Scaling up, achieving the strategic goals, and diversifying the portfolio to maintain a competitive edge are some of the major aspirations of an organization. The decision-makers hire the best talent across geographical boundaries to attain the same. However, assembling the right team is just the first step. To sustain the growth and profits you aim for, efficient resource utilization to unleash their true potential is imperative.
According to a study, unreasonable workload and excessive overtime are two leading contributors to employee burnout.
This makes it all the more important to ascertain the optimal usage of your resource pool. After all, the mental well-being of your most valuable asset precedes every other concern. Along with emphasizing the resource health index, the utilization rate also gives a clear picture of performance, productivity, and other attributes, making it one of the crucial resource KPIs in the project management realm.
Here is an amalgamation of every key point on resource utilization to give you detailed information on this subject.
Beginning with the definition,
1. Resource utilization definition
Resource utilization is a critical KPI to calculate the effectiveness of resource usage against their total capacity. Using this metric, managers can evaluate and continuously monitor employees’ work rates and analyze if they are overworked or underworked.
Suppose an employee is working more than his/her capacity. In that case, he/she is overutilized, and in case he/she is working less than the available working hours, he/she is underutilized.
To understand this better, let’s consider an example,
A resource is booked for 10 hours/day, whereas he/she has the capacity of 8 hours. In this scenario, it is clear that the resource is being over-utilized as he/she is working 2 hours more than the total available hours.
Considering another example, if an employee is booked for 5 hours a day i.e. 3 hours less than the available capacity, it indicates underutilization.
Managers must note that 100% utilization does not imply that the resource is at his/her productive best. Instead, the kind of work he/she is scheduled for makes a difference. It further categorizes this KPI into four types which are discussed in the later sections.
Now that you have understood resource utilization meaning, let’s address the importance of resource utilization in project management.
2. Why is resource utilization important in project management?
A project’s success is defined by three major aspects, viz., timely delivery, no budget overruns, and quality. Supposedly, you land a new project, allocate the competent resources to the tasks, and now the project begins. Down the line, you realize that your tasks are delayed, and so are the milestones.
It is where effective utilization of resources is imperative. To get in-depth clarity on the ongoing progress, managers can get a comprehensive view of the actual number of hours logged in by the employees against the planned ones. If there is a deviation, they can take remedial measures to control the other aspects.
Besides, a foresight into utilization also allows managers to distribute the workload evenly without over or under-allocating them. Furthermore, this data will also promote proactive capacity planning. It implies that if a resource is booked for another critical project during the same period, managers get enough lead time to procure another resource via internal or external channels.
The significance of this KPI does not limit here. A unified view of the resources’ schedule provides a glimpse of resources allocated to non-admin tasks or are available for half their standard working duration or likely to end up on the bench. Leveraging this data on availability and future utilization, managers can mobilize them to high-priority or billable project work to optimize their utilization. It is a win-win for both, as the resources’ competencies are unleashed to the best extent, and managers do not have to hire an external candidate.
In a nutshell, resource utilization is an incumbent metric in the project management landscape that facilitates managers to enhance productivity, avoid project delays, and optimize resource health index to ensure the best quality standards.
3. Resource allocation vs. resource utilization: What is the difference?
Resource allocation, also known as resource scheduling, recognizes and assigns resources for a specific period to various activities. These activities can be either project or non-project work such as BAU, admin, support, operation, etc. Efficient allocation of resources ensures projects are delivered within time and budget.
On the other hand, resource utilization refers to the extent to which allocated resources are effectively used in different tasks. It measures the actual usage or consumption of resources in relation to their availability, indicating the efficiency and effectiveness of resource deployment.
The next thing to get a grip on is the categorization of this KPI,
4. What are the different types of utilization?
The intent to sub-divide utilization into various types is to understand how much time a resource is spending on each task, such as billable work, non-billable work, strategic projects, admin or BAU activities, etc.
Here is a rundown of each one of them:
- Overall resource utilization
- Billable resource utilization
- Non-billable resource utilization
- Strategic resource utilization
A. Overall resource utilization
The amount of time an employee spends on all the activities, namely billable, strategic, or non-billable, put together against his/her total availability is calculated as overall utilization. Managers get a brief overview of whether the resources are using their available time entirely.
