What is FTE?

It is a unit of time defined to measure the workload or availability or capacity of an employee. In other words, FTE is the hours worked by a single employee on a full-time basis.

For example, 40 hours a week (1 FTE) i.e., 8 hours for 5 days are the standard working hours at your firm. So, if you have 3 full-time employees and 2 part-time employees working 3 days a week, then the total FTE becomes (3*1) + (2*0.6) = 4.2.

Simply put, FTE is a standardized measure to calculate project hours and staff count. In a nutshell, it is a comprehensive measure of the upcoming projects and tasks and the total number of people you plan on scheduling for these tasks. It also eliminates the ambiguity revolving around hours and headcount.

guide to resource capacity planning
Now, let’s understand its benefits in detail:

B. Benefits of FTE

FTE in project management

FTE provides a standard approach to calculate the demand for future projects and the number of hours required to accomplish tasks. Hence it is a great measure in project management for long-term strategic plans. For example, if your project needs 400 hours of work, you can equate it to 10 FTE (400 hours/40 hours) for 5 days. Accordingly, you can hire 10 full-time workers to fulfill project demand.

Calculate the total number of employees

Unlike headcount, FTE takes into account the total number of full-time and part-time workers working at your firm. It also helps you in deciding when you need to hire part-timers for short term projects.

Enhances accuracy in planning

Since FTE considers the hours worked by part-timers, it enhances the efficiency of your capacity planning. Consider that your project demand is for 7.5 FTE. That means you need 7 full-time workers and 1 part-time worker to complete the job.

Business Benefits of Resource Planning in Project Management

Evaluate role-based capacity

FTE allows you to aggregate the capacity of role-based employees. For example, you have 20 content writers with a capacity of 0.7 FTE each, then their aggregate FTE is 14 FTE. You can use the aggregate for accurate role-based resource management and assign the tasks. Now that the benefits are understood let’s move to the next part to understand which industry is benefited the most from the FTE model.

C. When should you use FTE?

If you are planning a large-scale project that will continue for a span of months and will require extensive hourly calculations, FTE can work wonders for you. You no longer have to calculate the working hours and headcount separately.

The full-time equivalent is ideal for Engineering and Construction projects. They have projects that last for months and they end up hiring contractors on a large scale. However, with ‘guesstimation’, they either equip excess capacity or find contracts expiring mid-projects.

So, when you implement this unified measure, you lead to draw a clear project plan in advance and allocate resources accordingly.

The Ultimate Resource Scheduling Guide ff

D. FTE vs Headcount

Nowadays, companies are aligning towards the FTE model as opposed to the headcount for many reasons. For one, headcount does not take into account the number of part-timers in a firm. This can lead to the overstaffing of employees. For two, it focuses on the overall organizational strategy and filling roles in general but does not drill down to closing the specific skill gaps.

2. Clocking the hours

Work hours do not necessarily need a definition. The standard working hours for an employee are generally 40 hours a week (8 hours * 5 days) or 37.5 hours a week (7.5 hours * 5 days).

Let’s look at the benefits,

A. Benefits of hours

Accurate billing

Hours are beneficial when an individual resource’s cost is accounted for billable projects. The fact that every hour on the task can be logged and charged to the client helps you make accurate billing invoices.

Calculate project budget

Based on the clocked hours of previous similar projects, you can calculate budgets for the upcoming ones accurately.

Maintain the project’s health

When resources log the exact number of hours they worked on a project, you can compare the booked hours vs. the actual time taken. This will help you act proactively and take corrective measures ahead of time.

Measure Resource Utilization and Improve Productivity

B. Downsides of hours

  • As opposed to FTE, clocking hours is not a comprehensive practice that can take care of both duration and number of resources.
  • Hours are not convenient for long-term project planning.

C. When should you use hours?

If you are an accounting and consulting firm and cater to short-term, time-specific, billable projects, clocking hours is the ideal choice.

Hours keep your bills precise and accurate and do not let go of any worked hours to waste

Based on the hourly charge-out rates of employees, you can go for cost-effective global resources and increase your profit margins. Besides this, clocking hours is good to evaluate performances of one-time activities.

For instance, a technician is required to provide technical support to a client, he/she can log the number of hours spent on it. This takes care of the bill and also lets you gauge the efficiency of each technician.

Thus, whenever you are planning short-term projects, you should rely on an hour-based resource management model.

The Ultimate Guide to Mastering Project Resource Management

3. FTE vs hours: Conclusion

Full-time equivalent and hours-based resource models cater to different kinds of industries and projects. The blog has covered the usage, benefits of both the models to help you make the right decision for your firm. FTE takes care of the long-term projects while hours are perfect for short-term tasks.

The success of accurate project planning and forecasting lies in making the right choice of metric as much as it is driven by the process followed.

Which sophisticated metrics are you selecting for your firm?

4. SAVIOM Solution

SAVIOM has over 20 years of experience helping multinational clients manage their resources efficiently and effectively. This Australian-based MNC has a global presence across 50 countries and has helped 100+ clients meet their specific business goals. Saviom also provides tools for project portfolio management, professional service automation, and workforce planning software. So, SAVIOM can help your business to establish an efficient system geared towards your specific business challenges.

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