Resource utilization is an essential operational KPI. Optimizing the firm-wide utilization of resources is crucial for professional services organizations working across multiple engagements and locales. It informs accurate forecasting and decision making, as well as benefiting employee experience. In this guide, we explore the different ways to calculate, monitor and optimize resource utilization for enhanced efficiency, greater productivity, and improved retention.
Resource utilization is a key performance indicator (KPI) that’s used to measure the effectiveness of resource allocation across a business. Put simply, resource utilization assesses the efficiency of overall resource usage
There are several different ways to calculate chargeable vs productive resource utilization. The most common formula for calculating resource utilization is to divide ‘available hours’ by ‘chargeable hours’
Optimal resource utilization is integral to both operational and financial performance. The benefits of resource utilization include providing access to real-time data to inform more accurate decision making and future forecasting. It also helps to prevent under- and overutilization to reduce employee burnout, improve satisfaction and support retention
Dayshape AI-powered resource management software has features that optimize firm-wide resource utilization, including the ability to view and share resources across teams, service-lines, business units, and geographies. There’s also in-built capacity planning functionality, and access to detailed, real-time resource utilization reports and insights
1. What is resource utilization?
2. Resource utilization vs resource allocation
3. What is resource utilization rate?
4. Resource utilization formulas
5. Why is optimal resource utilization so important?
6. Real-world example: resource utilization case study
7. How to optimize resource utilization
8. Optimize firm-wide resource utilization with Dayshape
Resource utilization is a metric used to assess the effectiveness of resource allocation across an organization, looking at individual staff, teams, specific skills, contracts and budgets. Resource utilization measures how productive each resource is, and how much value they’re generating for the business, projects and clients. It’s an essential KPI for large-scale organizations, including professional services, accountancy and audit firms.
Resource utilization is typically monitored by project and resource managers, who use it to measure productivity and efficiency to inform data-driven decisions regarding future capacity planning and employee performance.
Resource utilization is not the same as resource allocation. Resource allocation is concerned with distributing available resources in order to achieve organizational goals. Meanwhile, resource utilization is about measuring the effectiveness of resource allocation. Effective resource allocation is key to optimal resource utilization.
In professional services, resource utilization rate is the percentage of a resource’s time that is spent on billable work. This can be impacted by factors such as client demand, seasonality, PTO, and over- or understaffing, but it’s a crucial metric for resource managers and leaders to track across projects, teams, and at an individual level. However, this can be a vanity metric, unless margin insights and workload balance are taken into account to provide a full picture of project performance.
Leverage ratio is another KPI that’s often discussed alongside utilization. This refers to the number of hours completed on an engagement by a whole team, versus how many hours are completed by management, execs, juniors, and so on. It therefore makes sense to set utilization targets by resource level to calculate leverage ratio effectively.
There are several ways to calculate resource utilization, depending on whether you’re measuring chargeable utilization or productive utilization.
Chargeable utilization formula: Chargeable hours / available hours
Productive utilization formula: Billable time / total time logged
‘Available hours’ refers to all of the billable working hours available in a year; this typically equates to 2,080 working hours, and doesn’t include hours that won’t be worked due to paid time off, sickness, training, or other factors. Therefore, ‘effective’ resource utilization will be impacted if resources are spending more time on tasks outside of their billable hours.
The resource utilization formula may show that a team is 120% utilized, for instance. This shows overutilization, and instantly signals to resource managers that workforce planning and hiring decisions need to be made.
Achieving optimal resource utilization delivers multiple benefits for professional services firms, including providing an accurate way to measure productivity, and enabling more precise, data-driven forecasting. However, it’s important to note that optimal utilization does not necessarily mean 100% utilization.
Using software such as Dayshape to proactively calculate, monitor, and flag key resource utilization metrics is a more accurate way to visualize and measure productivity and performance. This visibility also enables better forecasting for enhanced workforce and capacity planning. Dayshape features resource utilization heatmaps and real-time utilization alerts, providing that real-time visibility.
