Why Utilization Rates Matter

“If you can’t measure it, you can’t manage it,” said Peter Drucker, the late management guru and writer. This quote underscores why utilization rates matter: it’s a way to measure performance in order to get the most from your employees. Utilization rate refers to time spent doing billable work. Fred, for example, has a utilization rate of 75%. This means he spends most of his time doing tasks he’ll bill to a client. By contrast, Max has a utilization rate of 30% because he spends most of his day on non-billable work: attending internal meetings and doing administrative tasks. Usually, when you calculate utilization rate, the higher the better. This post explains four reasons why utilization matters to your firm.

Work on the Right Tasks

Utilization can tell you where employees spend their time. Do they spend time on non-billable work, like administrative tasks, or are they logging billable hours? People typically don’t know how they spend their time each day. Max may not realize how much time he spends on tasks that an administrator can handle. That said, an employee’s utilization rate can be enlightening to both employees and managers, and keep everyone “in the know.”

Know the Details

A high utilization rate doesn’t always tell the entire story. Fred has an overall utilization of 75%, but he’s logging most of his time to a low-paying client with ever-changing demands. Since he’s one of your top performers, you want him working on projects for your higher-paying clients. Some software packages show you the utilization rate by project. This gives you the detail you need to make informed decisions.

Increase Employee Productivity 

Many companies use utilization as a metric: if Max improves his utilization rate from 40% to 60%, he gets a bonus at the end of the quarter. Max may work a bit smarter—spending time on billable projects and reducing time spent non-billable ones—since he knows that his utilization rate is being tracked. At the same time, managers need to be realistic about utilization rates. A rate of 100% is unlikely since there’s almost always some non-billable work employees do. Max will have to attend a status meeting or fill out some administrative form at some point during the quarter, neither is billable.

Improve Project Planning

Improve project planning with utilization rates. Say you have five employees working on a website design project, but they each have a utilization of about 50%. What’s going on? Low utilization rates can alert you to the situation so you can inquire further. Maybe your demands are too high and have spread your employees too thin working on multiple projects along with several internal tasks. Drucker’s quote resonates today because we live in the world of big data, where just about everything can be measured including utilization. It’s one way to help get the most from your employees and boost your company’s bottom line.

Start improving your utilization rate today with these 7 tips for better staff capacity planning.