Companies usually put a lot of effort into resource allocation. You want to keep everyone busy while making sure their tasks are valuable (which often means billable) for the company. It gets really tricky as your team grows, especially when you have to assign people to multiple projects happening at the same time.
Article contains:
A few formulas how to measure resource utilization rate
What does availability in the resource utilization mean
The influential role of the resource management software in the utilization of resources
Differences between productive utilization and billable utilization
How to implement resource utilization
One of the easiest ways to check whether your allocation efforts are successful is by tracking your team’s utilization and resource capacity. Before we introduce you to various resource utilization metrics and formulas, we’d like to define resource utilization in an understandable way. Wherefore in this article – like many others – we present the comparison of definitions, meanings, and terms used by project managers.
Employee or resource utilization insight is connected with the terms “overutilization” and “underutilization”. Both you should be aware of. Why? Too much work or duties during (multitasking) a project doesn’t make that it will be finished completely or with functions that tiy thought. So, before we start take a look at Gartner’s conclusion from the research How to Avoid Overloading Your IT Project Team.Overloading people usually backfires, reducing performance and increasing mistakes. Gartner research shows that teams with lower utilization can reduce the time it takes to deliver business value by 30% or more. Knowing this, close and keeping watchfully resource utilization rates make sense.
The role of resource utilization in project management
Where is resource utilization in the project management process?
Paraphrasing the Project Management Institute (the PMI) definition, project management is understood as using specific knowledge, competencies, skills, devices, tools, software, processes, and techniques to produce something of “value to people”. It could be easily interpreted that project management is about doing things using what we have. Mentally and physically.
And, if we wanted to be sarcastic, we could use the ambiguity of the phrase “value to people” and say that the proposed PMI concept of a project can also mean the creation of a social movement, including a political or religious one.
But compared above-mentioned PMI definition, the Association for Project Management proposal can be considered more rigorous. The last one emphasizes unbiased and measurable criteria, such as time and budget.
In business, both – although negotiable – they impose a certain project framework. Whether we’re talking about a client assignment or an assignment that a company director has submitted to the marketing department, the assignment must be completed within the expected or, to be real, commercially viable time frame and produce a return on investment. So, according to the APM: Project management is the application of processes, methods, skills, knowledge, and experience to achieve specific project objectives according to the project acceptance criteria within agreed parameters. Project management has final deliverables that are constrained to a finite timescale and budget. So, on the contrary to just management, if we talk about projects in project management, each contains demands such as time and budget for each project that has to be finished. Some examples of project resources (with a few requirements) are demonstrated below:
Create an atomic bomb with an explosive force no less than that of the Tsar Bomb, within 24 months, and within a budget of $50 million
a building dam on the Vistula river until 31 march 2025, while not crossing the budget of 120 million USD
developing a desktop app (including conversion path analysis and choosing the best one) in 8 weeks for a shoe manufacturer, with 12 000 USD
refreshing a brand positioning (including new BTL material distribution) in 12 months within the budget of $100 000
Having the examples above, we can imagine how large the number of steps, administrative tasks, and procedures are involved in each project. How many people – with relevant skills – become part of each of it?
So, as said above, project management is the application of the process. Or we can say it straight: the project is a process. And the process is named as project management life cycle. On the internet can be found the brake down into 3, 4, 5, even 6, and 7 phases of this process. But the most popular one is belonging to the mentioned PMI and assumes 5.
As you can see, each phase is a group of tasks, and there are many different issues and challenges behind each phase. It is also worth adding – especially for those who are at the very beginning of their role as a project manager – that these phases should not always be treated chronologically. Some elements can be started earlier, while others are an ongoing process during the project (e.g. performance management, or – to be more precise in relation to the topic of this article – the resource planning tool utilization). And each of them is – in some way – optimized throughout the process. Resource leveling is an important technique used to balance resource allocation and avoid overutilization or underutilization during the project lifecycle.
