Question

What do you believe is a reasonable availability or utilization rate (the percentage of your time that is charged to billable projects) is for a staff engineer one month after the engineer starts working for the company after just graduating from college?

1. 6 Months?
2. 1 Year?
3. Explain the reasoning for your responses

Answer 1

Utilization rate is the percentage of time a person spends doing billable work. The utilization rate is not the billing rate. Billable hours are the number of working hours you can charge to your client, while the utilization rate is the percentage of total working hours that can be billed.

Various industries have target utilization rates. For example, in engineering, a utilization rate of 67% is considered optimal, which independent design consultants aim for a utilization rate of 75%. Utilization rates are not only used in billing but can help organizations to gain a sense of how the business is operating and where improvements can be made.

Here’s the formula to calculate utilization:

Total Billable Hours / Total Hours Available

Let’s say we want to find the utilization rate for Mehul, a staff engineer at a construction firm. In a given week, he has 40 available hours. That works out to 2,080 hours a year. Assuming he takes two weeks of vacation, his total available hours for the year is 2,000.

Now let's say he bills 1,500 hours to various client projects throughout the year. Using this utilization ratio, we can calculate his utilization rate as:

1,500 / 2,000 = .75

His utilization rate was 75%. This means that last year Mehul was 75% billable. Had he billed all 2,000 of her available hours to billable client work, his utilization rate would have been 100%, but that almost never happens and it isn't desirable.

Why not? Because realistically, employees have other job responsibilities that aren't billable to clients, and optimal utilization rates need to account for non-billable time.

Mehul is the head of his department, so he's tasked with training junior department members. He's responsible for helping with project estimates. And he takes time for lunch and (much-needed) coffee breaks. None of these functions are billable, so Mehul's optimal utilization rate should account for the time he spends on these activities.

For this reason, most organizations set target utilization rates for their employees that factor in how many of their available hours they need to spend doing non-billable work and how many hours they need to bill for the company to maintain profitability.

Target utilization rates vary from person to person and between positions. Managers generally have lower target utilization rates, while front-line personnel have higher rates.

In Mehul's case, his target utilization rate is 75%. This means that at least 75% of his available time should be spent on billable work, while no more than 25% should be non-billable administrative, unbillable revisions, or pro bono work. As long as he stays at, or better than, these percentages, he's considered to be utilized efficiently.

a)6 months

The fresher staff engineer will have a less utilization rate till 6 months because he is not yet ready to grasp all the roles and responsibilities he has because 6 months is usually considered a probation period. Still, varying from firm to firm the industry standard for engineering utilization rate is about 65-70 %

b) 1 year

After a year, when the probation period is over, the employee is expected to have a utilization rate of above 70% since now he has had the full hold of his profile and the associated responsibilities to it. He is now well versed with the clients, the firm's modus operandi and hence should be considered more utilizable.