How to calculate resource utilization
These can be a nightmare for project managers.
But they don’t have to be, as long as key performance metrics are being monitored and optimized.
Resource utilization is one of these KPI’s, perhaps the most important one.
And it’s time to show that metric some love.
In this post, we’ll dig into the different approaches to calculate your employee utilization and most importantly, how to do it efficiently (according to us, planning freaks).
But first, let’s make sure the concept of resource utilization in project management is clear to everyone.
Resource utilization definition
Ever thought your team and talents are not being “used” at their full potential, but impossible to figure out why?
That’s where resource utilization comes in.
Resource utilization is a metric that allows managers to measure how effective their resources (people) are, in order to optimize their utilization.
In simple words, it’s there to help managers make the best out of their team.
Resource utilization gives managers a global and individual overview of their team members’ occupation and provides a way to identify overworked/underworked resources, so that managers can rapidly take the necessary actions to balance workloads.
Trust us, you don’t want overworked team members!
Thereby, your employee utilization is key to measure how efficient your resource allocation efforts are.
For the reminder, an optimal allocation of resources to a project aims to assign the right available people to the right tasks, in order to meet the project deadlines, goals and budget.
Now that we defined resource utilization, it’s time to move the serious things.
Resource utilization calculation
Then how to calculate resource utilization?
Now we’re talking.
The general resource utilization formula isn’t complicated:
Utilization = (Total busy hours / Total hours available to work) * 100
That formula gives the percentage of available working time that is actually being used by your team for work.
Pretty easy right?
But things get more complicated when we try to agree on what data is used for the calculation.
- Are we including non-billable hours in the total busy hours?
- Are we basing the calculation on planned working time or on reported working time?
- What baseline should we use to calculate the total hours available to work?
- By the way, should we include time-off?
Well there is no universal answer here. It all depends on the output you want to get from that calculation.
Let’s go through your options for both elements of the resource utilization formula.
How to determine busy hours
First of all, in case you’re wondering, here is a short billable definition: It refers to the time spent working for a client that we expect to be paid for by that client.
Thereby, non-billable hours refer to the time spent at work, but that we can’t charge a client for, such as meetings, billing or networking.
Now that it’s clear, let’s get to the meaning of “busy hours”.
“Busy hours” will have a different meaning depending on who is calculating the metric.
For example, the HR department might be interested in including non-billable hours (such as internal work or training) in the calculation, in order to get an idea of the time spent working by the employees, regardless on what.
But a project manager won’t care about those non-billable hours as he focuses only on billable time spent working for the clients.
However, when it comes to deciding between using planned working time or reported working time, we highly recommend to calculate both.
Here is why.
Planned working time vs reported working time
Using planned working time in your resource utilization’s formula means you’re basing your calculations on estimates instead of actual working time.
This method is great to get a forecast of how effective your resources will (or should) be and to identify beforehand some scheduling improvement opportunities or recruitment needs.
As an example, you may find out that someone is close from being overworked while a teammate with similar skills is available to lighten his schedule.
However, the estimated resource utilization will most likely be different than the real resource utilization at the end of the project.
Because we’re talking about project management…
And a project without changes is like an empty speedway during rush hour… it doesn’t exist.
On the other hand, using reported working time to calculate your resource utilization means the results are based on actual recorded working hours.
While this method gives you the real resource utilization, it is also too late to take corrective actions once you get the results. Damage is already done.
That’s why we recommend you to use both methods to calculate resource utilization and to compare their results.
The “estimated” resource utilization gives you a head start to meet your project goals and avoid delays, while the “actual” resource utilization allows you to see how efficient your team actually was.
By comparing both results, you may be able to identify project management issues, learn from them and fix them for future projects.
How to determine available hours
The second element of the equation are the hours available to work. Again, what to include or not here will depend on your business and needs.
The standard in many companies is to use between 35 and 40 hours a week and 52 weeks a year. Hence between 1820 and 2080 hours a year of availability.
But for more precision you can also take time-off (bank holidays, vacations…) into consideration.
Same if you employ part-time resources.
Just keep in mind that the more custom and flexible your calculation of the availability is, the more complicated it is to calculate without the help of a dedicated tool.
How do we calculate resource utilization at Teambook
Resource utilization is one of the 3 key metrics we automatically calculate for you at Teambook, to measure your performance and billing efficiency.
This is the method we use to determine busy hours and available hours:
- Busy hours are calculated from the billable hours only
- Non-billable users such as sales people are not taken into account
- Available hours are based on the workable hours defined in your account settings
- Weekends and time-off projects are not included in the available hours
And with Teambook, resource utilization is calculated in real time.
As we said earlier, changes are constant is project management. Some team members get sick, others have delays or have a last time emergency for another project. And let’s not start on clients constantly asking for changes that affect your team’s workload…
All those changes impact your resource utilization. And real time updates will allow you to take real time action.
That way, you can reduce gaps between your estimated and actual resource utilization results and avoid bad surprises.
If you’re looking for an easier (and better) way to calculate your resource utilization and plan your team, have a try at Teambook. It’s free to try!
Hep, not so fast, here is a little gift for you…
You need to introduce resource utilization to your team?
Feel free to use our Slideshare presentation!