Welcome to my Blog Page. These posts seek to cover the broad panoply of issues, conundrums and thoughts that occupy the professional service entrepreneur’s mind.

A combination of extracts from my guides and current musings (often provoked by recent happenings at the great companies I now advise to), my aim is to inform and motivate all those who seek to build high performing teams and successful businesses.

I also enjoy responding to specific reader questions … so please feedback and let me know where you would like my mental meanderings to wander to next.

Measuring Utilisation

16 July, 2013 at 18:47
Measuring Utilisation Photo Credit: jared via Compfight cc

Measuring Utilisation
Photo Credit: jared via Compfight cc

Following on from my previous blog, it should be becoming clear by now that setting, and then managing towards, the right utilisation target(s) for your business is a key management issue. The topic can be obfuscated with multiple definitions and treatments; as such, you should aim for two principles when you discuss utilisation within your business – simplicity and consistency.

By simplicity, I mean that you deliberately limit both the language set used in this regard and the number of time, or service, codes you track. By example, some companies refer to ‘utilisation’ to refer to all time spent working on useful projects (client and internal). In such a semantic treatment, it covers all work time with the exception of being ‘on the beach’ (or the equivalent phrase ‘on the bench’) – when a staff member is essentially awaiting tasking. In this treatment, ‘billable utilisation’ might then refer to the subset percentage of‘utilisation’ that was spent working on client projects. Further, in such an instance, you will hear the term ‘realisation’ to refer to the subset of this time that was actually then billed to the client. This is all well and good – and allows for detailed time analysis – but I recommend you keep it simpler in order that this topic is not just one for your finance controller but for every member of the firm.

I recommend you use the term ‘utilisation’ to refer to time that is actually billable. In doing so, a simple, single communicated target will remain the right focus for everyone in the fee-earning team.

You should keep it simple also in relation to the number of time, or service, codes tracked. It is possible to grow a successful business, in the early years, limiting this to a succinct set (e.g. Client-billable, Client-non-billable, Internal work, Holiday, Sick). This list deliberately excludes the ‘On the Beach’ category as, within a small firm, you deserve shooting if a colleague is ever completely un-tasked; i.e. that is anyone not on a client project should be instantly deployed to a constructive, internal initiative. Of course, over time the granularity of this time allocation will be expected to grow; for example, to capture specific internal projects, but you should avoid over-complication here. There are many large firms who have over-engineered this aspect to a point where, whilst it is theoretically possible for them to analyse time across multiple dimensions, they have lost the buy-in of their staff (who are required to regularly input the data in an ever-burgeoning time track system) and a focus on the basics.

Bearing in mind that utilisation is effectively a measure of time spent working (the ‘numerator’) over all the hours that it was possible to work (‘the denominator’), what we have been discussing here is which numerator to track. The other muddy aspect of the utilisation calculation concerns choosing an appropriate baseline to use for the denominator.

This can be a fiercely debated topic; suffice to say the main options are:

  • Working time in a year = 52 weeks x 5 days (x 8 hours) = 260 days (or 2,080 hours);
  • Available time (post holidays) = Working time – Holidays (public holidays plus your company’s annual holiday allowance); or
  • Available time (post holidays and training) = Working time – Holidays – Days allocated to training each year.

I would personally steer you towards the latter treatment. If you want to develop a sustainable business then you should be deliberately factoring in an expectation that a certain amount of time each year is invested in the development of you and your staff (training, internal communication events etc). You should also expect your staff to take their full holiday allowance – any alpha-male company that rewards those who don’t will ultimately pay for this perverse, myopic tactic with increased staff attrition and low levels of innovation and actual effective productivity. If you agree with these statements, then this version signals this clearly to your colleagues. Further, it also makes sense for your 100% target to focus on what is actually set aside for billable time compared with constantly asking yourself what percentage of your theoretical denominator is the maximum practically possible.

By way of example, say there are 260 working days in the year (noting this changes with the fall of weekends and whether a leap year) and 8 public holidays and that your company offers 25 days per year holiday allowance and expects everyone to undertake 10 days’ training. This leaves an Available Time denominator (post holidays and training) of 217 days (or 1,736 hours).

Regardless of your choice – be consistent. It is futile having management conversations around utilisation when multiple treatments are being used. Agree on one, communicate it loudly and stick to it.

In the next blog, I will present a simple checklist for profit improvement activity.

To be continued …


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