In the fast-paced world of business, every resource counts. Whether it’s time, talent or capital, how you use limited resources can spell the difference between the success or failure of a project. That’s why project managers spend considerable time figuring out how to manage teams and resources efficiently to meet project goals and deadlines.
Where does resource utilization come in? This article discusses everything you need to know about resource utilization, why it matters, how to calculate it and best practices.
What Is Resource Utilization?
Resource utilization is a metric that measures the management and optimization of resources over time. Its main objective is to help organizations achieve maximum efficiency and productivity while completing a project. Organizational resources encompass a wide array of assets, including but not limited to human capital, financial resources, technology, time and physical infrastructure.
In contrast, resource allocation involves choosing the right resources for specific tasks or projects. For example, a project manager selects the ideal employees to perform tasks and modifies their workload as needed.
Featured Partners
1
monday.com
Yes
From $8 monthly per user
Zoom, LinkedIn, Adobe, Salesforce and more
2
ClickUp
Yes, for unlimited members
$7 per month
Slack, Microsoft Outlook, HubSpot, Salesforce, Timely, Google Drive and more
3
Wrike
Yes
$10 per user per month
Salesforce, Adobe, Miro, Netsuite, Quickbooks, SAP
4
Smartsheet
Yes, for one user and two editors
$9 per user per month
Google Drive, Slack, Tableau, Miro, Zapier and more
Why Is Resource Utilization Important?
Here’s a look at why resource utilization matters.
1. Maximize Efficiency
Proper resource utilization can help maximize efficiency within organizations. By ensuring that every asset is used to its fullest potential, businesses can accomplish more with less, reduce costs and speed up processes.
2. Strategic Resource Allocation
Businesses can get an overview of resource distribution across projects. That means they can identify assets that are better used for other initiatives such as research, new market expansions and other growth-oriented endeavors. Plus, they can align resources with strategic objectives to achieve organizational goals.
3. Enhance Competitiveness
If you know how to use resources properly, there’s a high likelihood that you can outperform competitors. Companies that excel in resource utilization are likely to deliver high-quality products and services faster.
4. Mitigate Risks
Efficient resource utilization can help mitigate potential obstacles. Businesses can minimize the risk of missed deadlines, budget overruns and lack of resources, which reduces the likelihood of potential disruptions.
5. Impress Stakeholders
Naturally, resource utilization lets you impress stakeholders. Whether it helps you deliver projects on time and within budget, maintain high product quality standards or provide exceptional customer service, it ensures clients or customers are satisfied with your product or service.
How To Calculate Resource Utilization
Resource utilization can be measured using various formulas depending on the type of resource assessed. Here are some standard formulas for measuring resource utilization.
Calculating Resource Utilization
This formula calculates the percentage of time a resource is actively engaged in productive work compared to the total available time. The formula is:
Utilization Rate = (Actual Hours Worked / Total Available Hours) × 100%
- Actual Hours Worked: Employees’ total hours of productive work
- Total Available Hours: The maximum number of hours employees are available to work during a specific period, typically excluding time off, breaks and nonproductive activities
Let’s say a manager wants to assess the utilization of a UX designer on their team for the past month. The UX designer works for 40 hours per week.
First, the manager determines the employee’s total available working hours. The UX designer typically works eight hours daily, five days a week. In a standard working month, there are usually 22 workdays. Based on this formula, we can calculate total working hours.
Total available working hours: 22 workdays × 8 hours / day = 176 available working hours
The manager then asks the UX designer to track the hours spent on UX design projects during the month. The UX designer reported working 132 hours on various UX design projects, with the rest of the time spent on meetings and administrative tasks.
Utilization Rate = (Actual Project Hours / Total Available Working Hours) × 100%
Utilization Rate = (132 hours / 176 hours) × 100%
Utilization Rate = 75%
Overall, the UX designer utilized 75% of their available working hours on UX design projects during the month.
By calculating the resource utilization rate for the UX designer every month, the manager learns how much time employees spend on projects. Thus, they can make informed decisions about resource management and project assignments.
Calculating Capacity Utilization Rate
Once you’ve determined the utilization rate for an individual team member, calculate the capacity utilization rate for your team. Mathematically, it can be expressed as:
Capacity Utilization Rate = Total of all employees’ utilization rates / Total number of employees
Let’s consider a project management team consisting of five members: Aiden, Bailey, Cameron, Dakota and Eli. Each member’s utilization rate, representing the percentage of time spent on project-related tasks, is as follows: Aiden (80%), Bailey (85%), Cameron (75%), Dakota (90%) and Eli (70%).
