Optimizing Resource Utilization Can Boost Your Profitability

Employees are vital to your business' success, which makes them an invaluable asset. Actually, every hiring manager's dream is to create a pool of talented employees for the efficient execution of company goals. Usually, talented employees tend to be highly engaged in their jobs, which is crucial in achieving high productivity, and consequently better bottom lines.

Not only do engaged employees achieve company goals, but they help create a positive work environment and culture that allows everyone to thrive. Consequently, a positive work environment directly impacts customer experience and can elevate your brand image, leading to immense success.

Nonetheless, getting the employees to achieve optimal performance is a struggle most companies have to deal with. Without streamlined human resource management, the risk of underutilizing or over-utilizing employees is always apparent.

Unfortunately, both scenarios lead to reduced productivity – underutilizing employees lower their morale while overutilizing them can lead to burnout. An article by Harvard Business Review explains that long hours are bound to backfire for employees and companies. Hence, it's essential to track resource utilization to optimize their overall performance.

Table of Contents

What Is Resource Utilization?

Why Is Measuring Resource Utilization Important?

How to Measure Resource Utilization

How Can You Maximize Resource Utilization

Use Resource Management Software to Generate Real-Time Reports

What Is Resource Utilization?

Resource utilization is a key performance indicator (KPI) metric that measures how each team member (resource) is spending their time. It helps assess their productivity in any allocated project to evaluate their contribution to the profitability. As a result, managers can tell whether the resources are over-utilized or underutilized and reallocate or assign more responsibilities accordingly.

Essentially, resource utilization is measured either as overall or billable. Overall resource utilization represents the total hours an employee devotes to her duties (billable and non-billable) divided by the total available hours. On the other hand, billable resource utilization measures the percentage of the total hours an employee dedicates to billable work against the total available hours.

Resource Allocation Vs. Resource Utilization

Resource allocation and resource utilization are two related terms key in resource management. Essentially, resource allocation involves assigning project tasks to resources (employees), while resource utilization measures how effectively the resources are utilized.

Why Is Measuring Resource Utilization Important?

Being able to measure how productively you're employing your resources in your projects can benefit your business in many ways. Some of the immediate benefits include:

Better project visibility – The metric provides project managers with better visibility allowing them to utilize resources optimally.

Optimize resource allocation – Having a clear view of employee performance provides insight to project managers, enabling them to allocate or reallocate projects to the most competent resources to get the most out of them.

Enhance productivity – The metric reveals information that enables managers to assign more tasks underutilized resources or reallocate some projects from over-utilized team members.

Improved profitability – Employing resources optimally enables project managers to cut unnecessary costs, thereby achieving better margins.

Improved employee engagement – By optimizing resource utilization, you help improve the morale of underutilized employees and keep over-utilized team members from potential burnout. Usually, efficiency is a primary ingredient in employee engagement.

Positive customer experiences – Having a productive and engaged team is essential in promoting a positive work culture, which positively impacts customer experiences.

Avoid project delays – When resources are utilized inefficiently, a business suffers in many ways. One of the highest risks involved is the potential of project delay, which puts the company at a great disadvantage (loss of customers, poor brand reputation, reduced profitability, conflicts within the organization, etc.)

How to Measure Resource Utilization

The resource utilization formula is pretty straightforward. To get the utilization rate, all you require is the actual number of hours worked (timesheets), which you divide by the total available hours (as per the contract). Note that the total available time may or may not include holidays, leave days, etc. Including holidays gives a higher resource utilization rate and vice versa.

However, before running the data on the formula, you need to distinguish between billable and non-billable tasks. For instance, if the timesheets indicate that an employee spent 80% of their working time on billable tasks and 20% on non-billable work, ensure you include only the 80% when computing their billable utilization rate.

