Is employee utilization the answer to achieving business success? If yes, how do you even utilize employees effectively?
Employee utilization is driven by business metrics for a particular role or department. So, focus on setting the right performance metrics. Plus, it’s helpful to know what it does to the overall profitability and productivity of the business.
This blog will help understand employee utilization rate, its importance, and how an organization can support and nurture its employees at work to maximize employee productivity.
Why most organizations do not fully utilize their employees
Depending on the size of an organization and the industry it operates in, it’s safe to say that service-based industries find it difficult to fully utilize their employees at work.
From a services point of view, an organization needs to take care of different elements:
Project in hand
This refers to the number of projects at hand at a time. An organization having lots of projects will have to divide the role of employees based on that and may require some people to work on multiple projects.
Resource allocation and utilization
To allocate resources, one needs client-wise and project-wise insights. If there is a clear picture of how many people are involved and what resources they’ll need, it’s easier to allocate resources. It even helps in planning for future projects.
Once resources are allocated, they also need to be utilized and tracked. Tracking actual billable, non-billable hours, and how many resources were spent on productive work helps in making the project a success. Depending upon which areas need more resources, allocation strategy can be changed accordingly. Also, resources are allocated depending upon the capabilities of the workforce.
Each project comes with a set of deliverables. Sometimes, a skilled workforce needs to perform special tasks. If your workforce doesn’t have the skill, you’ll be in trouble and might lose the project.
Tracking the billing hours helps to measure the utilization rate of your professional staff to allocate resources effectively.
Distribution is an integral step for the success of any project. It refers to both manpower and other resources. If the distribution isn’t good, nothing works.
Most organizations ignore employee utilization and only focus on churning out projects after projects. However, things don’t always go as planned. Hurdles are plenty.
For companies, a lot of employees don’t regularly update their skills. Mapping people to projects and expecting them to learn on the job won’t work when you need deliverables in quick time on specialized services.
Apart from the professional services industry, this problem is common in the manufacturing industry as well. Because the new project can have totally different requirements compared to the last one.
No wonder with a high level of the temporary or contractual workforce, the utilization rate goes lower. This directly affects the project completion rates and overall business. An important aspect of leadership is man-management. Therefore, focus on how are you utilizing your temporary workforce. Let’s learn more about that.
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What is employee utilization rate?
Employee utilization calculates the amount of working time for an employee that can be used for billable work. Employee utilization rate is the percentage of total working hours that can be billed in comparison to administrative tasks.
It is most often used in professional services and can be used as a key metric to measure the productivity of employees. To calculate the rate, you need to measure the total number of hours they work and how much of those hours were billable.
It will vary from one job role to another. No employee will spend 100% of their time on billable work as every project requires administrative tasks and day-to-day activities like sending emails, attending meetings, etc.
Why track employee utilization
Tracking employee utilization can impact employee engagement and productivity. It helps in making sound hiring decisions and identifies whether employees are overworking or underutilized, thus affecting overall business. Also, the employees that are spending more time on productive work can be rewarded fairly.
It highlights the strengths and weaknesses of employee performance. Wherever you see the gap, you can close it and work towards making processes better.
How to calculate employee utilization
To calculate, here’s a simple formula:
Average Employee Utilization = Billable Hours / Eligible Working Hours
For example, Ravi has a contract of working 30 hours each week which means 1440 hours per year. Let’s say he has 2 weeks of holiday per year so the remaining hours are 1380. Let’s say Ravi spent 1000 hours out of total hours on billable work. So, the utilization rate will be
1,000 / 1,380 = 0.72
If you’re thinking about what is good employee utilization rate, modern businesses target a utilization rate of roughly 80%.
How is utilization related to productivity?
Productivity is a hard thing to measure. There is no bulletproof method for managing productivity. Can it be managed?
The short answer is, it cannot be managed! However, you can take steps to build a productive workforce and grow the business.
Normally, any employee that spends tons of hours at the worksite should be productive. That’s not the reality. It’s not an accurate measure, and this is where many organizations falter in setting the correct parameters to measure performance. Many employees work fewer hours, yet achieve tremendous results. Outcomes are what matters, and that’s what you should be measuring.
The first step is to have a dedicated timesheet software that’ll help you track time and billable hours. Over time, you’ll have a better understanding of where employees are spending their time and what areas require immediate attention. Tracking will identify productive or non-productive work and which is consuming more hours than needed.
Track this data to gather employee utilization reports. It’ll help your company to make better decisions towards the success of the business.
A part of increasing productivity and utilization rate is empowering and trusting your employees to share ideas and knowledge to work together on different projects.
The other element is the tracking part, which we’ve been talking about in the article. No one can sit for hours and manually record billable hours, invoices, resource allocation, and all other activities on paper. The best part — No organization has to follow that practice anymore.
With Keka’s timesheet software, you’ll receive a dedicated employee utilization report and more, through 100% automation.