Resource utilization is a metric that measures the uptime of a project resource.
It is one of the most important business metrics for service companies such as engineering, software, or consulting firms. Even non-service companies can benefit from the calculation and tracking of the utilization rate.
It is a very simple metric that speaks volumes of information. This is its primary strength.
Formula
The formula for the utilization rate is as follows:
For example, if an employee works on a project for 140 hours out of 160 hours of employment in a given month, their utilization rate is 140 / 160 = 87.5%.
- If the utilization rate is too low, the project is not making money
- If the utilization rate is too high, the project team is probably burning out and/or the project will experience problems
That being said, the project manager‘s goal is usually to maximize the utilization rate unless there is a specific reason not to.
Interpretation
For project resources of the human variety (the project team), the ideal utilization rate is about 80%. Why wouldn’t it be 100%?
It’s because project team members are not robots, and have human needs. Taking a vacation, improving their work environment, or enhancing their skills with a training course are all needs that must be met that require active management by the project manager. Since projects are temporary endeavors with a defined beginning and end, people need to know that they left the project with slightly more than they started with. This could be in the form of additional knowledge or skills, or a better shot at future projects via a strong resume/CV entry. They also wish to cultivate and maintain a satisfying work environment, which is much easier today due to the rise of virtual teams using videoconferencing technology. If the project does not meet these needs, the people will not contribute their full capabilities to the project (or leave altogether).
However, for tools and equipment a utilization rate of 100% is desirable. Unfortunately, it’s not very often realistic. Resource allocation and scheduling issues necessitate that the equipment sits idle for part of the work. When possible, other resources should be re-allocated to maximize resource usage.
How to Increase Resource Utilization
The project manager’s goal is to maximize resource utilization unless there is reason to believe that utilization rates are indicating a project problem.
To that end, here are 5 ways to maximize resource utilization:
- Coordinate with other projects
If a person splits their time between two projects, or between your project and organizational work, they sometimes might not spend the time you need on your project, thereby slowing it down. Naturally, the project manager must be aware of the situation and actively manage the coordination of the resource with the other project. Ideally, a global resource pool is developed which tracks organizational resources to ensure that there are no conflicts. This works very well for physical resources such as tools and equipment. - Utilize a Work Breakdown Structure
Work Breakdown Structures are the building blocks of project management. Although it’s a fancy word, it means simply an activity list (task list). The project is broken down into its constituent tasks and planning happens at the task level. Each task requires resources. Whether a person, tool, machine, or building (or all of the above) each task is assigned the required resources. The minimum grade of the resource, for example, size of a crane, or experience level of an engineer, is specified. Or the individual resource itself is specified. Resource availability is tracked using a resource calendar (project management lingo). A resource calendar can range from a simple listing of employee vacation days to complex project management software. - Track the Utilization Rate
Large engineering, consulting, and I.T. firms track the utilization rate meticulously. At the engineering firm where I spent the first 10 years of my career, management knew about each office, department, and unit’s utilization rate for the previous week first thing monday morning, that’s how important it was. If people are not spending billable time on your project, the project will lose money. The utilization rate is a simple measure that doesn’t take long to measure but speaks volumes about the financial health of the project. If you get a utilization rate report every week or month, the project health can be quickly assessed and corrective action taken if necessary. - Adjust the project schedule
Project schedules are often developed without the resources in mind. Hence, a person might be needed 10 hours one day and 2 hours the next. This is inherently inefficient but it is done all the time because project schedules are developed to obtain the shortest possible schedule rather than maximizing resource efficiency. You could develop your schedules with resource efficiency in mind. But you could make small adjustments along the way to maximize resource efficiency. Adjusting the project schedule to maximize resource efficiency is called resource leveling. - Invest in resources
Equipment needs oil to run smoothly, tools require maintenance, and people need to know their work is valued. There are few project resources that don’t need a bit of the project budget to keep them in a condition that maximizes their contribution to the project.
