Identify Your Underutilized Resources for Better Profits
WHAT IS UNDERUTILIZATION AND WHY IS IT IMPORTANT?
Underutilization is a situation where resources are inefficiently used or not used to the fullest capacity. Underutilized resources can impact your company's profits; hence it should be among the major management concerns. It can be in terms of labor, machines, raw materials among others not utilized to the fullest capacity.
WHAT IS UTILIZATION RATE?
No matter how efficient your business is, time is always the limiting factor. There are only 24 hours in a day. Thus, if you take away public holidays, sick leave and vacation time, most companies only have between 1600 to 1800 working hours every year.
However, not every other hour is billable because you need to set time aside for activities such as business development, training, team building among others. All these activities constitute hours that are non-billable, while the rest is your billable hours. Both make up the total available working hours.
So, utilization rate typically is a measure (as a percentage) of how this available employee time is used productively.
HOW DOES UTILIZATION RATE AFFECT PROFITABILITY?
From the inception of your business, it's pretty easy to identify the impact of utilization rate on your company's profitability. And, if you are underutilizing your available resources, you are missing out on enormous profits.
However, if you dig deeper, you can recognize how much utilization rate impacts virtually all your business' operation aspects.
For instance, if you consider your salespeople, they cannot pursue all prospects without data utilization. And if you provide utilization rates to your employees, they can pursue prospects that will lead to profitable work.
This is how utilization rates affect profitability:
? Better Understanding of Billing Rates
Almost every business owner asks how much they should charge for the services they offer. Most people calculate their billing rates by adding resource salary, profit margin, and overhead costs and dividing with the sum of the available hours.
Although this approach is implemented by many, it ignores the costs of running the business. Your resources rarely have 100 percent utilization. This is because you'll go through slow periods when you struggle to find clients, and there are peak periods when you even employ more resources to meet the high demands.
Thus, integrating utilization rate within your billing rate will give you a more precise profitability estimate of your business.
? Build Talent
You can use utilization rates to spot talent development problems. For example, you can delegate your highest value projects to your company's senior resources, and you may have them mentor junior resources as well as business development.
Tracking utilization rates by skill can assist you identify junior resources requiring more training.
? Identify Skill Demand
The best way to know what skill or service specialty is right for your business is to check the utilization rates of various skills over time. This way you can identify:
? Which skills you need to develop or overlook
? The skills having seasonal demand, and
? The type of skills you need to hire.
WHAT DOES A HIGH OR LOW UTILIZATION RATE MEAN?
Your utilization rate gives you valuable insights into your company's profitability and productivity. However, if the utilization rate tends to be too high, means that your resources are overworked and a lot of poor planning and out-of-scope work. In such a case you should consider to add more resources.
On the other hand, a low utilization rate means that you're not putting in enough work and the company is not making money.
HOW CAN A COMPANY INCREASE ITS UTILIZATION RATE?
Now that you know how a low or high utilization rate impacts your company's profitability, let's look at some of the best ways you can optimize utilization rates:
? Time-Tracking Resources
It's nearly impossible to improve utilization rate of your business' resources without keeping track on the different ways your resources spend their time. While this is evidently not an easy task, you can use time-tracking software to measure how time is utilized within your company. Incorporating time-tracking software into your workflow, may lead into more accurate data and much higher compliance.
? Employ Better Reporting
Beyond the tracking of your utilization rates, you also need other major metrics such as realized rate and profitability to help improve your company's resource utilization rates and operations.
Time-tracking software also comes with reporting capabilities, which are meant to show you how utilization rates for every resource compares to their revenue generated and expenses. This, in turn, will help you recognize profitable resources for your company and the ones that are not to help you make strategic changes to increase their utilization.
? Set Benchmarks for Utilization Rates
You also need to consider establishing benchmarks of your utilization rates and sharing them with your workforce. Also, be sure to offer your employees resources needed to reach your target goals.
This is a sure way to track utilization rates across the entire company and enlists the workforce in a key metric for your company's profitability. This motivates employees to achieve the benchmark goals.
? Track Your Utilization Rates
In order to increase your organization's utilization rate, you need to consider tracking it throughout the entire company instead of just a certain office or department.
? Cut Down 'valueless' Bench Time
The first step to minimizing valueless bench time is to identify the amount of time wasted within your company and eliminate aspects that tend to lower utilization rates.
A management tool for your workspace, for instance, can help automate and control labor-intensive jobs. This will help ensure that you maximize on your workers' valuable time and guarantees optimal distribution of resources.
WHY COME TO US?
Are you looking to learn how you can optimize your profitability for your business? Look no further! Stacey Helen has years of experience helping different clients to optimize their businesses at every level, from marketing to sales, to achieve greater profits and success.
Contact us today to learn more.