What is resource utilization? Formulas, techniques, and benefits

A large part of project management is ensuring that your team has the time and resources needed to complete jobs on time. As a project manager, you need to be able to assess the available hours from your team members and check available resources before you put together a project plan. This process is called resource management.

Understanding resources is essential for several reasons, and it has a major impact on the billable hours and, therefore, your company's profitability. It helps you optimize your resource usage and improve the work ethic of your team. In this article, we’ll help you understand what resource utilization is, why it’s important to use, and what it can do for you and your team.

What is resource utilization?

Resource utilization is a KPI (or metric) of resource planning used to help project managers and leaders understand performance and effort over a specific amount of time. It measures your team's productivity and can help you understand if your organization is over or underutilizing resources.

Resource utilization differs from resource allocation in a few key ways. Resource utilization measures the efficiency of your resources, while resource allocation is the process of picking the right resources for different projects. However, both elements are part of resource planning and resource management.

What is the resource utilization formula?

Calculating your resource utilization rate depends on a formula. This formula helps you understand your utilization percentage and your team's efficiency. The typical resource utilization formula is:

Resource utilization =Total billable hours / Total available working hours x 100

This metric will help you understand exactly how many actual hours are available for projects and how many of those hours go towards billable time. Here’s an example.

Let’s say you have a graphic designer on your team who works a 40-hour work week. Each week they spend about 35 hours on billable tasks and the rest of the time on internal tasks like administrative activities or meetings. You would plug those figures into the formula to get:

Resource utilization = 35 total billable hours / 40 total available working hours x 100 = 87.5%

This means that the employee's resource utilization rate is 87.5%. This will provide a baseline for all of your employees that you can use to figure out project hours, whether or not you need to find more billable time for employees or if you can find ways to increase billable hours.

Remember that certain factors will impact this rate, like days off, overtime, reporting time versus actual time, and different working time for full-time and part-time employees.

Why resource utilization is important

Resource utilization is an important part of project management. It helps project managers do their jobs better and get the best results out of employees. Here are a few of the major reasons why you should spend time figuring out your resource utilization rates and calculating the rate for each employee.

Leads to happier team members

Fostering employee happiness can create a better working environment, and resource utilization can help. If your employees have more billable hours than they have working hours, it can lead to burnout, turnover, and poor performance. You can improve the workload of all of your team members when you better understand their resource utilization and their available time for projects during the week.

Increases profitability

Time-tracking and billing go hand in hand with resource utilization. When you have a system in place for tracking billable hours and ensuring that your team members are recording those hours accurately, you will increase the profitability of your business. You’ll be able to get more accurate data for planning future projects and accepting new clients, and you’ll also be able to know which resources can be used when you are forecasting future work.

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Helps manage scope creep

Ah, scope creep: a common phenomenon in client-based work when the project’s goals and initiatives begin to expand over what was initially agreed upon. If a project has no clear boundaries and borders, clients might ask for extra work or tasks beyond what was included in the original contract. 

This can lead to some serious problems when it comes time to evaluate your team’s utilization and determine resource availability. Resource utilization helps you define and clearly document project requirements to help avoid scope creep.

Encourages team training and growth

Resource utilization helps you determine which team members are the best fit for different projects based on their skill sets and training. When your team knows you track resource utilization, it can encourage them to want to expand their knowledge in certain areas or learn new things so they can increase the likelihood of billable hours for different projects. This will also help you get more variety when it comes time to assign roles during projects.

6 techniques to improve resource utilization

Now that you know why resource utilization is valuable let’s look at ways to improve your resource utilization and create better planning processes.

1) Put the right tools in place to properly manage tasks

Trying to work without the right tools is impossible. To improve resource utilization, you need to have the right programs and software options that make it easier for your team to do business and manage their tasks. 

Resource management software like Teamwork.com makes it easy for teams to track their time, manage tasks, communicate with each other, deliver results to clients, and then some! Learn more about our resource management tool here.

When you have the right tools in place, you can get a better picture of what your team schedules look like and who is responsible for which tasks. All of the improved efficiency works to optimize your resource utilization over time.

2) Roll out an in-depth resource planning schedule

A resource planning schedule helps teams organize and structure time so that tasks and projects are completed on time and by the right people. It’s an integral part of project management and can help improve resource utilization. When your team members have their work schedules clearly laid out, it helps them do their jobs better and lets you get a better idea of timeframes, deadlines, and responsibilities.

In-depth resource planning schedules help narrow things down even more and give project managers a deep look into the organization's usage of time and resources. Investing in detailed software is better — and more cost-effective — than trying to organize your team on spreadsheets.

3) Track team members’ time (temporary or ongoing)

Time tracking is a crucial part of resource utilization. Time tracking helps you learn exactly how many hours employees spend on billable tasks and how much time is spent on internal meetings or administrative tasks in real time. To maximize profitability and get more out of your team’s time, you should be tracking hours both temporarily to get a snapshot and on an ongoing basis to gather more data.

When you track time, you learn how long projects actually take to complete, which can help you with billable utilization. You also can learn more about when employees are underutilized or overutilized and can rearrange tasks to make everyone happier.

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4) Forecast future projects

When new projects come in, it’s important that you know if you have the bandwidth to manage them and who will be responsible for taking on those new tasks. Resource utilization will help you accurately forecast and plan future projects. It will help you make better decisions at the beginning of planning to avoid reworking schedules and assigning tasks. It will also help you make sure that the right employees are assigned to the project.

Time tracking and resource utilization also help you understand the scope of future projects, which makes it easier for you to forecast the time needed to complete tasks. This makes it easier for you to communicate with clients about the goals and outcomes of their projects and improve resource utilization plans.

5) Minimize non-billable activities

Non-billable activities are unavoidable in the workplace. There will always be a need to do non-billable things like checking emails, filing paperwork, doing internal marketing, attending meetings, and working with other team members. However, sometimes these types of activities can take up too much time. You always want to minimize the time spent on non-billable tasks as they don’t bring in direct revenue to the company.

By looking at resource utilization, you can determine which employees have many non-billable hours — and why. Then you can consider making changes like shortening meeting times or assigning them to more projects if they have room in their schedules.

6) Analyze actual hours vs. planned booked hours

Any project manager can tell you that no project ever goes exactly as planned; it's just the nature of the job, with challenges, changes, and roadblocks occurring when you least expect it. However, it’s important to make sure that you examine your actual hours versus planned or booked hours. 

For example, if you set aside 100 hours for a project but only spend 50 actual hours on it (or went over budget to 130 hours), then your utilization of resources is off, and you need to reexamine the project plan.

Pro tip: Project planning software can eliminate the guesswork. See how Teamwork.com can help, so you never have to wonder, "how many hours will we need?" again.

Resource utilization helps you understand how much time is spent on a project, so you can compare that to what time you initially thought the project would need. That will improve your quotes to clients and the workload you give to team members.

Utilize your resources efficiently with Teamwork.com

At Teamwork.com, we understand how important it is for you to have the right resources for your projects. We also know that you need the right tools in place in order to achieve your goals and track your billable hours to set your team up for success. That’s why we offer plans and tools for every sized business to plan projects better and improve your office efficiency.

To learn more, sign up for Teamwork.com today and discover how we transform businesses and bring about more success for our customers.