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Managing Labor Utilization Using “The Rear View Mirror Method”?

Firm management through the rear view mirror

These days, everyone is looking especially hard at labor utilization (a.k.a., charge-ability). And rightfully so.

But are you doing it correctly?

In working with firms to help them improve their business performance, we have found that most principals look only at hourly utilization, i.e., the percentage of total hours that are charged to jobs. But that treats an hour of overhead by the receptionist exactly the same as an hour of overhead by a senior principal— yet the financial effect is far different.

If this is the only way you look at utilization, when it comes time to cut staff (as is now the case at many firms), you are likely to cut a disproportionate amount of lower-paid staff. The result is a big increase in hourly utilization but not much improvement in financial performance. Worse, this approach protects under performing principals who are sucking more money out of the company than the profits they generate for the company.

Instead of looking just at hourly utilization, also look at “dollar utilization,” computed as follows:

Dollar utilization = labor dollars charged to projects/total labor dollars

We also see another, even more common, mistake. Principals try to manage utilization by looking at the previous week’s results and taking actions accordingly. That’s like putting a sheet of black plastic over the windshield of your car and trying to drive it by looking at the rear view mirror.

Here’s a better way: Together with their time sheets, ask your employees to forecast what they think they will spend their time on during the coming week(s). These are some of the advantages that are being realized by the firms that have implemented this proactive process:

1. You can actually influence time-charging practices instead of just reacting to them after the fact.

2. Your manpower planning starts with a “default” of each employee working on what they had planned to work on. So you need to look only at exceptions, which make your manpower planning meetings much more efficient.

3. You start to develop a culture of personal accountability in which your employees actively seek out someone who has a job number and can use their services. After all, who wants to keep putting down zeros on their time forecasts?

A word of caution about implementing this proactive process. Several firms who have done so report that they initially encounter lots of resistance from staff whose attitude is, “How am I supposed to know what I’m going to work on? It’s my manager’s job to give me assignments.”

This is part of the cultural transformation from “it’s my manager’s job to feed me work and it’s my job to do the work” to “I’m a semi-independent contractor within my firm and it’s my job to create a demand for my services.”

PSMJ has developed a simple Excel template to help implement this process. For a complimentary copy, just send an e-mail request to ehannan@psmj.com.

David Burstein is a PSMJ consultant and seminar leader at PSMJ’s A/E Principals Bootcamp. He can be contacted at 770-723-9651 or dburstein@psmj.com.

About the author

Dave Burnstein has written 4 articles for Axium411

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