Growing your service-sector business in a sustainable manner is a top priority. You’ve hired the best talent to help you achieve this important goal. The trouble is, for the growth to be sustainable, effective resource allocation and utilization is a must, yet this may not be your strongest suit. To reach your goals and maintain a lead in your market, it is vital for to you understand the significance of improving resource allocation and utilization rates for your specific business. We’ve put together the key information you need, including how resource utilization and allocation impacts on your business, tips to improve both in your service business, and ways to track them.
What is resource allocation and utilization?
The first point to know is the difference between resource allocation and resource utilization. At first these may seem like the same thing: however, they are very different yet equally vital to the effectiveness and efficiency of your projects and operations. Here is the difference between the two in their simplest form:
- Resource allocation definition: this refers to how your company assigns or splits-up its resources to meet tasks, deliverables and overall goals;
- Resources utilization definition: this measures ‘how’ effectively your company is making use of the available resources.
Why should resource allocation and utilization be a priority in your service-based business?
How and where you allocate your resources and how effectively they are utilized can either positively or negatively influence your projects and overall company-wide performance. Even companies with deep pockets experience resource shortages, and this can hamper the ability to deliver on promises made to customers. This inability to deliver, in turn, can damage your company's reputation and brand. Particularly in service-based businesses, a resource shortage often refers to the talent it employs, and these companies and their customers feel it the most when there are resource gaps. When it comes to resources in the form of people, processes, and technology, having the right people assigned to where their skills and abilities are best suited matters the most because of the daily contact and the resulting customer relationship. When human talent is not allocated correctly within a service-based business, it can be far more devastating than in another type of business.
Understanding the impact of improving utilization rates on your business
Utilization rates identify the time your resources, in this case human resources, spend on actual billable time. How effectively human resources are utilized in customer service-based businesses relies on how closely matched the resources are to the task or role. Correct utilization is vital in any business that relies heavily on human interaction to provide a service versus a product. Product-based companies are far more likely to easily rectify issues with their products by simply replacing the tangible item, whereas a poor customer relationship experience is intangible and extremely difficult to wipe away because it is based on a customer’s feelings about the experience. This makes it critical for your service-based company to improve upon how effectively your resources are being utilized (and likewise it is also important that product-based companies have appropriate and efficient custom service capabilities).
It is not enough to simply focus on allocating resources correctly. It is also essential to be able to measure how well resources are being utilized and to make meaningful adjustments. The ineffective utilization of any resources, especially talent, can lead to dissatisfied customers, unmotivated staff or burn-out, and possibly catastrophic results like the partial or complete loss of business.
With all of this in mind, how does your service business set itself on a course towards improving its utilization of its resources? Here are five tips to help in this regard.
Tip 1: Solicit customer feedback
Before you can be ready to change the way in which your business utilizes its resources, the first step is to become crystal clear about your customer’s needs. This may involve sitting down with customers and revisiting their needs, which may have changed. Avoid assumptions and be direct and transparent about your goals to ensure your resources are being properly allocated to improve their experience. By being transparent, they are likely to appreciate your interest in improving the relationship and the service you are providing to them.
Tip 2: Take stock of your resources
Now that you have solicited additional customer feedback and refreshed your understanding of their needs, it's time to assess all of your company’s internal and external resources that may be available to better meet these needs. Look at each potential resource, and avoid assumptions or automatically excluding resources, especially your internal talent. Often organizations unnecessarily struggle with resourcing because they miss opportunities to leverage the higher-level capabilities of employees. Take a close look at the experience and training of each employee—you might be surprised to find they have potential that may have previously been missed.
Tip 3: Evaluate best utilization options and explore undiscovered opportunities
Leverage free tools to assess resource utilization and explore undiscovered opportunities for improvement. These tools can do the heavy lifting in terms of being able help your service business identify ways to meet your aims of achieving goals, making money, and growing your business. For example, tools like these have helped IT services businesses with 100 resources identify opportunities to make $2.4 million more a year if they increase utilization rates from 65% to 72%. Having this ability to run scenarios, analyze, and evaluate all available options creates opportunities to significantly improve your organization’s utilization rates.
Tip 4: Resource scheduling, smoothing, and leveling
Now that you have a clearer picture of your available resources and how to harness their value to meet customer needs, maximize revenue, and grow your business, it is time to focus on scheduling tasks and assigning resources. You have already utilized the right tools to determine optimal resource utilization, and as a result, you are better prepared to allocate and schedule the right resources for all assigned work, taking into account dependencies, and making use of smoothing and leveling techniques to maximize resources.
Tip 5: Track resource utilization
Having determined how you will improve resource allocation and utilization, and having scheduled your resources, it is also vital that you are able to accurately track the utilization for each resource. This makes it possible to determine how well your service business is meeting your goals and your customers’ needs. Without being able to accurately measure utilization, you don’t know if you are efficiently or effectively leveraging your resources or if you are meeting your customers’ expectations.
Your company can take advantage of utilization reporting tools that can leverage the time your team tracks. As each team member tracks time, you will be able to run time tracking reports to show billable and non-billable hours, which will help you get a better handle on how resources are performing and identify gaps and available potential.
When valuable relationships are at stake, prioritizing the deployment of your resources in a proactive and intentional way can give your business a sustainable competitive advantage.
Make more money with improved utilization
Now that you understand the importance of better resource utilization, determine your team’s utilization rate, figure out how much money you might be missing out on, and start improving it!
Utilizing the Mavenlink Money Maker calculator, you can see the direct business benefits of increasing utilization:
- If a 10 person company with an average bill rate of $150 increases utilization from 65% to 75%, that is an additional $288,000 in revenue per year.
- If a 100 person company with an average bill rate of $150 increases utilization from 65% to 75%, that is an additional $2.88M in revenue per year.
- If a 500 person company with an average bill rate of $150 increases utilization from 65% to 75%, that is an additional $14.4M in revenue per year.