Organizations often fail to realize the full potential of resources and do not track the utilization rate and manage resource schedules. An untracked and mismanaged talent pool can impact the success of a project and overall profitability. In the long term, it can result in unsatisfied customers, lower employee satisfaction, and a dried-up work pipeline.
Studies show that even a 0.5% increase in billable utilization rate can significantly impact professional services revenue. This trend reiterates the importance of tracking and optimizing employee billable hours.
Let us understand how resource utilization can hurt project profitability, its challenges, and solutions.
How Resource Utilization Impacts Project Profitability
Professional Service Maturity ModelTM, an industry-leading performance improvement tool, considers Talent (formerly human capital alignment) as one of the five Service Performance PillarsTM. According to the tool, when Talent is optimized, it can help Professional Services Organizations (PSOs) achieve success.
So, engaging resources on billable activities will help you deliver quality projects on time, within budget, and increase profitability. Based on project quality, you can maintain and retain existing customers and gain new ones. Therefore, it is critical to get the right mix of a team for each project and drive your business growth. The Service Performance Insight (SPI) Research, February 2020 chart below shows the relationship between utilization, profit, and revenue growth.
A report by SPI Research, February 2020 states that when a firm is optimized, its employee billable utilization increases to 86.9%, on-time delivery jumps to 93.9%, project margin increases to 51.2%, and the annual revenue per employee increases to $313. This report indicates that optimal resource utilization is critical for project profitability.
How Maturity Levels Affect Profitability
Top Reasons Resource Utilization is Hurting Your Profitability & How to Fix It
Challenge #1: Selecting the Right Employee with the Right Skill Set
Selecting the right employees from a vast talent pool with the right set of skills at the right time is one of the biggest challenges as many companies don’t have updated information accessible in real-time. Investing in a central solution can give clear visibility into the talent pool across the organization and reduce the number of days required for project staffing. Project managers can use the centralized solution to identify and book resources with the required skills, capabilities, and availability.
According to the SPI report, February 2021, PSOs that effectively use Professional Services Automation (PSA) have an average project staffing time of 8.31 days.
Challenge #2: Utilizing Spreadsheets for Resource Tracking & Resource Utilization
Manually calculating resource utilization – the percentage of the time spent by an employee of the available hours on billable tasks can be tiresome, error-prone, and result in disjointed data. In addition, siloed data may not be accurate and can cause inconsistency across the organization. Implementing a cloud-based solution such as PSA can help companies track utilization rates, schedule resources, and generate real-time and error-free reports.
Challenge #3: Manual Timesheet Entry
Entering timesheets manually for different projects can be inaccurate and result in miscalculated work hours, project costs, and delayed billing. Often projects have different methods of tracking hours, which further cause inaccurate data across the organization. Implementing a solution that allows customization of time-entry processes on a single timesheet solution for multiple and varied projects helps to drive a consistent way to measure utilization and project profitability across the organization. For example, project owners can now understand how time-off and holidays are impacting a particular project’s health. They can get a more accurate, real-time record of hours worked and accordingly, adjust resources workload to increase profitability.
Challenge:#4: Overworked & Underworked Employees
Overutilization and underutilization of employees can be critical to a project’s success. A burned-out or underutilized resource may result in lower quality, missed deadlines, delayed deliveries, prolonged billing cycles, and reduced project profitability. Leveraging a solution that specializes in professional services automation with resource analytics can provide real-time insight into utilization rates to help project managers adjust work hours in real-time for each employee and take appropriate measures to maintain project health and the health of their employees. According to the SPI Research, February 2021 report, the employee annual attrition rate (voluntary and involuntary) of high-performance PSOs was down at 5.5% and 4.3% because of better engagement and retention of employees.
To learn more about how Professional Services Automation can help you increase project profitability, contact us.
Forsys is a leader in Lead-to-Revenue business and technology consulting specializing in High-Tech, Manufacturing, and Healthcare industries. We focus exclusively on Lead-to-Revenue, bringing clients both depth of expertise and breadth of experience from having executed over 200+ engagements for global enterprises in the past 5 years alone. Forsys is an end-to-end ERP implementation and integration partner for NetSuite, specializing in revenue management and recognition solutions.