Calculating Utilization for Service Industries
Calculating utilization in a services company
This white paper discusses the various approaches to calculating utilization, best practices, and how you can use your professional services automation (PSA) tool to measure and report utilization for your company.
Brian Martin Vice President, Client Management OpenAir
Calculating utilization in a services company
1
Calculating utilization in a services company
Overview
Whether you’re running a consulting firm, software company, or other project-based organization, utilization is an important issue for all services organizations. Maintaining high utilization of your employees drives higher billings, higher revenue and ultimately, higher profits. It is also a critical measure of financial success and sustainability. Yet tracking and measuring utilization poses challenges. The goal is simple: establish a policy for calculating utilization that is consistent across the company and consistent with common industry practices. Unfortunately, the calculation of utilization is not a simple equation. You’ll have to address many questions, such as: • What is utilization? Is utilization the same as “billability”? Should your company use both? • Which work is counted as “utilized” and which work is counted as “not utilized”? What about “billable” vs. “non-billable”? • How should you calculate total available hours (the denominator in the equation)? • How should you institute your utilization policy? Should you apply the same utilization calculation to all employees? This white paper gives you the direction and tools to answer these questions, determine the appropriate utilization calculation for your company, and apply it across your organization. Once these questions are answered, you can use your professional services automation (PSA) tool to measure and report utilization for your company.
What is utilization?
In its most simple form, utilization is a measure of time spent working. The numerator includes
This white paper discusses the various approaches to calculating utilization, best practices, and how you can use your professional services automation (PSA) tool to measure and report utilization for your company.
Brian Martin Vice President, Client Management OpenAir
Calculating utilization in a services company
1
Calculating utilization in a services company
Overview
Whether you’re running a consulting firm, software company, or other project-based organization, utilization is an important issue for all services organizations. Maintaining high utilization of your employees drives higher billings, higher revenue and ultimately, higher profits. It is also a critical measure of financial success and sustainability. Yet tracking and measuring utilization poses challenges. The goal is simple: establish a policy for calculating utilization that is consistent across the company and consistent with common industry practices. Unfortunately, the calculation of utilization is not a simple equation. You’ll have to address many questions, such as: • What is utilization? Is utilization the same as “billability”? Should your company use both? • Which work is counted as “utilized” and which work is counted as “not utilized”? What about “billable” vs. “non-billable”? • How should you calculate total available hours (the denominator in the equation)? • How should you institute your utilization policy? Should you apply the same utilization calculation to all employees? This white paper gives you the direction and tools to answer these questions, determine the appropriate utilization calculation for your company, and apply it across your organization. Once these questions are answered, you can use your professional services automation (PSA) tool to measure and report utilization for your company.
What is utilization?
In its most simple form, utilization is a measure of time spent working. The numerator includes