Utilization is one of the common metrics in operations management – be it human resources or any other resources. It is usually calculated as a ratio of ‘utilized efforts or hours’ to ‘total available efforts or hours’. While it is important to optimize the utilization of resources, we should also focus on how much of that resource utilization is truly productive.
In my experience, I have seen places where team utilization levels were pretty high, sometimes more than 100%. However, when I did a quick study, I found that the true productive utilization was in low double digits (in the range of 15% ~ 26%). The way I define productive utilization is by looking at only efforts or hours spent towards value-added activities in the numerator.
While the utilization may be higher, in the above case, a significant amount of effort went towards activities that were not truly productive. Some examples of non-productive activities include duplicated efforts, rework, unnecessary communications, follow-ups, etc. In other words, an opportunity to cut efforts by over 75% without really impacting the business or customer value. Of course, one should approach this with a detailed analysis to segregate non-value-added activities from the core.
Shifting focus from measuring just utilization to measuring productive utilization gives the true picture of efforts on value-added activities.
By the way, do you know that when you improve productive utilization, one of the interesting by-products is a significant improvement in quality levels!
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