Coming back to the main topic, where in the PM’s lifecycle process is resource utilization important?
Of the 5 phases of the process, resource utilization can be found in phase three. As part of the monitoring and control phase or, to be precise, as part of performance management.
Initiation and conception
Planning
Launch and execution
Monitoring & control – it includes performance checking, i.e. resource utilization
Project closure
For leaders, resource utilization is the most valuable and useful metric and KPI within performance management.
The most valuable metrics in performance management – the resource utilization and resource allocation
As we know, resource planning and resource scheduling are essential to making sure a project plan is booming. Resource utilization efficiently resources is another piece of these puzzles, or – as we would like to say – resource management. While resource allocation refers to – saying simple – assigning a skilled resource to a task, resource utilization measures effectiveness and time spent by this resource during the assigned task (billable or strategic work, non-billable hours/minutes, admin hours/minutes, etc).
Resource utilization accord to an indicator that helps project managers and resource managers get to know how their employees spend their time during a project. Thank to this knowledge they make much more efficient resourcing judgments and decisions that increase productivity and profitability. Resource utilization measures the productivity of each employee and/or the the utilization rate formula whole team. It monitors do your employees are overutilized or underutilized and determines workload management policy.
To say it more accurately, from project managers and business perspectives calculate resource utilization rate is a term used to describe the percentage of an employee’s available time that is used for billable tasks or projects. Resource utilization rates show how much of your team’s time is being spent on billable tasks, as well as how productive each team member is. Resource forecasting helps project managers predict future resource needs based on current utilization metrics.
In other words, resource utilization is a metric that shows whether your whole team or specific employees are fully booked. It refers to the process of planning the project and making the most of the available resources in the company.
For example, when you know that somebody is already overutilized and simply has too much on their head, you can look for someone else with a similar skillset who would fit into your project. This metric also helps to identify people that are underutilized, so you can assign new projects to them.
How to calculate resource utilization?
The only way to figure it out is to go through the options and pick the one that best fits your needs. Resource optimization techniques can help improve the efficiency and accuracy of your resource utilization calculations.
The typical resource utilization formula is:
Resource utilization rate = Busy time / Available time
This value, expressed in percent, shows you how much of your team’s time is spent working.
Even though it sounds straightforward, there are several questions that arise when trying to measure resource utilization. Should you base your calculation on actual working time (timesheets) or rather planned working time? What about holidays and paid time off? How often should you track your team’s resource utilization plan anyway? A well-defined resource allocation strategy can significantly impact the accuracy of your resource utilization rate calculations.
The answer is: it depends. There are so many variables that it is virtually impossible to recommend a universally good solution. The only way to figure it out is to go through the options and pick the one that best fits your needs.
Compare bookings with your team’s availability
One way to measure the resource capacity utilization is to compare their availability with planned working hours.
Effective resource scheduling is essential for ensuring that bookings align with team availability.
Resource utilization = Planned working hours (bookings) / Available hours
The main advantage of this method is that if the score is too low, you can still optimize your plans. Head to your schedule and see whether your projects are planned correctly. A comprehensive resource allocation plan can help ensure that all resources are effectively utilized and gaps are minimized. Perhaps some people have gaps in their bookings, or you have e.g. two developers working 4 hours/week on a project when you could have 1 person working full time on it?
Figure out how you can fill in the gaps in your team’s schedule. Perhaps you should start an R&D project or introduce innovation time off? Not only will it help you avoid lost productivity but it is also a good way to keep people engaged. Underutilization is more frustrating for your employees than you might realize.
Watch out for people having too much on their plate. There’s a risk that their tasks will not be delivered on time (plus, you don’t want them to be exhausted). Their overbookings may suggest that you need to hire new team members.
Finally, calculating the estimated resource utilization is an easy way for your sales team to see how much space there’s left in your production pipeline. This way you’re less likely to miss out on business opportunities (or commit to projects that you’re basically unable to deliver on time).
