Labor Utilization Series:
Ending the Vicious Circle of Low Labor Utilization Rates
In order to increase labor utilization rates and make the services team more profitable, many companies put all the responsibility on the sales team to sell more in order to keep the field technicians fully booked. Although this seems like a reasonable strategy on the surface, a very high labor utilization rate can sometimes come at the expense of customer satisfaction (e.g. finishing or starting jobs late) or employee satisfaction (too many late nights & weekends). This can have a negative impact on repeat business, which negatively affects future labor utilization. It can also affect employee satisfaction which can negatively impact resource availability (when they get sick or quit from overwork). This strategy can create a vicious circle and limit services profitability.
The balancing act between optimal current and future labor utilization really comes down to accurate resource forecasting.
Let’s look at a typical resource forecasting scenario:
“I have ten field technicians and each of those techs has 40 hours a week to work. So, that’s 400 hours a week of potential billable hours. Let’s get the sales team to book as many of those potential billable hours as possible.”
Inaccurate Resource Forecasting – The Problem with this Approach
The issue with this blanket approach is that not all field technicians are created equal. Some have specialized skills, structured cabling, Cisco or other certifications, PMP (Project Management) or specialized training knowledge. So in reality, a bucket of 400 hours is pretty much useless for real-world forecasting of your engineer / field technician hours, as those 400 hours might be comprised of 77 project management hours, 241 installation hours, 19 structured cabling hours and 63 training hours.
Achieving More than 65% Labor Utilization through Accurate Resource Forecasting
So, ideally in order achieve more than 65% labor utilization, you need the ability to forecast expected hours by specialized resources and you also need to be able to forecast those hours 30, 60, and 90 days in advance. To achieve both services profitability and customer satisfaction, you need to know:
- How many project management, installation, and training hours you need next month?
- How many of those hours require specialized knowledge or certifications?
- What are your current bookings in all those specialized resource areas so that you can calculate the delta?
This becomes information of strategic value in order to make business decisions that will make your services organization more profitable and move you towards the ideal 80%+ utilization rate.
“We’re forecasting a little light in structured cabling 60 days from now. We have the opportunity to take a low-margin cabling job we were going to turn down. We should take it so that we don’t have our cabling people sitting on the bench a couple months from now.”
Automating Labor Utilization Means Optimizing Labor Utilization for the Growing IT Service Provider
In a smaller shop where most field technicians are cross-trained, this kind of forecasting and scheduling can, for the most part, be done manually. As your business grows and the technicians become more specialized, manually forecasting and tracking these specialized hours becomes near impossible.
Even if you could get an accurate snapshot of forecasted specialized resources at the initial customer quote stage, the quote versions and scope change over the course of the sales process. Shifts in schedules in existing projects can also make a major impact. So, updating the resource forecast manually, at the level of resource specialization detail required to make the resource forecast truly useful, becomes truly unfeasible.
Automation becomes the only way to adequately address the labor utilization and resource forecasting issue to allow you to plan and forecast specialized resource hours to achieve optimal labor utilization. Ultimately, this means increased services team profitability and customer satisfaction, which in turn, means repeat business and the vicious circle has transformed into a circle of profit for your IT services organization.