B. Billable resource utilization
Billable projects are the ones where the costs to undertake the project are billed to the client. Billable resource utilization is a means to gauge the number of hours a resource is utilized for billable work. It plays a crucial role in determining the productivity of an employee.
C. Non-billable utilization
The activities that cannot be billed to the client come under non-billable work, and the time spent on this is known as non-billable utilization. All the general meetings, BAU, admin work, training & workshop, etc., come under this category.
Ideally, non-billable utilization should not exceed billable utilization, or else it indicates lowered productivity.
D. Strategic resource utilization
Every firm has long-term goals, and the projects carried out to achieve them are strategic projects. Similar to other categories, the amount of time utilized on these projects is known as strategic utilization.
Billable and strategic utilization both are indicators of high productivity, performance, and profitability.
Let us now see how each one of these is measured,
5. How to calculate resource utilization rate?
Of course, calculating utilization for each resource is time-consuming, and as we center utilization around productivity, this is clearly countering our motive. An advanced resource management solution procures all the data and formulates precise real-time utilization reports of enterprise-wide resources to make it simpler.
Let’s see how to calculate utilization rate:
A. Overall utilization:
Overall Resource utilization formula = Actual or allocated total time / Available resource time or resource capacity.
Similarly, you can calculate utilization rate other categories as well,
B. Billable utilization:
Billable Resource utilization formula = Actual or allocated billable time / Available resource time or resource capacity.
C. Non-billable utilization:
Non-Billable Resource utilization formula = Actual or allocated non-billable time / Available resource time or resource capacity.
D. Strategic utilization:
Strategic Resource utilization formula = Actual or allocated strategic time / Available resource time or resource capacity
Using the real-time reports procured by implementing these formulae, project managers can track the project’s progress and resource performance at any given point in time. They can analyze the employee utilization levels of everyone, and even the overall project’s utilization and assess work rate at any level.
It allows them to understand if any resource or team as a whole is over or underutilized. Sub-optimal utilization can have severe repercussions for both projects and resources.
6. What are the factors that influence resource utilization?
Several factors can influence resource utilization in various contexts. Here are some important factors:
A. Skills and competencies of resources
Different project tasks require specific knowledge, technical skills, or expertise level to be performed efficiently. When the skills and competencies of the resources align with the project requirements, they are able to execute tasks with greater precision and minimum errors, resulting in better utilization of resources and improved project delivery.
In other words, managers can enhance the utilization of resources by assigning the right person to the right project. To facilitate competent allocation, managers must regularly assess the competencies of the workforce and take appropriate measures to mitigate any existing skill gaps. This will help organizations utilize resource skills optimally to deliver projects successfully.
B. Resource demand and capacity
The balance between workforce demand and capacity plays a critical role in overall resource utilization. When the resource demand exceeds the current capacity, it often leads to overutilization. In addition, prolonged resource overloading increases the likelihood of work-related stress, burnout, and unplanned attrition.
In contrast, when capacity exceeds demand, resources tend to be underutilized, which leads to employee disengagement and churn. In both instances, the imbalance between demand and capacity creates bottlenecks such as reduced productivity and demotivation that affect the cumulative utilization of resources.
C. Resource planning and scheduling
Resource utilization can be optimized by carefully planning and scheduling the resource allocations over time. With proactive resource planning, managers can forecast, identify, and allocate the right skill sets with the appropriate task, thus preventing over or under-skilled resources from being assigned to projects.
Furthermore, scheduling resources ahead of time helps organizations to appropriately distribute staff across multiple projects without under or overloading them. This helps ensure even workload distribution and prevents resource-related bottlenecks. Moreover, effective resource planning and scheduling enable managers to maximize the profitable utilization of the workforce by mobilizing them from non-billable work to high-priority, billable projects.
D. Task complexity and requirements
The complexity and requirements of project tasks influence resource utilization levels. As we already discussed, every project has varying levels of complexity that require different types of skill sets and competencies. While some tasks require specialized resources or equipment, others may require a diverse range of skills and expertise.
Understanding the complexity and requirements of tasks is essential for effective allocation and utilization of resources. This involves analyzing the project requirements, timelines, and task interdependencies to ensure the availability of necessary resources for project initiation.
Now that we understand the factors affecting resource utilization let’s understand the impact of over/underutilization.
