Staff Utilization Rate in Consulting Firms

Staff Utilization Rate in Consulting FirmsStaff Utilization Rate in Consulting FirmsIn professional services firms that bill clients by the hour, such as management consulting, public accounting, or law firms, the utilization tarif is a common metric for evaluating the economic contribution made by members of staff. It typically is computed as the individuals actualbillable hoursdivided by the number of voreingestellt work hours in the period in question, usually 40 hours per week. Significance for Careers Utilization rates, whether firms acknowledge it or not,frequently factor prominently into decisions about compensation and promotion of employees. The cultures of many firms that use billable hours are often are marked by utilization as a common topic of discussion among members of staff. In some cases, it may be a source of bragging rights for those reporting the highest levels. Utilization Rate Calculation The numerator of the utilization rate is the actual number of hour s of work by the professional in question that wasbilled to clients in a given period. Billing periods can be a week, a month, a calendar year, or a fiscal year. The denominator normally is based on the customary standard work scheduleof 8 hours per day, five days per week (normally Monday through Friday). Thus, the denominator will be 40 (5 days times 8 hours per day)for a weekly computation. For a monthly computation, it probably will reflect the actual number of Monday through Friday weekdays in that month, which can be as high as 23. For a year, the denominator probably will be rounded off to 2,000 (reflecting 50 weeks at 40 hours per week). Accordingly, a staff member who bills 60 hours to clients in a given week will have a utilization rate of 150% (60 hoursdivided by 40 hours) for that week. Likewise, someone whose billable hours were 2,500 for a calendar or fiscal year would be deemed to have a 125% utilization rate (2,500 hours divided by 2,000 hours) for that year. A utili zation rate of 150% or more often is taken as a hallmark of a top performer. Flaws in the Utilization Metric In addition to the hours billed out to clients, staff members in management consulting, public accountingand other professional services firms inevitably spend significant amounts of time on internal administrative tasks that do not produce revenue, at least not directly. For example, the time spent on prospecting clients or developing pitches for possible engagements is not reflected in the utilization statistics. As a result, the undue weight given to utilization rates in some firms can unfairly devalue the work effort contributed by variousmembers of staff. Unfairness Staff members at the lowest levels of a consulting, accounting, or other professional services firmtypically have minimal discretion in arranging and scheduling their work assignments. Thus, someone who is tapped by senior staff for a succession of non-billable administrative tasks during the course of an evaluation period is bound to have a utilization rate that deceptively understates his or her work effort and contribution to the firm. versetzung In some firms,decisions about pay and promotion (especially in a firm with an aggressive up or out policy) can beheavily weighted on utilization statistics. Moreover, the internal management reporting systemswithin the firm may not contain sufficient detail on the precise nature and value of the non-billable hours and assignments that have occupied the time of staff members. In such a situation,those staff members with high proportions of non-billable hours may be at a disadvantage relative to their peers with higher utilization rates during performance reviews. It is especially so if these reviews and decisions about compensation and promotion areconducted largely by partners who may not have had much personal contact with the staff members in question. Pressures on Staff Professional services firms, such as (but not limited to) man agement consulting and accountingfirms, typically will have formal, written policies (and will give occasionalstern reminders to staff, either verbally or in memo form)about the absolutenecessity for honesty and integrity in filling out timesheets and, thus, in assigning billable hours to engagements and clients. Nonetheless, if partners or other senior managerssignal that utilization is a key factor in pay and promotion (or if a tacit understanding to this effect is part of the organizational culture), staff members will feel a not-so-subtle pressure to pad their billable hours.