Every business knows that one of the keys to profitability is to maximize resources – to be as efficient as possible. Of course, for an AEC firm the most valuable resources are your professional services staff. Optimizing the time and skills of your staff is critical to the delivery of better projects. Unfortunately, making the most of your team without overburdening them is a delicate balancing act. Over encumbered employees are often unable to perform at their best, while slack resources aren’t good for the firm in the long run.
What could increasing your firm’s utilization mean? A little adds up to a lot.
As a significant lever impacting profitability, utilization is one of the most keenly analyzed KPIs for AEC firms. The most common calculation is simple: look at the firm’s percentage of total labor cost that is spent on direct, revenue producing projects. A direct, billable labor cost of $600K and a total labor cost of $1M, yields a utilization rate of 60%. It’s clear that increased utilization should equate to increased revenue, but how much?
The 2021 PSMJ A/E Financial Performance Benchmark Survey Report revealed a median utilization for AEC firms of 59%. What if we could get that up to 60 percent – what would that 1% add to profit?
Let’s look at a firm that has 500 to employees, 80% of whom are billable at a rate of $150/hour.
Based on the above, if this firm’s billable employees have a 59% utilization rate, they can expect $61,360,000 in revenue. However, if they can get an extra 1%, they would earn an additional $1,040,000 in revenue, without adding labor costs.
The top quartile in the PSMJ survey reported a median utilization rate of over 65%. That would mean an additional $6,240,000 to the bottom line for the firm outlined above.
How can AEC firms optimize utilization rate?
Tracking and managing employee utilization is essential for good AEC firm management. Unfortunately, this is often easier said than done – tracking every resource effectively and accurately can be difficult.
So, what’s the secret? How do some firms get more out of their employees? Most of the firms that achieve the highest utilization rates have better processes around resource management. These firms can find available resources and apply them to active projects. They can find over allocated employees and shift the workload to others.
But at an AEC firm, resource management can be a difficult discipline to embrace. It’s harder still when you try to implement the process with horrible software. The only way the software will be widely adopted is to make it easy and fast: easy to find who’s available and fast to assign them to projects. This is where Microsoft Project Operations and aec360 comes in.
The screen shot below shows the Resource Scheduling Board. On the left you see a list of employees who fit a particular profile. That may mean they have a particular skill set or they hold a formal certificate or license. You can apply filters to easily see employees that match any resource requirement.
The blue, red, and white bars give us an indication of what these resources are working on and how booked they are. So, there is an easy way to filter employees based on their profile and an easy way to see their availability.
The next question is, how quickly can we assign available resources to open task requirements? The screen above puts the user in a drag-and-drop environment so that’s all they need to do. Drag the open task requirement to the resource and let it go. It’s probably the fastest possible way for you to assign resources.
Project Operations and aec360’s ease of use and quick utilization leads to full adoption of the software.
Analyzing Utilization and Balancing the Load
Throughout the process of locating and assigning resources, a lot of data has been collected regarding current utilization and future human resources capacity. Utilization vs. capacity is typically a concern for department managers who are trying to keep their people busy, but it’s also important to forecast utilization firmwide. In the screen shot below, Project Operations and aec360 shows us which employees are under or overutilized:
The view above looks at a particular role and allows the resource manager to “balance the load” and spread hours more evenly across the team. This has the potential effect of increasing utilization for the entire staff as time for more desired teammates becomes available.
Utilization reporting is essential information to have. Any gaps between utilization projections and capacity should influence future staffing decisions, pricing practices and go/no go behavior. Any increases in your AEC firm’s utilization yields additional profits, having a big impact on the bottom line. Interested in learning more about aec360? Contact us today.
Read the final article in the series on how to empower key stakeholders with insights.