7. Effect of under/overutilization on projects and resources
Over/underutilization drastically impacts project progress and resource health index in an organization. Here are some of the significant ones.
A. Lowered productivity
Consider a situation where you have scheduled a resource to work on a project task for 45 hours a week which is 5 hours more than the standard working hours. It implies that the resource is overutilized and is working more than the actual capacity. If this situation is prolonged, he/she might eventually experience burnout due to deadline stress and overwork. When an employee’s mental health is not at par, it automatically influences their productivity.
Not just overutilization, but underutilization can also decline productivity. If resources’ skill set and personnel are not leveraged at the maximum, it will lower down their morale. In such situations, they will not give their 100% to their assigned work due to a lack of motivation. Thus, the underwhelmed workload can also influence the productivity of the workforce.
B. Delays in meeting project deadlines
Supposedly, you have one critical employee with a niche skillset who is booked for two high-priority projects. It puts excessive pressure on the respective resource, and he/she will have to put in more effort to do justice to both. As easy as it sounds, it is exceptionally challenging. Having to give 100% to each project simultaneously will compel the resource to log in extra hours, which will lead to burnout, eventually causing delays in submissions.
On the contrary, let’s say you have two similar skilled resources at your firm, and one of them is less experienced. To keep the project costs in check, you allocate the novice employee to a critical project. Here you are under-utilizing a skilled resource who can execute the same task faster and with better quality, while a lesser experienced employee can take longer than planned to do the same. It will lead to delays in meeting the project deadline.
C. Reduced profitability
The projects that are taken up by the firm add up to the revenue generated and overall profitability. Thus, every resource booked for the project has to be utilized effectively to avoid cost overruns, directly impacting the profit margin. For instance, if a highly competent employee (with a high-cost rate) is utilized on a low-priority project, it will eat up from the projected revenue, thereby declining the profitability.
Another scenario is extended benched periods, where the resources are getting paid when they are not utilized on any task. It simply means the firm’s financial repository is depleting when the benched workforce is not adding up to the profit in any way. Thus, ineffective bench management is another leading cause of reduced profitability of the firm.
D. Employee burnout
A Deloitte survey revealed that 29% of the employees feel burnout due to consistently working long hours or on weekends.
Work-life balance is imperative to ensure employee well-being. The onus is on managers to respect this need and ensure every resource strikes it. However, when managers set impractical deadlines for the employees or take up multiple projects without optimizing the workload, the resources will be distressed to complete everything.
They might even have to work on weekends, compromising their time to relax and rejuvenate. It will constantly add up to their frustration and lower their productivity drive. All these instances will eventually steer the way to extreme burnout resulting in unplanned attrition.
E. Increase in the number of benched resources
To ensure that every resource is optimally utilized, managers should deploy an intuitive tool and foresee their utilization. If at all an employee ends up on the bench down the line, they can take corrective actions and load them to billable or strategic work. However, often managers overlook the need to get foresight into the metric, and the employees end up on the bench.
Thus, sub-optimal utilization of the workforce can prolong the bench time, resulting in the resources to look for opportunities elsewhere. Moreover, it can also affect the firm’s bottom line due to high overhead costs.
Since we are aware of how ineffective utilization can affect the bottom line, let us now make an effort to get it right,
8. Best practices to ensure optimal resource utilization
Project or resource managers can follow a systematic approach or some of the best methods to optimize each resource’s utilization and maintain their health index.
Here is a walk-through of some of the most efficient ones:
A. Take resource availability into account
Before allocating a project task to any resource, the first step should be to evaluate their future availability. If a resource is available for only half of the standard capacity, then schedule him/her for 80% of that half. It leaves them with enough buffer to carry out other BAU work.
In fact, Gartner suggests that the ideal spot is utilizing only 70-80% of the employee’s total capacity.
In addition to the buffer, employees will not experience distress to reach unrealistic milestones and be more productive due to a better work-life balance. Another vital factor to account for are the scheduled leaves, holidays, etc., before allocating the work.
B. Form a project plan for precise resource demand
Often, managers over or under allocate a resource due to a blurred vision in the future project demand. For instance, a project may require two software engineers to develop an app. However, a lack of visibility or an incomplete resource request may cause you to allocate only one resource. In this case, that resource will end up doing the job of two people at the exact cost until you either hire a new resource or find one from an external channel.
