Project profit is only one part of what drives business. Companies can have profitable projects, and yet still lose money. This is typically from having too few employees working on revenue-creating projects.
This can stem from over-hiring, poor resource staffing, low productivity, or a host of other people management shortfalls. This leads to what we refer to as “margin leakage.” You can mitigate this is by managing planned and actual utilization rates. Our most recent Ebook dives into the five most important metrics that impact margins. Here we will discuss the following metrics: Actual vs. Planned Utilization.
What is Planned vs. Actual Utilization?
Planned utilization measures the time your resources spend working that can be billed to a client. Actual utilization, then, is a view into how much work a particular resource has scheduled, both in the past and future. What’s important about this specific report is that it highlights the relationship between an individual's actuals and scheduled hours compared to predefined organization and personal targets that are necessary to achieve to improve or meet overall company profitability goals.
This metric is helpful for you to know where you land month-over-month — are resources hitting scheduled targets, and if not, you can dig into what happened. You can also use this data in aggregate to see where improvements need to be made, for example you are running at 62% utilization, but target is at 65%, so you are 3% under. It is typically leveraged to assess the utilization of a specific person, month, or practice area, and you should have various filters so you can drill down where needed.
Decisions To be Made
If there is no variance between actuals and scheduled, you are properly scheduling resources across projects and each person is at maximum utilization. When you discover a variance, you should move resources around to maximize time spent on billable work. If you are consistently seeing actuals over scheduled, it means you are not properly scoping projects. Furthermore, viewing utilization performance on a month over-month basis should be used to make hiring, staffing, and overall personnel usage decisions.
- Billable Actual Hours: Billable hours logged up to the day of reporting.
- Scheduled Billable Hours: Hours that a resource has been scheduled in the past, present, and future.
- Utilization Targets: User-specific goals set by the organization for maximum financial gain.
- Resource Work Weeks: Actual billable potential for a resource based on their work week (ie: 10 versus 50 hours).
A Look Inside the Report
Here is an example of a Mavenlink Insights report that calculates Actual Billable Utilization versus Scheduled Billable Utilization. While we clearly had a fall-off in Billable Utilization during the holidays, it appears we’ve exceeded our Targets for January through March, though our Actual Billable time also exceeded what we’d Scheduled. Going forward, it appears May and June Scheduled Utilization is under target, or Project and Resource Managers have yet to update Project Resource Schedules. Perhaps, recently sold work is yet to be scheduled out to it’s fullest.