The formula for calculating billable time is as follows:

Billable resource utilization = Total billable hours worked ÷ Total available hours × 100

For example, if a worker total available hours per week is 40, and they work for 32 billable hours, their billable utilization rate would be: 32 ÷ 40 × 100 = 80%

Generally, the optimal rate should be between 75-80%. A too low rate often implies underutilization, while getting a very high figure such as 95% could indicate over-utilization.

How Can You Maximize Resource Utilization?

The essence of measuring the resource utilization rate is to enable project managers to make informed resource management decisions, such as optimizing available resources through competence-based allocation. If the rates indicate inefficiencies, there are interventions you can make to maximize your company's resource utilization, such as:

Stepping-Up Project Coordination

Inefficiencies usually arise where there's poor coordination between projects. For instance, if a resource is working on several projects or doing non-billable work such as admin tasks on the side, they may sometimes fail to deliver optimally on each role.

In this case, effective management is essential to help the resource meet the expectations for each task. For example, if the team member has eight available work hours in a day, their duties can be allocated as follows: three hours for project A, four hours for project B, and the remaining one hour for non-billable work. This way, tracking their actual working time across different projects can be much simpler.

Adopting a Work Breakdown Structure

By determining how many available hours a resource has for a specific project, you can tell the total number of resources you require to complete the project on time. In this case, adopting a work breakdown structure would be essential in allocating tasks to the team members.

Essentially, a work breakdown structure helps simplify a complex project by breaking it into smaller chunks that can be handled by different team members. Once the resources are allocated, it becomes easier to track the progress and reallocate tasks if a team member is overwhelmed, thereby avoiding issues such as project delay or decreased productivity.

Tracking Utilization Rate

In most cases, project managers bill projects based on the number of hours required to complete the job. If resources are not being utilized efficiently, then the project stands to lose money – as it might take longer to complete or employ additional resources, escalating the overheads.

That's why you need to track the utilization rate closely to ensure the resources are employed optimally at any given time. If a team member is overwhelmed, however competent they are, their productivity is bound to decrease, not forgetting the looming danger of burnout. Luckily, tracking provides insights for immediate action, such as resource reallocation, project rescheduling, etc.

Keeping Your Resources Motivated

Even the most competent resources may fail to deliver as expected if the work environment hinders them from thriving. A managerial oversight such as failing to recognize their input can make them feel undermined and erode their motivation with time.

A common characteristic among engaged employees is that they feel valued by their employers. In return, they commit more to the company goals since they feel like they're part of the organization.

There are various ways to keep your resources motivated, including performance recognition, sourcing their opinions, offering incentives and bonuses, organizing training and development opportunities, etc. By so doing, you create a team of highly motivated employees capable of delivering on their projects as expected.

Managing Scope Creep

Scope creep means deviating from the project's original scope thanks to additional requirements. Generally, scope creep can demoralize resources, not to mention that it leads to alteration of project deadlines in most cases. Poorly defined scope, unmanaged communications between client and team members, lack of uniformity in requirements are some of the issues that result in scope troubles.

While you may not be able to completely eradicate scope creep from your projects, stepping up your scope management practices can eliminate most of the additional requirements that derail project completion. By so doing, you can avoid the risk of inefficient resource utilization due to lack of clarity or burnout that spike from unrestrained scope deviations.

Use Resource Management Software to Generate Real-Time Reports

Indeed, tracking your team's utilization rates can go a long way in informing resource management decision-making, improving productivity, and ultimately boosting profitability. However, calculating each resource's utilization can be time-consuming, which contradicts the essence of optimizing resource utilization.

And that's where resource management software comes in to save the day. With an ideal automation solution, you can track your team's productivity through real-time reports. From resource and team performance to project progress, the tool gives you complete visibility for optimal project management.

For instance, our Freework software enables employers to track the progress of their projects from a single dashboard. From hiring freelancers to onboarding, project collaboration, and invoice generation, the platform offers employers a convenient freelancer management solution. If you're in the market for a seamless freelancer management platform, book a Freework Demo to have a feel of the software's potential.