Thus, having an overview of the project resource demand ahead of the curve is imperative to ascertain that every employee is working on the right task and is uniformly utilized. It even eliminates the chances of forming a team of mismatched skillset, which may also cause poor utilization. Moreover, proactive planning allows you to maximize billable utilization by mobilizing the resources from non-billable to profit-yielding projects.
C. Get real-time utilization reports to course correct in time.
Project managers need to continuously monitor and control the project’s health by keeping track of every metric. However, doing so in a multinational firm where your resources are spread across geographical boundaries is challenging. To combat this, managers should invest in a robust resource management solution that provides real-time reports of every metric.
If an employee exceeds the planned utilization time, it is overrunning the budget, directly affecting the project’s financial health. When a manager implements this tool, they can view the utilization rate at any instant. If the resource is over or underutilized, they can take remedial measures in time to safeguard the project’s fate. It also facilitates them to keep a tab on employee’s performance and productivity in real-time.
D. Implement the right optimization technique
Optimizing the resource’s schedule is one of the significant pillars of successful resource management. Thus, if a resource schedule is loaded inadequately, managers should be in a position to make the right call and redesign their schedules. With a comprehensive view of each one’s schedule in real-time, this process becomes relatively simple.
Managers can study the projects, their critical path method, and deadlines. If the project is not time-intensive, they can wait until the resource becomes available to accept the job or call in more resources to get the extra hands on deck. It is resource-leveling. On the other hand, if the project is time-sensitive, managers can redistribute the schedule to ensure the resource is not overutilized. It is called resource smoothing.
These techniques cater to employee health while keeping the project health intact.
E. Ensure competent resource allocation to enhance productivity
When the task allocated to employees aligns with their core competencies and interests, they are aware of the given work’s expectations and technicalities. It enhances their productivity and keeps them motivated to accomplish the deliverables on time with appropriate quality standards.
Thus, it is the managers’ responsibility to assign the right task to the right resource. To do so, they can deploy a multidimensional resource scheduling solution that provides a birds’ eye view of all the employees and their schedules while also giving foresight into resource demand. With real-time data about resources across boundaries, their roles, skills, availability, costs, and other important aspects, they can ensure competent allocation even before the project’s onset.
These best practices will help you maximize your talent pool’s productive utilization while keeping a tab on their well-being. It also promotes the effective delivery of the projects with no deviation in any critical constraints.
It is how improving the utilization can impact your bottom line,
9. How can improved utilization influence your bottom line?
Once you take all the necessary steps to improve the utilization, the next step is to understand how it affects your firm’s bottom line. Utilization plays a direct role in regulating the project financials. Not just that, the way employees are utilized at your firm decides the quality of the deliverable and ultimately your client’s experience.
When the projects are completed within time and budget, and the clients are satisfied with the end product, you have the opportunity to form a long-lasting clientele. It will increase brand loyalty and bring recurrent business to your organization which enhances the bottom line.
All this is a cumulative result of effectively utilizing your resource pool. Thus, improving resource utilization can ultimately work wonders for your firm.
In conclusion, here is the wrap-up with all the key do’s and don’ts that will help you ensure effective utilization.
10. Conclusion- Do’s & Don’ts
- Invest in a modern resource management solution to get real-time accurate updates and foresight into resource utilization.
- Foresee the resource availability to avoid over or under allocation of any resources.
- Use the multidimensional scheduling tool to mobilize resources from non-billable to billable or strategic work.
- Ensure competent allocation of resources to the task to enhance resource productivity and maximize utilization.
- Implement the proper optimization technique to prevent employee burnout.
- Organize training programs to utilize the benched resources effectively.
- Don’t use siloed spreadsheets to gauge utilization or productivity. It will create discrepancies due to a lack of real-time information.
- Avoid booking 100% of a resource’s schedule as it will not leave room for BAU activities or daily mandates.
- Don’t allocate work without understanding the future availability of the resource. It may potentially overlap with existing schedules or cause overutilization.
- Don’t book a less-experienced resource to a critical task as it may delay the progress, and don’t book a highly-skilled employee to regular activity as it may escalate the costs.
- Don’t utilize resources on billable projects without studying their profiles and cost rate, as it may decline profitability.
11. The Glossary
12. The SAVIOM Solution
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