Measuring Utilization

One of the key indicators of the health of any IT organization is how busy the resources are. During the boom times, it was common for several outsourcing companies to maintain a large pool of resources on bench. This was done for multiple reasons - large projects that would materialize within days, uncontrollable attrition, new offices starting, aggressive growth plans, etc. But this is the age of lean companies. And the more utilized the resources are, lesser are your overheads. That poses the question of how utilization needs to be measured. Ofcourse the most simple way would be to take a ratio of resources who are invoiced to total resources on any given project. This means that the utilization (for that project) is a fixed number throughout the year (assuming no change in resource count & no change in invoice amounts). A better way would be to track hours invoiced versus total hours spent by all resources. We could refine it further by adding financial data i.e revenues generated on the project to total overheads of the project. A small project might look really good from an hours based utilization but monetarily, it could be that our overheads are much higher than revenues. Ofcourse financial analysis is only one parameter and projects could be done for strategic reasons (getting into new domains, the upside of winning a large project, etc). Neverthless, utilization measurement is critical in IT outsourcing and vendors ought to focus on improvements year on year to stay in the race.