What is Employee Utilization? What, why and how to increase utilization rate
Employee utilization rate, Track employee utilization
What is Employee Utilization? What, why and how to increase utilization rate
By Newwe - Sep 7, 2022
Even if we write dozens of articles on employee utilization, it still would not be enough to describe its importance and how employee utilization can help organizations in achieving long-term success and profitability. While the concept looks remarkably like employee productivity, there is a fine line between employee utilization and employee productivity.
In this article, we will help you to avoid the confusion between utilization and productivity of resources, and what, why and how employee utilization is significantly important to achieve the overall profitability and productivity of the business.
What is the difference between employee utilization and employee productivity
Employee utilization is the duration of time allocated to a resource to work on a specific goal, project or task, while employee productivity is defined as the amount of work that is completed in an allocated time.
It’s clear that high employee utilization does not always equal high productivity. Some employee's may work for a few hours and complete their task or target quickly compared to others simply because they are more efficient and more organized. So, employee utilization is all about how the allocated resources in your organization utilize their working hours and contribute to the organization’s success and help in achieving a better result.
Why do most organizations fail to effectively utilize their employee's?
Most organizations claim that their biggest cost of doing business accompanies people's cost; well, this is sometimes more than half of their overall cost and in service-oriented organizations, it could even go beyond 2/3 of their overall cost. But why is this undue difference in capability and talent utilization in organizations? The estimate of ineffective employee utilization, especially for the middle and senior executives, is quite high compared to others in most of these organizations. Here are some reasons that explain why some organizations are failing to fully utilize their talent pool:
To be able to compete in a disruptive and competitive environment, and accelerate business value, it is critical for an organization to link the right employee's to the right roles and responsibilities, which can create the utmost value. Large enterprises or startups find it daunting to match their employee's to new roles and align talent to open positions because of poor resource management.
Often as a result of misrepresentation about the candidate’s skills during the interview, some companies may end up with bad hires where the recruited employee's are likely to be ineffective for the roles. Additionally, bad hires could happen because of a failed background check for employment by an interviewer.
A poor job structure that does not fully take advantage of the cross-functional skills of your employee's, where they are either expected to do the job right away or may not be delegated to many tasks that they could manage. This harms your business and increases the employee attrition rate.
Inadequately trained or not trained employee's are likely to exhibit poor productivity, low-quality work and increased work-related stress such as long hours, conflict with co-workers or management, job insecurity and more. Initial and continuous training, upskill programs and individual performance evaluations are needed to effectively utilize employee's.
Resource allocation to multiple projects without tracking their work and quality, number of hours spent, actual billable and non-billable hours, over-assigning or under-assigning resources will result in ineffective employee utilization and project failure as well.
Why is tracking employee utilization important?
Employee Utilization rate tells you how engaged your employee's are in allocated tasks and gives you more insights into their productivity levels at work. This further helps in making smart hiring decisions and allows you to identify whether your employee's are overworked or underworked. Eventually, you can identify employee's who are very productive, who spend the right amount of time on allocated projects and deliver quality work. Based on this analysis, you can reward your employee's fairly.
How to track employee utilization?
To track utilization of your employee's, you first need a dedicated tracking system in place that gives you data to track employee's’ working hours across various projects, tasks and activities. However, let’s look at the utilization rate formula and how to calculate the ideal utilization rate.
Here’s the formula to calculate employee utilization rate:
The number of billable hours worked divided by the number of working hours in a day (x100)
For example, let’s say John billed for 36 hours from his available 40-hour week. His utilization rate will be 90%
There are several ways to calculate employee utilization rates based on whether you want to analyze organization’s resources utilization, pricing, hiring, or health, and more. To calculate utilization on a firm-level, you will need the total utilization rates of all employee's divided by the total number of employee's. The utilization of any employee needs to be tracked based upon the systems he/she is working in and how much time is being spent there.
Newwe with its advanced machine learning techniques provides businesses with real-time analytics that help to derive data-driven decisions. The platform comes with connectors that can get data from other systems and then track within Newwe. It has dedicated timesheet software that will help you manage projects, goal, tasks, and track the total billable hours, in addition, you will have details on the remaining hours of your employee's in real-time.
What is an ideal utilization rate?
A good employee utilization rate applicable for most modern enterprises and startups should be approximately 80%. However, an ideal rate depends on the firm; there is no specific number that is ideal or works for everyone. And certainly, it’s not the case of the higher, the better.
If your firm’s utilization rate is always close to 100 percent, it suggests that your workforce is overloaded with work, and it’s an indication that your workforce is potentially close to burnout. If the utilization rate is too low, it typically indicates future risks and it’s an indicative of poor planning or allocation of resources across the organization.
Newwe gives you predictive analysis over time of which projects or activities need more resource allocation and helps you in proper resource planning. The platform also gives you smart insights about how employee's are spending their working hours and what is their most productive work time.
Doing things in a smart way
How much of your resources are being utilized in your organization? How about introducing a smart gamified Employee Experience platform like Newwe to bring out productivity and utilization of employee's at its best. Follow the steps and information presented in this article quite often and see how your organization can improve employee utilization rate and climb the ladder to success.
Get in touch with our business development team to explore how Newwe can help you to harness true productivity and utilization of your employee's.