Maximizing billable utilization is one of the primary goals of most Services organizations. And most project managers know that managing the cost against budget performance of their projects and minimizing non-billable change orders is what makes or breaks a career in project management. It’s also the number one skill set that Services Managers look for when bringing project managers on board.
If this is the ultimate goal for most professional services companies, then why do project margins fluctuate so wildly and why is everyone so surprised when it happens?
Is it a people, process or systems problem?
It’s all of the above. But, before you dig in, there are three areas you should consider if you want to improve billable utilization across people, processes and systems:
- Early warning signals when a Services project is headed for trouble.
- Identifying the specific problem area.
- Cycling back lessons learned in a failed or almost failed project, so it doesn’t happen again.
Early Warning Signals of Billable Utilization Issues
Managing a project against a total Services dollars’ budget is like driving your car while looking out the back window. Most Project Managers start with the total Services dollars that were quoted to the customer as their working budget.
The challenge with this approach is that you don’t find out you’re in trouble until you’re closing in on the maximum project Services budget. By then, it’s often too late to do anything about it.
Some Project Managers don’t even get access to the actual Services hours/costs until after the project closes. This makes it very difficult to:
- know the project is in trouble early, and
- make the appropriate course corrections early enough to affect the project outcome.
Specific Problem Identification in a Failing Services Project
If you can’t easily identify the problem, how do you fix it? Even if you did have an early warning that a $75,000 project was $5,000 off course, how do you know where that extra $5,000 came from?
It’s like having a warning light go off in your car that just says “warning”, but with no indication of whether it’s an engine, tire pressure or door ajar issue.
Did the over-budget issue come from design, set-up, testing or training? If you don’t have access to that detail, how do you know what to fix?
So even if a Project Manager knows their project is in trouble early, unless they have the detail of what’s wrong, it’s very difficult for them to know how to take action to get things back on track.
Cycle Back Lessons Learned from Previous Projects
Let’s be honest – unless something really, really bad happens, going 6% or 7% over budget isn’t really ‘that bad’, is it? So, it’s hardly worth the manual time and effort to confirm where those additional costs actually came from.
Now, if you were over by 50%, then management will demand an investigation and try to make changes in order to cycle that very expensive lesson learned back into the organization, but 6% or 7% is not really worth it. Unless, of course, you’d like to get from a 72% billable utilization rate to a 78% or 79% billable utilization rate. Then that additional 6% or 7% would make all the difference in achieving that goal.
Three Innovative Solutions to Maximize Billable Utilization Rates
These three innovative approaches will consistently give Project Managers a better shot at maximizing project billable utilization:
1. Give your PMs an early warning system
To come up with a $75,000 project Service budget, a pre-sales engineer probably figured out how many design hours, set-up hours, testing hours and training hours the project required. These hours were then multiplied that by the bill rates for those services to come up with the $75,000 total project budget they submitted to Sales for quoting purposes.
The original detailed “hours” budget should be documented by specialized resource type and given to the Project Manager as their “hours working budget. This way, Project Managers can issue project work assignments in alignment with the detailed “hours” budget. For example, 50 design hours, 300 set-up hours, 200 testing hours and 75 training hours.
Now, as time sheets come in, if there’s an unexpected extra $5,000 hit to the project budget, the Project Manager will know if that was the result of an extra 40 design hours, set-up hours, testing hours or training hours.
If it was an overage of design hours, for example, the Project Manager now knows early in the project that there’s an issue, and now has 85% of the project budget left to fix it, instead of finding out at 95% of their max service dollars budget that they have a problem. By providing that early warning, the Project Manager can now make adjustments to try and get the project back on track.
2. Give Project Managers specific details about what’s wrong
In the scenario above, not only does the Project Manager know early on that there’s a problem, they know specifically what the problem is (design hours). It’s the equivalent of a ‘check engine’ light. Because they now know specifically where the project hours’ budget overage is coming from, they can take immediate steps to fix it. For example, extra design hours may warrant a billable change order if the customer changed the scope.
However, the reason they can take specific action is because they know the specific nature of the problem – and they know early enough to do something about it.
3. Learn from past project mistakes, big and small
Instead of only learning from the ‘big’ and expensive project mistakes, if PMs are provided with the details on estimated and actual hours by specialized resource type in real time, Project Managers now have the ability to cycle all implementation lessons learned back into other projects. Even more importantly, implementation lessons learned can now be cycled back into the quoting process. The 6% or 7% project services cost overrun happens once, but never again.
This is how consistent maximum billable utilization rates are ultimately achieved and how services organizations move from “o.k.” billable utilization rates to great ones. If the Service organization is unable to easily and consistently cycle the lessons learned back into other projects or the quoting process, it’s likely that the same mistakes will consistently be made and so billable utilization rates will remain “consistently” lower than they could be.
If you want your Project Managers to avoid these billable utilization silent killers and consistently achieve maximum Services billable utilization, you need to address people, processes and systems with early warnings, specific details and past lessons learned.
For more innovative ideas on how to maximize billable utilization, download the Promys Labor Utilization Quick Start Guide, designed for Services Managers who want to kick start their best-practices and stop silent utilization killers in their tracks.