How To Improve Utilization In Your Client Accounting Service Practice
Utilization in professional services is not always well understood, despite it’s being a vital metric. When applied correctly, it’s especially useful in measuring the productivity of teams and individuals. What’s more, when leveraged well, it can help you improve your margins.
When utilization isn’t understood or applied correctly, it can lead to bad decision making that can hurt performance.
Anyone working in professional services will be familiar with the term “utilization”. But, like many terms used to describe a measure of performance, different firms or industries have their own takes on what it means.
Utilization is a measure of how resources are used relative to time. More simply, it is the number of hours worked as a percentage of total available hours. If someone in your practice works for 30 out of 40 available hours, then their utilization is 75%.
So far so good, but there are variations of the term we need to revisit.
“Billable utilization” is the most used variant of utilization in professional services. This is because it has a direct link to revenue.
Billable utilization is the number of billable hours divided by the number of available hours. Many CAS firms, big and small, emphasize this measure over anything else. Yet some business thinkers believe it’s a mistake for firms to only concentrate on billable utilization.
As we all know, there are many instances where hours are worked that are not billable. This is a natural part of doing business. In most cases this is unavoidable. Think about when re-work is required. What if the account goes over budgeted hours? These occurrences are frowned upon, but they happen.
“Client utilization” is like billable utilization but it considers both billable and non-billable client hours. With client utilization, the denominator remains the same (total available hours), but the top number combines both billable and non-billable hours.
This is a more natural fit as it is important to note that staff whose utilization is negatively affected may not be the cause of it. For example, senior managers must sometimes step in to set a struggling project back on course. Yet there may be no billable hours available on the project. In this instance, using client utilization is a more realistic and forgiving lens.
But what if my project requires a lot of internal work? Hey, it happens. Internal projects are a necessary part of every firm’s effort to improve. However, billable utilization and client utilization metrics suffer badly when non-core activities are added to the mix. Yet sometimes this is time well spent. Think of internal projects that involve creating marketing materials for a project.
Focusing only on billable or client utilization creates a space where internal work is neglected and avoided by staff. Everyone fixates on their value as defined by billable metrics. There is no appetite to do internal work. In fact, this often-necessary work is avoided like the plague.
Total utilization solves that. It applies to all hours worked on activities related to the job. These could be billable, non-billable, or client hours, divided by the number of available hours.
When you apply total hours, you inevitably find that your utilization number looks less impressive than when strictly billable hours are used. If concentrating on only billable utilization is so bad, what is the cost of doing this? Certainly, at the cost of internal work like marketing projects, and sometimes at the expense of important client work too.
Looking at the three measures in concert, you can see how they function in relation to each other.
Adjusting for Time Off
If total utilization looks lackluster, what if you account for when staff take time off? This measure further dilutes the utilization percentage but gives a much more meaningful picture of the contribution of your team members.
If someone took 30 hours of vacation in a 180-hour month, then this must be considered to reach a “time-off adjusted” number. Someone could have taken time off, their utilization could look weak, yet they might have been highly utilized during the time they were in the office.
If we pause for thought at this point, does it really matter what utilization measure you use? Different firms will have entrenched the measure that works best for them. Client and staff contracts will be created to get the best out of the chosen metric.
In reality, it’s not about the measure you choose, but about how well you can organically improve your performance so that whichever measure you use, you are getting the best out of your teams.
What are the utilization killers?
One of the challenges of outsourcing is that firm managers often end up reviewing and correcting tasks that have been offshored. This could be down to poor internal communication, poor workflow management, or staffing issues within the offshore operation. In times like these, the frustration and inflated cost reduces the benefit of offshoring.
Thus, re-work is a major utilization killer. Similarly, if a senior manager needs to step in to save a project, this is frequently non-billable work, casting a bad light on utilization numbers. Sometimes, utilization is affected by a poor workflow solution that forces staff to work inefficiently.
So, let’s talk about how you can overcome these main challenges in the search for better utilization, whichever type of utilization you use.
Can you find an offshore company that has built a solution that eradicates the need for your onshore managers to perform re-work. Yes, those partners are out there.
Not all outsourced partners can provide you with experienced managers to check the work. So, you’ll need to find the right partner with a provable track record of experience to back up any claims they make in this area.
Senior manager intervention
You want to avoid your onshore managers having to course-correct a project, and you also don’t want them spending too much time coaching and directing an offshore team. This work will certainly be non-billable.
Offshoring firms are getting better at hiring skilled and experienced people to act as the manager layer you need. Gone are the days when you have offshored some of your workflow, but your managers are even more busy keeping an eye on the work when they should have been free to concentrate on other projects.
Sometimes it’s in the workflow. Poorly conceived workflow models that have not been market tested or are simply a bad fit for your firm can set you back. They can result in senior manager involvement or simply unnecessary re-work or duplicated effort.
Deploying managers to sense check the workflow you have already outsourced reduces their efficiencies and reduces operating margin on the engagement, because it is unlikely you will be able to bill for repair work.
Any of these scenarios could wipe out the savings you make from offshoring, while killing your utilization at the same time.
Who can help me improve my utilization?
In the examples we’ve laid out, reducing avoidable rework means your people are maximizing their available time according to the utilization measure you use. Finding a partner like Accsurant that has provable technical and people management solutions means you can offshore with confidence.
Accsurant can help your firm optimize its Client Accounting Services practice, regardless of the size or maturity. We understand that outsourcing means we must hire an offshore manager to perform quality control. Also, it requires a work management system that is predictable and that produces results, like ours.
Expecting your existing managers to oversee people a continent away is a recipe for poor billable, client, and total utilization measures. Accsurant’s proprietary work management tool allows your managers to assign the work without having to manage the team.
The bottom line
No matter the utilization measure you use, you want to optimize your workforce. By addressing the most common utilization killers, you’ll find that your utilization measure looks better no matter how you construct it. This is because the fundamentals of sweating the asset are there if you work with the right partner.
Accsurant has created well-drilled and highly motivated offshore teams to deploy its peerless work management tool to optimize your performance while reducing the toll that needless extra work takes on your utilization.
Contact us for a one hour discovery session.