Utilization rate: Difference between revisions

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{{Short description|Percentage of work charged to a client}}

{{about||the percentage of various classes of milk in federal milk marketing orders|Utilization rates (milk)}}

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{{Underlinked|date=March 2017}}

{{Unref|date=November 2017}}

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{{More citations needed|date=February 2022}}

In [[business]], the '''utilization rate''' is an important number for firms that charge their time to [[Client|clients]] and for those that need to maximize the productive time of their employees. It can reflect the billing [[efficiency]] or the overall productive use of an individual or a firm. Looked at simply, there are two methods to calculate the utilization rate.

In [[business]], the '''utilization rate''' is an important number for firms that charge their time to [[ClientCustomer|clients]] and for those that need to maximize the productive time of their employees. It can reflect the billing [[efficiency]] or the overall productive use of an individual or a firm. Looked at simply, there are two methods to calculate the utilization rate.

The first method calculates the number of [[billable hours]] divided by the number of hours recorded in a particular time period. For example, if 40 hours of time is recorded in a week but only 30 hours of that was billable, the utilization rate would then be 30 / 40 = 75%.

==Calculating==

With this method, however, it's easy to see how this utilization rate can be gamed: if a business stops [[Record|recording]] non-billable time, its utilization rate will always be 100%.

Looked at simply, there are two methods to calculate the utilization rate.

The first method calculates the number of [[billable hours]] divided by the number of hours recorded in a particular time period. For example, if 40 hours of time is recorded in a week but only 30 hours of that was billable, the utilization rate would then be 30 / 40 = 75%.

With this method, however, it's easy to see how this utilization rate can be gamed: if a business stops [[Record|recording]] non-billable time, its utilization rate will always be 100%.

The second way to [[Calculation|calculate]] the utilization rate is to take the number of billable hours and divide by a fixed number of hours per week. For example, if 32 hours of billable time are recorded in a fixed 40-hour week, the utilization rate would then be 32 / 40 = 80%.

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Note that with this second method it is possible to have a utilization rate that exceeds 100%. If 50 hours of billable time are recorded in a fixed 40-hour week, then the utilization rate would be 50 / 40 = 125%.

Another consideration is the in-/exclusion of absent hours, e.g. leave or illness. Common practice is to exclude these from utilization calculations. Excluding absent hours can also help remove seasonality from utilization calculations.<ref>{{Cite web|title=How to Calculate Billable Utilization: Formula for Professional Services|url=https://www.projectorpsa.com/blog/three-key-questions-you-need-to-answer-when-measuring-utilization/|access-date=2021-10-25|language=en-US}}</ref>

==Behavior==

Differences in how utilization is measured can also drive different behaviors, and some [[Organization|organizationsorganization]]s may employ multiple utilization measures. For instance, an independent professional services or consulting firm may rely solely on billable utilization. An organization that sells products as well as [[implementation]] or support services may utilize the notion of "[[productive]]" utilization, which also measures and rewards time on activities like product development that are important, but which may not be billed directly to a client.{{cncitation needed|date=November 2017}}

==References==