All in all, analyzing your bookings-based resource utilization score helps you optimize and improve resource utilization and allocation and forecast sales or recruitment needs.
Compare timesheets with your team’s availability
Another way to measure resource and achieve optimal utilization rates is to compare your team’s recorded hours (timesheets) with their available hours. Many people believe that this is the only way to precisely show how to calculate resource utilization, because you’re operating on actual working hours, not just the estimates. Resource tracking is essential for accurately monitoring and recording resource usage over time.
Resource utilization = Recorded working hours / Available hours
Many people believe that this is the only way to precisely show how to calculate resource utilization, because you’re operating on actual working hours, not just the estimates.
Since this is a retrospective score, you usually cannot undo the damage even if your score is disappointing. It helps you, however, to make better decisions in the future.
Historical data regarding team resource utilization differs and can be a good indicator of whether you need to hire extra people (or find extra assignments for your existing team members). You can also check how productive your employees tend to be.
My recommendation would be to use both methods of calculating resource utilization. Compare the actual (recorded) utilization to the estimated one (based on the bookings) and analyze the differences. They could point out issues with estimating workload or project management problems. Check whether there are people or projects that are repeated over or under their estimated utilization score. Such analysis allows you to spot improvement areas and take action. Resource utilization analysis helps project managers understand patterns and make data-driven decisions for future projects.
How to define “availability” and why it’s important for the results of resource utilization?
Now that you know different formulas for calculating resource utilization, it’s time to make things a little bit more complicated. Until now, we’ve used the term “available hours”. But what does it even mean? Should you think of availability as the time during which your employee was at work? Or should you include vacations and bank holidays as well?
At first, you might think that including time off in the overall availability is counterintuitive, after all, people were clearly not available then. Consider, however, that you might still need to compensate your employees for this period if you operate on fixed wages.
As an employer, you might want to see how much time your team members actually spend working in the great scheme of things. If you decide to include time off in your calculation, keep in mind that your team’s ideal resource utilization rate can be significantly lower during peak vacation months (December, and August). Resource availability planning helps ensure that you have the right resources available when needed, even during peak vacation periods.
Some companies use 2080 as a fixed number of hours (52 weeks * 40 hours). Others calculate the actual number of available working hours in a given year. If you want to perform more advanced filtering (e.g. include vacation hours, excluding bank holidays, taking into account part-time employees), you should consider using resource management software.
Productive utilization and billable resource utilization
When your definition of “available hours” is ready, you should consider what is it that you call “working hours”. Are you talking about all of the hours your employees spend doing work-related activities e.g. creating an internal project? Or perhaps the hours they spend working on things you can charge your clients for.
You can calculate the so-called “productive utilization”, which takes into consideration all of the busy hours, and “billable utilization”. The second one is especially valuable for agencies, consultancies, or software houses: companies that work on projects for their clients. With billable utilization, you can measure how much time your employees dedicate to work that actually pays. Resource billing is crucial for tracking and managing billable hours for client projects.
Measure resource utilization in real-time
You may have nailed down the formula you will use to measure resource availability and utilization, but you have to account for the ever-changing data. People’s future availability changes every time they ask for a day off or get sick, which also affects your bookings.
There is every reason to think that your data should be updated regularly and your team utilization score would have to be adjusted in real-time as well. The easiest way to stay on top of this would be to use resource management software. Real-time resource management allows for dynamic adjustments to resource allocation based on current data. We’ve built Teamdeck as a resource management tool that can automate your efforts so that you can focus on your project management duties.
How does the resource management software help with resource utilization?
Teamdeck uses three kinds of data points for your calculations:
availability (as well as time off or bank holidays),
bookings (planned work hours),
timesheets (recorded work hours).
This way you can calculate the estimated as well as the actual team utilization and then compare them. This software comes with a reporting suite that allows you to visualize your data and share it with your individual team members (or the client). Resource management tools provide comprehensive features for tracking, analyzing, and optimizing resource utilization.
