It’s not about taking one step, but about taking 10. This could also be painful, but there’s a lot of additional revenue on the back end.
The employee utilization rate is one of a handful of key performance indicators used by AEC firms to measure the ability of the firm to keep employees working on billable projects. Firms are busier right now than I have seen in more than a decade, so I have to ask, if everyone is so busy, why do so many firms struggle to hit utilization targets?
Your employees are your firm’s primary asset and optimizing their performance and use of their time will make the difference between low or high project profit margins. For a 100-person AEC firm, just a 1 percent increase in utilization is about $225,000 in additional revenue per year.
So why do so many firms fail to hit utilization targets and keep their billable staff fully utilized? There are really only a handful of reasons that utilization is not optimized:
- Poor and/or inaccurate time management
- Lack of direction/focus on non-billable time
- Lack of scheduling processes
- Inability to forecast
- Poor communication with staff
- Insufficient scrutiny/approval of time
- Not enough work
Hitting utilization targets involves careful attention to time management, employee assignments, scheduling best practices, and communication. Here are 10 actionable steps you can take immediately to improve utilization rates and lower overhead costs:
- Timesheet accuracy. Dozens of studies over the years have shown that the more accurate your timesheets are, the higher your revenue will be. The key to accurate timesheets is requiring daily entry of timesheets by all staff. Can you remember what you did last Friday in 15-minute increments? I didn’t think so. Neither can your employees. If your staff isn’t entering time into your system daily, I promise you their timesheets are not accurate.
- Bottom-up project budgeting. Project planning requires the development of a scope of services detailing the phases, tasks, and hours required to execute the project. By planning a project from the bottom-up, the project manager will have a framework to help them allocate people to projects and determine when those resources will be needed. A good scheduling process requires a solid foundation built on the lowest level of detail to be successful.
- Scheduling processes. Once you have a good foundation of project plans you can establish a regular, consistent process for assigning employees to jobs and analyzing potential conflicts or shortfalls. If your firm has multiple teams or offices, it should be organized in such a way as to facilitate the sharing of resources across the firm. This should be done weekly and be as automated as possible.
- Automation. In order to optimize the scheduling process, the budgeting, planning, and assignment of staff to projects should be automated using a resource planning tool. This will provide great visibility across teams and the entire company and enable better sharing of resources. It will also help firm leaders to make better hiring decisions and be able to forecast potential shortfalls in staff or in work needed to keep staff busy. For optimal visibility, ensure you are able to view staff availability into the future, taking into account weekly schedules and backlogs, along with potential expected opportunities.
- Individual targets. Each staff member should have an individual target utilization rate and have visibility into their own status each week to self-manage their utilization. One caveat with preaching too hard to staff about utilization is to balance expectations about utilization with project profitability. If you just ask staff to be utilized – they will be – at the expense of your fixed-fee projects.
- Communication about job assignments. One reason that utilization is low is that time often has to be written off and moved to overhead. This is often due to failure to communicate to employees how many hours are budgeted for a task and they take too long to perform the work. Ensuring that employees have clear directions about what is planned for them each week and how long each task should take will help guide them.
- Budget for non-billable time. When your staff are not billable, what are they doing? If you have to pay them anyway, you might as well get as much value from their non-billable time as you can. Make sure you budget for all time, not just project work, and be very clear what your expectations are for prioritizing their time when they don’t have enough work. Also, give them clear direction who to go to when they don’t have enough work each day.
- Reporting/monitoring. If your managers and employees are not seeing utilization metrics often enough, they won’t be paying enough attention to ensuring that it is maximized. Once a month may not be enough to keep them focused and give them enough opportunity to make adjustments when needed. If targets are not being met, all of the areas above may need more consistent scrutiny and visibility.
- PM accountability. It is ultimately up to the PM to manage utilization and ensure that their team is as busy as possible. Setting utilization targets for their teams, and reporting, measuring and monitoring utilization on a regular basis, will keep them focused. If a PM’s utilization is consistently low, it is likely due to one of the issues outlined above and should be evaluated to determine what help they might need to be successful. Providing PMs with training and mentoring on processes, systems, and communication can often help improve utilization significantly.
- Teach and engage employees. Most employees do not understand the relationship between their timesheet and their paycheck. In fact, they often believe it is a compliance tool rather than a critical business management tool vital to the firm’s growth and survival. By training your staff, and particularly your PMs, about the relationship between utilization, overhead, and profitability, they will start to recognize the importance of accurate time management, and ensuring they have billable, and more importantly, chargeable work. You will also find you will get less resistance from them and it will be easier to get them to comply with timesheet policies.
Managing utilization may often feel like a constant juggling act, but you can make it a lot easier by focusing on the 10 key areas above and engaging your staff to help ensure that their time and performance are optimized. While some of these areas require a lot of time and effort, the pay-off can be enormous. Ultimately these measures will reduce the effort and manual processes required to assign and manage resources every week.
June Jewell is the author of the book Find the Lost Dollars: 6 Steps to Increase Profits in Architecture, Engineering, and Environmental Firms. She is the president of AEC Business Solutions, helping progressive A/E firm leaders increase project profits and employee performance. Connect with her on LinkedIn and learn more about how to improve your project financial performance at aecbusiness.com.