It is important for managers to understand how productive their consulting staff is through calculating utilisation. Here are a few tips on how to set a standard according to total available hours for each consultant and work achieved. Some points to take into consideration include the difference in total available hours from country to country regarding holidays and work policies and standard working weeks for consultants.
1. Total Available Hours
Standard number of working hours available
This figure serves as the baseline for calculating utilisation of time. The total available hours in a year can be calculated by taking the 52 weeks of the year and multiplying them by a standard 40 hour work week. Although this figure comes to 2080, the standard number adopted by most companies in Australia is 2000, in order to allow flexibility.
2. Billable Utilisation Rate
Total number of hours billed/total available hours
Provided a company accurately records billable hours for its consultants, it should be relatively easy to calculate the billable utilisation rate. However, customer activity is sometimes unbilled, and time taken to attention extra queries, or long discussions on the phone, may not be billed and thus cannot be added to the numerator of the calculation.
3. Realisation Rate
Total Revenue earned/(total hours billed*list rate for consultant)
If the consultant receives a high pay rate but is being billed out at a low hourly rate, they will be generating poor profits overall for the company.
4. Productive Utilisation Rate
(Total number of hours billed + total number of unbilled customer project hours + total number of hours allocated to approved projects + total number of hours in training) / total available hours
This method can be very useful in determining whether time has been used efficiently or misspent. Productive utilisation rate tracks the percentage of time the consultant spends on approved projects that add value to the company and profits.
5. Sales Cost Offset
Total number of unbilled customer project hours * list hourly rate
Second to billable work offered to the client, the consultant will also spend a lot of time working for the customer on tasks that may not be billed. Although this ‘extra’ touch is very important to ensure clients’ satisfaction and relationships, the consultant is still being paid a wage to do ‘free’ work for the company. Work that does not generate profits can swell and impose a real negative economic impact on the company and profits.