In the professional services business, utilization and profitability are two sides of the same coin. It’s quite simple to optimize one at the expense of the other, at least in the short run. Discount your rates heavily, and your utilization will soar, but to the detriment of profitability. Overwork your people without investing in training and professional development, and you’ll see great resource utilization today, only to see mass exodus kill profitability (and morale) next quarter. Figuring out how to optimize both at the same time is one of the real keys to running a successful services firm. Optimizing both, however, can pay off big as we discuss in our Infographic: What it Takes to Make $10 Million in Profit.
In our last blog post, Infographic: 8 Fast Facts about Professional Services Automation, we talked about some recent studies that showed how organizations using PSA software like Projector were able to keep their people busy and profitable at the same time. What we didn’t really talk about is how professional services management software does this, so let’s dive into the first half of that story today.
Resource utilization is one of the key measures that services firms use to gauge the efficiency of their businesses. It expresses what percentage of their time people spend generating revenue for the organization. Since the vast majority of resources in most services firms are salaried employees, that time not spent generating revenue is still costing the organization money.
Firms that don’t use a professional services automation tool generally have lower utilization rates (67.3%) as compared with firms that use other PSAs (70.7%). Of the companies that did use software to help them manage their services firm, Projector users achieved the highest resource utilization rates (74.3%). This utilization differential of around 7% means that each billable resource within organizations that used Projector spent 0.8 more months each year generating revenue.
PSA software solutions like Projector provide a rich toolbox to help organizations improve their resource utilization, including:
Measurement and analytical tools
Organizations that don’t use a services management tool often run their businesses with a cobbled-together web of interconnected spreadsheets or, worse yet, on disconnected whiteboards scattered throughout the organization. In these environments, different people often have different definitions of what resource utilization means, and access to what actual utilization was is far from open or ubiquitous.
In a company that uses a centralized PSA tool, however, everyone has a common understanding of how resource utilization is measured for that specific business. And, the data of what an individual’s or a group’s utilization actually is can be provided as openly as needed, from the management team down to the individual consultant.
Staffing and resource management tools
Once an organization understands how to measure utilization, it can go about the business of managing it. One of the keys to efficiently managing utilization is having access to tools to enable the individual project manager to express the staffing needs on his or her projects. Resource managers then need capable resource management and scheduling tools to efficiently match those needs to the availability of appropriate resources.
While that sounds fairly easy in theory, what world-class organizations have figured out is that very small incremental improvements in this staffing and resource management process can yield huge rewards in terms of utilization. Enabling a project manager to express not just when a new team member is needed, but how flexible he can be in terms of start dates and skill sets can mean the difference between being able to handle existing work with current staff or having to hire someone new. Providing a resource manager with the ability to survey availability at a glance to quickly commit to a start date could be the difference between winning a new piece of business and losing it. Simply being able to model a project’s real staffing needs with more specificity than just saying “I need a half a developer for the next three weeks” can boost utilization by a few percentage points.
Capacity planning and management tools
Finally, once an organization is able to model the micro world of individual people and individual projects needs in an accurate, trustworthy manner, the real fun begins. Managers can take and aggregate together all that granular detail to form a more macro view of supply and demand for people with various skill sets, expertise, certifications, experiences, or geographic location. This view provides answers to the critical strategic questions of whether to hire, whether to partner, what skill sets to develop, what new business can be handled, whether the future holds feast or famine.
Without a system, figuring out answers to these questions is a nightmare of data collection, consolidation, cleansing, and analysis…followed by doubt about its veracity and consistency and continued relevance. With a system, especially one that provides great performance dashboards, this information is universally accessible, painless, consistent, accurate, real-time. So, by providing the tools professional services managers need to measure performance, pair up people and projects at a micro level, and manage supply and demand at the macro level, professional services automation software helps organizations optimize utilization in the right way. Not through discounts, rate cuts, blue light specials, and fire sales, but through smart and efficient, well, utilization, of the resources at hand.