RealizationRealization builds upon the tried and true resource Utilization by adding the concept of Realized Rate and calculating a combined ratio. This metric alone can gauge the health of your Professional Services Organization when measured over time. All three metrics (resource Utilization, Realized Rate and Realization) may be applied to an individual, but become statistically significant when applied to groups, divisions and strategic business units. For purpose of simplicity I will illustrate the concept by applying these ratios at the individual level. UtilizationUtilization is calculated by dividing actual hours billed by the adjusted target bill hours. The adjusted target bill hours make this a 'net' ratio. The industry agrees that there are a possible 2080 hours of billable time for one recourse in 1 year (52 weeks times 40 hours). However, the 2080 figure does not take into account vacation and sick time, time spent training and generally improving the value of the resource, assistance in the sales process or natural bench time between assignments. Planning for these diversions results in an adjusted target bill hour. For example: Joe bills 1800 hours in a year. While there are a possible 2080 hours in a year we adjust that figure to 1920 to accommodate 2 weeks vacation, 1 week training, and 1 week anticipated bench time. The resulting ratio is 94% net resource utilization. This utilization would be considered excellent by many measures. Realized RateRealized Rate is actual bill rate divided by the target bill rate. Let us say for purpose of example that Joe should bill out at $100 an hour but achieves only $85 per hour through discounting. The resulting ratio is 85%. This ratio would be considered fair to good on its own. RealizationRealization is (Actual Hours Billed x Actual Bill Rate) divided by (Target Hours Billed x Target Bill Rate). To expand on our example above we calculate (1800 x $85) divided by (1920 x $100). The resulting ratio is 80%. The significance of RealizationResource Utilization and Realized Rate have limited meaning alone. In fact, they only become relevant when contrasted. Each metric represents opposite end points in the same continuum. To prove the point we employ the principle of extremes. For example: It is easy to envision that a resource could be utilized 100% if you did not charge for his time. It is equally easy to envision that a resource would have zero utilization if the bill rate were unreasonably high. In the example above Joe has achieved an above average utilization at the expense of his bill rate. Discounting of his bill rate should be discouraged unless or until his utilization suffers. Because utilization and bill rate possess some measure of tolerance it is probable that bill rate could be increased without decreasing utilization. … How I came to Realization As Consulting Practice Leader at Total Solutions Group I contracted with IBM Global Services for the creation of IBM’s Runaway Project Remediation Practice. The charter of this practice was to evaluate IBM projects for risk factors, identify solutions if warranted and manage troubled projects back to health. IBM estimated that in 1996 alone $25,000,000 dollars were lost in failed projects and penalties. It was the practice’s goal to not only stop this loss but introduce a project management methodology that would reduce project risk in the future. The Practice Manager of Runaway Project Remediation, Mike
Hollander, contracted not only myself but Mr. Jim Wilburn for his
internationally known Project Risk Assessment Model. It was through working with
Jim that I came to know Realization. Mr. Wilburn first termed the combination of
Utilization and Realized Rate as Realization. |