Managing Professional Service Firms- Utilization

Posted on: May 3, 2014 | By: Jim Bertler | Professional Services

One of the key metrics in the management of a professional service firm is the productivity of the consulting staff. This metric is referred to as Utilization and is defined as the percentage of time charged to projects. Monitoring this metric provides management with one of the key drivers in helping to drive profitability and ensuring the staff are keeping engaged on client projects.

This metric is typically computed as a percentage with the numerator in the equation being the number of hours charged to projects and the denominator being the number of hours available. There are various variances on how these two numbers are computed. The method used will determine the utilization goal for each employee, or the firm overall. As the amounts used in the calculation are reduced, the goal is inversely increased. Let’s look at some examples.

Example 1:

Total number of hours available (52 weeks x 40 hours per week)                2,080 hours

Total hours charged to projects in a year                                                               1,800 hours

Utilization (1,664 / 2080)                                                                                               87%

In this example, total hours for the year are used for the denominator, thus the utilization factor is a lower number.

Example 2:

Total number of hours (52 weeks x 40 hours per week)                                 2,080 hours

Less: seven weeks for vacation, holidays, training                                             280 hours

Net available hours during the year (2,080 less 280)                                         1,800 hours

Total hours charged to projects in a year                                                               1,800 hours

Utilization (1,800 / 1,800)                                                                                              100%

In this example, total hours available are used for the denominator, which is the expected number of hours charged to projects in a year. Thus, the utilization factor goal is 100%.

Irrespective of the method used by your firm in computing utilization, this is an important metric to manage. Once a method is developed it is important to effectively communicate the methodology throughout the firm and then begin measuring and reporting. Microsoft Dynamics GP provides organizations with the data and tools to effectively gather and report the utilization metric (by employee, department and overall company) and help you gain better insight into the management of your firm.

 

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