In business, utilization rate is an important number for companies that charge their time to clients and for those who need to maximize their employees' productive time. This may reflect the overall efficiency of billing or productive use of an individual or company. Seemingly simple, there are two methods to calculate the utilization rate.
The first method calculates the billable hours divided by the number of hours recorded in a given time period. For example, if 40 hours of time is recorded in a week but only 30 billable hours, the utilization rate will be 30/40 = 75%.
With this method, however, it is easy to see how this level of utilization can be gamed: if a business stops recording time that can not be billed, its utilization rate will always be 100%.
The second way to calculate the utilization rate is to take the billable amount of hours and divide by the number of fixed hours per week. For example, if 32 hours of billable time is recorded in a fixed 40-hour week, its utilization rate would be 32/40 = 80%.
Note that with this second method it is possible to have a utilization rate that exceeds 100%. If 50 hours of billable time is recorded in a fixed 40-hour week, then the utilization rate will be 50/40 = 125%.
Another consideration is the absentee clock exceptions, e.g. go or sick. The general practice is to exclude this from the utilization calculation.
Differences in how utilization is measured may also encourage different behaviors, and some organizations may use some utilization steps. For example, a professional service or an independent consulting firm may rely on billable uses only. An organization that sells products and implementation or support services can take advantage of the idea of ​​"productive" use, which also measures and rewards time on activities like important product development, but which may not be directly billed to the client.
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Source of the article : Wikipedia
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