Utilisation. How does it work and how should your company track it?

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TLDR;

• Utilisation is a measure of time spent working — helps assess workload.
• Billable utilisation is a measure of time spent billing — helps assess revenue generation.
• Utilisation calculations depend on total available work time. Think about whether you factor in annual leave, sick leave, lunch breaks etc.
• Awareness of utilisation is important for services businesses of all shapes and sizes but be mindful of other factors that utilisation doesn’t measure like client satisfaction, quality, efficiency, creativity, employee engagement etc.

What is Utilisation?

Utilisation is the proportion of total available work time that people have spent working (and have recorded time for — without any data it can’t be calculated). It’s typically expressed as a percentage — for example, 80%.

How is it calculated?

The basic formula for utilisation is: Hours worked divided by Hours Available multiplied by 100.

Example:

It’s the halfway through the year and Gemma has 846 hours of work recorded for the year so far based on his time recording. Her company (Bluesky Consulting) works off 2080 hours/year to calculate utilisation. Her utilisation is 846 / 1040 x 100 = 83%.

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What constitutes “total available work time” varies from company to company. Some companies, like our fictitious example above, default to 40 hours a week for 52 weeks a year (a total of 2080) hours.

To get a more accurate view of utilisation, companies should come up with an availability total that reflects how their employees work and what relevant policies are in place. A good starting point is to make sure that items like breaks, leave and holidays are excluded — no one works all day, everyday of the year.

Example:

Bluesky updates its total availability to account for annual leave (20 days), sick leave taken (10 days) and lunch breaks (1 hour daily) and instead of 2080 it’s now 1610 (35 hours a week for 46 weeks a year). Gemma’s updated utilisation is 846 / 1610 x 100 = 105%.

What does Utilisation tell us?

Basic utilisation (sometimes called resource utilisation) is helpful for tracking workload and capacity — for individuals, teams and companies.

It helps answer questions like:

• What are people’s workloads? Do they have capacity for additional work?
• Is someone over worked and at risk of burnout?
• Does the company need to hire additional resources or should we be looking to bring some work and sales forward?

Example:

Gemma’s updated utilisation of 105%. Perhaps she’s working over and above — is this sustainable?

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What about Billable Utilisation?

Basic utilisation doesn’t help services companies work out what proportion of peoples time is spent generating revenue. This is where billable utilisation comes into play.

Billable utilisation is exactly the same as basic utilisation but only includes billable hours worked. The formula is: Billable Hours worked* divided by Hours Available multiplied by 100.

Example:

Of Gemma’s 846 total hours worked, 612 hours was spent on billable work that was invoiced to clients. Her billable utilisation is 612 / 805 x 100 = 76%.

Ultimately, these billable hours need to be realised so it’s best to only include billable hours that are charged to clients. Any billable time that is written off shouldn’t be included.

Also, it’s obvious but worth spelling out that there’s no point measuring billable utilisation in areas where billable work doesn’t happen — HR, Operations & Sales for example.

What does Billable Utilisation tell us?

Billable utilisation is an indicator of capacity to generate revenue— for individuals, teams and companies.

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It’s used for the following purposes:

• As an objective way of assessing relevant individual, team and company productivity/effort/profitability.
• As a benchmark for for setting expectations/targets (for example — we want to everyone on the team to bill 6 hours out of day (75% billable utilisation of an 8 hour day).
• As a starting point for forecasting and modelling (for example, based on current utilisation across the team of 67% we’re on track for a profit of $1,000,000/year if we lift utilisation by 5%, profits will increase by $75,000).
• For comparison with competitors (difficult to source this data), industry averages or companies from other industries.

How should my company deal with utilisation?

Awareness of workload and revenue generation is important for businesses of all shapes and sizes but there are no silver bullets and utilisation is no exception. It only deals with one of the many moving parts of a business.

The proportion of hours someone has worked or billed doesn’t take into account a range of potentially more important factors.

Photo by Thomas Kelley on Unsplash

Here are a few things that utilisation doesn’t measure:

• Client satisfaction / trust.
• Quality of work done.
• Waste / efficiency.
• ROI (return on investment) / impact of work done.
• Creativity / innovation.
• Employee happiness/job satisfaction/development.

How does Hourly help?

Hourly helps both team members and managers keep track of hours worked as well as billable and non-billable time by showing breakdowns in several key places in the application.

A screenshot from Hourly

In the end…

Being across workload and revenue generation capacity/potential is a basic requirement for any services businesses but placing too much emphasis on utilisation risks neglecting other areas of your business.

Good, purpose-built time tracking (like Hourly, hint hint 😉) can help you track utilisation and help improve an organisation’s productivity and profitability.

If you’re looking at time tracking software, why not consider Hourly? It’s free for 30 days!

Hourly: Track time, intelligently.