The importance of resource utilization in project management

Project managers take on many different roles. In addition to being product experts, team leaders, communicators, customer liaisons, planners, coordinators, and analysts, project managers are expected to manage resources. 

Resource management includes ensuring that enough people, equipment, materials, time, and money are allocated to a project so it is done on time within a budget. 

Another important part of resource management is known as resource utilization. Resource utilization helps you understand how much of each team member’s time is spent working on the project vs their time spent in meetings and other activities that don’t directly generate revenue. Understanding how your team’s time is spent can help you increase productivity.

In this post, we’ll discuss resource utilization, how to calculate it, and why it’s important.

What is resource utilization in project management?

Resource utilization measures what percentage of your team’s availability is allocated to billable work—time spent on services that can be billed to clients or time spent on a product that is sold to customers. This measurement helps you to understand how well each team member is utilized in relation to their skills, capability, and availability. It’s a way to track daily employee productivity and it helps you ensure resources are used efficiently.

Why is resource utilization important?

Calculating resource utilization can provide greater visibility into your projects. When you know where resources are allocated and how productive each employee is, you are less likely to miss important details and more likely to catch small problems before they become big problems.

Additional benefits include:

• Increased productivity: Insight into employee productivity data helps you to match skill sets with specific tasks. When you have the right people assigned to the right areas of the project, productivity increases.
• Improved pricing accuracy: Resource utilization helps you understand how productive your team is and how much time is spent on billable tasks. This information helps you determine if you are billing services and pricing products correctly to cover your costs, stay within budget, and increase profitability.
• Increased ROI: Access to productivity data helps you to manage projects more effectively and maximize the use of resources. It’s easier for you to see where some employees are under- or over-utilized so that you can move them around to balance the workload. This, in turn, can lead to a higher return on investment.
• Strengthened cross-functional collaboration: If you’re working interdepartmentally, you’ll need to determine a way to maximize collaboration between teams. Resource utilization makes it easier to juggle resources and prevent siloed work.
• Reduced burnout and increased morale: Ensuring that you have the right people assigned to the right projects with the right balance of work can keep employees from getting burned out and increase overall morale.

How to calculate resource utilization

There are a few different types of resource utilization you can calculate depending on what you want to measure: overall resource utilization, billable resource utilization rate, and non-billable resource utilization.

Overall resource utilization rate

The basic resource utilization formula is not too complicated:

total billable hours ÷ total available working hours x 100

A majority of companies define a full-time work week as 40 hours. The following is an example of how you might calculate resource utilization for an employee working 40 hours per week.

The employee’s available hours are set at 40. If this employee spends two hours per day involved in non-billable tasks like meetings, training, or administrative work, then the billable hours are set at 30 per week. So equation would look like this:

30 ÷ 40 x 100 = 75

This means the employee’s utilization rate is 75%, meaning that 75% of their time can be allocated to a project. This measurement can help ensure you’re making project assignments to those with plenty of availability.

Billable resource utilization rate

The resource utilization rate tells you the percentage of time an employee actually works on billable projects against the total of potential billable hours. Unlike the resource utilization rate, the non-billable hours are removed before you calculate. This gives you a more accurate measure that can be used to determine appropriate pricing and billing.

In our example above, the employee’s available hours are 40 per week. But 10 of those hours are spent on non-billable tasks such as meetings, meaning that there are only 30 hours of potential billable hours. During the week, the employee had unexpected meetings or other interruptions and was only able to work on billable projects for 27 hours. So you would calculate the billable utilization rate like this:

27 (actual billable hours) ÷ 30 (potential billable hours) x 100 = 90

This means that 90% of the employee’s time was spent on actual billable work. 

It’s unlikely that an employee will ever reach a 100% resource utilization rate. But reaching a 100% billable utilization rate is possible.

Non-billable resource utilization rate

This is the measure of the time employees spend on non-billable tasks, which is important because you don’t want to assign team members to project tasks if their non-billable utilization rate exceeds their billable utilization rate. That would indicate lower productivity and profitability.

If you have a team member who is involved in 24 hours of non-billable time per week, only 16 hours of time remains for potentially working on billable projects. You can calculate their non-billable rate like this:

24 (non-billable time) ÷ 40 (available resource time) x 100 = 60

This means that 60% of the individual’s time is spent on non-billable tasks—they might not be a good pick for an upcoming full-time project, but they could possibly step in to help as needed.

Increasing productivity through resource management

Here are a few tips to streamline your resource utilization management.

Establish resource management processes

Resource utilization is a part of any well-established resource management process. This includes both an understanding of resource capacity and availability, so you can make better resource allocation decisions. You’ll also need to develop communication protocols and define project workflows to ensure that resources are used effectively.

Include resource utilization planning as part of project planning

Resource utilization planning includes identifying all needed resources for a project. Estimate their availability, define billable hours, and efficiently allocate. 

Lucidspark’s project planning templates are a perfect way to get started.

Decide how often you will track resource utilization rates

Calculating resource utilization rates can be time-consuming, so you probably don’t want to do it daily. At the same time, you’ll want to calculate rates while the team is actively working on the project to get real-time data. That way, you can reassign resources to other tasks if needed.

You might want to track utilization metrics regularly, like after each iteration, so you can plan for future resource needs. You can calculate the team’s overall utilization, or you can track each team member for more detailed and precise information.

Optimize resource allocation

Optimizing resource allocation involves understanding resource capacity—looking at what resources you have, their capability, and their current availability. Once you understand resource capacity, it’s easier to make informed decisions about assignments.

Here are some techniques you can use to optimize resource allocation:

• Resource-leveling: This is a technique for managing projects when things don’t go as planned. It involves deadline adjustments to ensure the project can be finished using the required resources. It helps you strike the right balance between the supply and demand of resources, so you can finish the job.
• Resource-smoothing: This technique is used when a project has a hard deadline, so you need real-time resource utilization data to move underutilized resources to the project and stay on schedule.
• Reverse resource allocation: Use this technique when there is only one resource with the capability to complete a specific task at a certain point in the project. You must ensure that they are scheduled at the right time and their time is optimized.

Forecast future projects

Understanding how your resources are utilized gives you a solid overview of their availability, which is useful as you plan resource allocation on future projects. Lucidspark can help with this. Visualize processes and timelines, make informed decisions, and manage resources to keep your project on track.