To calculate the Capacity Utilization Rate for the entire team, get the sum of their utilization rates.
Total of all employees’ utilization rates = 80% + 85% + 75% + 90% + 70% = 400%
Now, calculate the capacity utilization rate:
Capacity Utilization Rate = (400 / 5)
Capacity Utilization Rate = 80%
On average, each team member utilizes 80% of their available time on project-related tasks.
In general, it’s best to aim for a utilization rate of 80%. A higher number can lead to burnout, while a lower number means you’re not using resources efficiently.
Optimal Billing Rate
The Optimal Utilization Rate formula measures the amount that you should charge to make a profit. Mathematically, it can be expressed as:
Optimal Billing Rate = (Resource costs + overhead + profit margin) / Total average labor hours / Capacity utilization rate
Let’s consider a manufacturing company that produces widgets. The company incurs $70,000 in resource costs and $10,000 in overhead per employee and targets a profit margin of $15,000 per month. Their total labor hours are 1,000, and the capacity utilization rate of their production facilities is 80%.
Optimal Billing Rate = ($70,000 + $10,000 + $15,000) / (1,000)
_____________________________________
0.80
Optimal Billing Rate = $118
Based on this calculation, the optimal billing rate is $118 per hour. It represents the billing rate needed to cover resource and overhead costs and achieve the desired profit margin at an 80% capacity utilization rate.
Ideal Utilization Rate Formula
Ideal Utilization Rate measures your team’s efficiency about company costs.
To calculate the ideal utilization rate, sum up your resource costs, overhead and profit margin, then divide the total by the product of total available hours and your optimal billing rate.
Ideal Utilization Rate = (Resource costs + overhead + profit margin) / (Total hours available × optimal billing rate)
Using the previous example for optimal billing rate, we’ll make the following calculation:
following calculation:
Ideal Utilization Rate = ($70,000 + $10,000 + $15,000) / (1,000 × $118)
Ideal Utilization Rate = 80%
This example shows that your ideal utilization rate matches your capacity utilization rate. That means your rate is the perfect amount when factoring in company costs.
4 Tips for Resource Utilization
Now that you know how to calculate resource utilization, how can you improve it? Here are four ways to streamline your resource utilization process so you can get more done with the resources you have.
Invest in Tools and Software
Having the right tools and software can help team members finish tasks faster. In addition to project management software for managing teams, you should also invest in resource management software.
Resource management software offers real-time visibility into resource availability, workload distribution and project timelines so you can get an accurate overview of the use of resources. Some examples are Kantata, Parallax and Runn.
Time Billable and Non-Billable Hours of Team Members
Time tracking offers valuable insights into how employees allocate their time and resources. Not only can this help you monitor progress on billable tasks, but it can also help identify time spent on non-billable activities such as internal meetings or administrative tasks.
In project management, time tracking provides valuable data on the actual duration of projects. By understanding how long tasks and projects take to complete, you can better allocate resources, set realistic timelines and avoid overloading or underutilizing your team members.
Minimize Non-Billable Tasks
Administrative tasks are essential but shouldn’t consume much of your employees’ time.
The good news is that proper resource utilization can minimize non-billable activities within an organization. It ensures employees spend most of their time on projects aligning with the organization’s goals. Plus, it encourages organizations to streamline processes so they have more time to focus on tasks that matter.
Create a Resource Planning Schedule
Project managers use a resource planning schedule to get an overview of the allocation of their resources. It provides information on how resources are used to accomplish organizational tasks, projects or objectives. When employees have clearly defined work schedules, it helps them accomplish tasks faster within the specified time frame.
Bottom Line
Resource utilization lets you manage resources efficiently to complete projects on time with the resources on hand. Using the correct formulas will help you properly utilize your available resources to move your business forward.
Frequently Asked Questions (FAQs)
What is a resource utilization formula?
Resource utilization can be measured using various formulas for utilization rate, capacity utilization rate, optimal billing rate and ideal utilization rate. The most common formula is (Actual Hours Worked / Total Available Hours) × 100%.
What is human resource utilization?
Human resources consists of managing employees effectively to perform tasks, projects or activities aligned with organizational objectives. Some key elements include distributing workloads evenly, assigning tasks based on skills and matching employee skills with job roles.
