How to Leverage Resource Utilization for Services Companies

In a services company, the “resources” that you manage are your people. We are adamant about not referring to people as resources because they are not objects you can unplug and plug a new one in seamlessly. Referring to them as resources also removes your employees' human aspect, which can lead to treating them as expendable. If their well-being doesn’t matter, it creates a toxic work environment, which is unacceptable.

But, when it comes to services companies, people management is the central aspect of resource utilization. An essential part is recognizing the human element of utilizing your people and creating a positive work environment. Still, the core concept is the same: utilize your people more effectively to make your organization as productive as possible.

When your people are the core of your business, it’s critical that they are being strategically managed. If not, you risk over-utilizing your people to the point of burnout or under-utilizing them to the point of boredom. Both situations are not ideal because they lead to unhappy employees that may not deliver quality work or decide to leave for something better.

At the same time, if you do not deliver quality work, your clients won’t return or refer you. And if people leave because the work environment isn’t well-balanced, you’ll probably have trouble finding new employees in the future. Each of these scenarios will affect your business negatively, inhibiting growth and causing a lot of stress to keep the doors open.

That’s why optimizing resource utilization is a win-win for everyone. You prioritize taking care of your employees, delivering excellent work to your clients, and ensuring that you meet your financial targets.

What’s Resource Utilization in Project Management?

The central part of utilization in project management is managing your people. Typically, it focuses on the percentage of time employees spend on revenue-generating activities, but other aspects of utilization are also important. It’s important not to lose the human element of utilization. After all, your people are your greatest asset. So, we also focus on ensuring we’re taking care of the people while optimizing utilization to deliver to clients and hit desired business targets.

The questions that we focus on are:

• Do I have enough work for my people?

• Do I have enough people for my project pipeline?

• Are my people doing the right work for their skillset?

• Are those on the bench still working on training, improving skills, or otherwise contributing to the business?

• Are my employees taking time off when they need it?

Another essential aspect of optimizing resource utilization is having a regular cadence to ask these questions and consistently checking how things are working compared to the plan. With a direct line from utilization to profitability, it’s one of the most popular metrics to track in a services business. The most effective resource utilization takes not only the billable hours into account but also the people delivering the work and the overall morale of your business.

Setting Utilization Targets

Tracking your utilization won’t mean much if you’re not putting strategic thought into your targets and consistently reviewing them. You can’t continue to set unrealistic targets and not meet your goals. If anything, setting healthy, reasonable targets are more effective in the beginning so you can get a handle on how closely to plan your projects are performing. From there, you can adjust as needed as your team's velocity improves.

For example, you don’t want to set every employee target at 100% utilization. It’s unrealistic and gives them no room for emergencies, taking time off, or setbacks on the project. A better target would be 90% utilization and treating that as your baseline for 100%. Another consideration is leaving time in the utilization budget for staff development, IP creation, cross-training, leadership development, etc. An educated, innovative staff will be superior to an overworked or unfulfilled staff every time.

Once you set targets, you align your people pipeline to the available projects, keeping in mind what the people need to be successful. Align your projects and utilization around people’s time off schedules, and you get that information as far in advance as possible. The further ahead you can plan projects, the more time you have to adjust if things aren’t playing out the way you expected. If you are laser-focused on your targets, regularly meeting with your teams to review, and filling gaps with meaningful development, you’ll be on your way to optimized resource utilization.

Metrics for Optimizing Resource Utilization

The metrics and KPIs you use to keep track of your utilization are crucial to optimizing resource utilization. The more regularly you analyze your metrics, the closer you can get to your targets and projections, decrease variances, and ensure your people have a healthy workload.

Resource Balancing & Resource-Driven Forecasts

• Schedule all planned work.

• Match the right people for the projects.

• Utilization drives revenue forecasts and provides resource capacity insights.

• Ongoing management and updating when new information becomes available.

Supply & Demand Match

• Demand for people should exceed supply; then, you can be pickier about what work you take and what people you put where.

• High demand helps you grow.

• Supply exceeding demand makes you more likely to take work that doesn’t align to meet numbers.

• If you have a higher supply, ramp up sales initiatives.

• Strategic planning and analysis allow you to predict supply and demand.

Utilization & Bench report

• Percentage of people’s time being billed.

• Visibility of people’s time: are they fully utilized, or do they need more work?

• Utilization Variance

  • Target vs. billed variance.

  • Look back variance: you can’t fix these, but you can learn from them.

  • Current variance: if caught soon enough, they can be changed.

  • Future variance: ability to make a plan to avoid the variance altogether.

  • Keeps margins where they need to be.

Sales & Recruiting

• Sales metrics show if you have enough staff to complete projects or need to ramp up sales to utilize current staff/ decrease bench.

• Recruiting metrics show staff skillsets, how many people to utilize, and if you need to hire more.

• Retention metrics: projections must be accurate to match supply and demand.

• Keep up with hiring to staff projects and continue to grow the company.

People Health Metrics

• People’s health is a huge factor in utilization.

  • Unhappy people are a leading indicator of future attrition.

  • Looking regularly allows you to be prepared and get in front of what decision to make.

• Team health:

  • Impacts individual health.

  • Impacts project delivery.

  • Delivering projects impacts utilization and changes plan (variances).

  • It can cause clients to become unhappy, not renew contracts, effects sales, etc.

By keeping a close eye on these metrics, you can plan better for the future to serve your clients best and create a positive work environment for your employees.

Business Benefits of Effective Utilization

The more you track these metrics and optimize resource utilization, the better your business will run daily. Knowing when people are being used allows you to plan for your bench and grow those people’s skills that can help you take on new projects you might not have been able to before. Strategic utilization also ensures you aren’t over-utilizing your employees or burning them out. A consistently low turnover rate creates more stability in your projects and delivery rates. The more stable you can make utilization and project delivery, the more predictable your utilization and business will become.

With more predictability, you’ll be one step ahead in preparing for the future and continuing to grow your business, create an environment where people thrive, and continue to deliver excellent work to current and future clients.