Resource utilization is intrinsically linked to key business outcomes, including revenue forecasting, workforce and capacity planning, service delivery, and employee experience. It’s therefore important for resource managers to identify strategies that will result in a utilization lift, such as by sharing resources across locations, which Dayshape makes seamless. Dayshape also provides resource utilization heatmaps and real-time utilization alerts to demonstrate the direct impact of resource changes on individual utilization rate and overall project performance. This means that over or underutilization can be proactively flagged as at risk and rebalanced.
As both an operational and a financial KPI, resource utilization plays a key role in accurate financial forecasting. Monitoring resource utilization provides an indication of exactly how people have performed and subsequently how they’re likely to perform in the future, informing data-driven forecasting decisions. In this sense, resource utilization can be a target, as well as a metric.
Optimizing resource utilization can also benefit employee experience when balanced alongside engagement and learning.
Dayshape provides detail on each resource’s skill strengths, traits, and work preferences. meaning both individual preference and prior experience can be considered as part of the resource allocation process, enhancing employee satisfaction and benefiting retention.
What’s more, access to resource utilization reporting views from previous periods shows which individuals or teams may have been overutilized most recently, so resource managers can allocate resources elsewhere for the next engagement, preventing burnout.
At the same time, it’s also important for resource managers to be aware of potential underutilization, as this impacts employee experience too. The resource utilization metric can be flipped to consider what learning opportunities may have been missed. Ultimately, the focus should be on optimizing utilization firm-wide in balance with overall business goals, including supporting employee wellbeing.
Accountancy, tax, audit and advice firm MHA has transformed its resource utilization with Dayshape. Previously, MHA was using spreadsheets and various other tools for resource management, which lacked real-time data and resulted in inconsistencies.
Leanne Wilkins, Head of Talent Acquisition and Resourcing at MHA, said: "Increasing utilization targets across the firm was not our sole aim - what we wanted was consistency of utilization.
“Retrospective utilization data is not enough. We needed the ability to forecast future utilization to actively predict and address pockets where there is known capacity and overutilization. This information is powerful, as it helps us protect our people. We have better visibility and control over this with Dayshape."
With Dayshape, MHA has been able to:
Better balance workloads
Provide better career development opportunities for staff
Continue to deliver a high standard of client service
Provide resource managers with real-time data to make strategic decisions faster
Achieving optimal resource utilization is a tricky balance; professional services firms need to hire and maintain the level of resources required to deliver profitable engagements on time, while preventing employee burnout. Dayshape’s resource management software features AI-powered functionality to power effective resource utilization.
Data-driven capacity planning: ensure optimal resource utilization with Dayshape’s capacity planning feature, which gathers accurate, real-time data on capacity to inform future decisions, preventing overutilization and subsequent burnout and attrition
Widen your resource pool: increase resource utilization across your organization by sharing resources outside of your local pool. Dayshape enables cross-border resource scheduling, providing access to a wider pool of resources to optimize overall utilization
Consider employee preference: Dayshape features in-built skills and traits tracking, which automatically records when employees skills are gained or lost, and notes particular interests. This enables resources to be allocated in line with the work that will motivate employees the most, supporting career development and retention rates
Utilize AI: Dayshape’s AI-powered scheduling functionality identified the best-match skills for each engagement, helping to eliminate bias and balance capacity to improve efficiency and enhance employee satisfaction. AI enables this at scale
Embrace integrations: integrate Dayshape with your existing finance and HR software, skills database, and timesheet tracking tools to support the seamless onboarding process and enhance reporting and decision making
Optimize resource utilization across your organization with Dayshape. Improve efficiency and productivity, retain highly skilled talent, and progress at a sustainable rate. Grow revenue, plan reliably, and inspire your teams with our AI-powered resource management software.
Book a demo today, or get in touch with our team to find out more.