Utilization - Not as simple as it appears.

One of the key metrics (and sometimes only metric) used to evaluate the performance of billable staff in a professional services organization is utilization expressed as a percentage of available hours.

The simple formula could be utilized hours / available hours.

But what assumptions are used to calculate these two variables? There is no right or wrong answer but the following should be considered (and the ERP system used to enter and bill time should be able to support these).

Available hours

- Part Time, Full Time and Casual Staff have different work hours and this should be reflected in the calculations?
- Should sick, personal and annual leave be included in the available hours?

Utilized hours.
- Are only chargeable hours to be regarded as utilized?
- Should approved internal activities such as development and pre-sales work be considered utilized?
- Should Travel (both billable and non-billed) time be considered utilized?
- How should utilization be calculated on a fixed price job, simple budget / hours placed against job or should it be first in best dressed until the budget is reached?

With these assumptions taken into account, a percentage utilization should be able to be calculated. Be offering this information real time in a clear and transparent manner embedded in an ERP system this simple calculation can provide good feedback and a benchmark for the performance of your billable consultants in a professional services firm.

Exotic EVM

Now that we have our “Earned Value” the next two indicators are most often used in a project portfolio reporting situation where program managers or senior project managers need some key KPI on a range of projects. These KPI are best displayed in a dashboard manner using an online reporting or collaboration tool such as Windows SharePoint Services™ (more on that later)

The values of these KPI's would provide a risk grading so that at a glance you could see if you had a problem (i.e. an SPI of < .8 is Red, .8 to 1.2 is orange and SPI of > 1.2 is Green)

The key benefit to using these measurement rather than raw dollars or hours is that its relative to the size of the initial budget. For example $10000 over budget might be a small or large depending on the size of the project but .5 as a cost performance index gives a relative measure regardless of the size of the budget that can be used to benchmark either against a corporate standard or against like projects.

The Key two Earned Value KPI that we will look at are:

SPI – Schedule Performance Index
Are we are accruing ‘earned’ costs faster or slower than budgeted (are we ahead or behind schedule) and by how much?
The formula for this is
SPI = EV / PV
A value of Less than one is behind schedule and a value of more than one is ahead of schedule.

Cost Performance Index
Are we under or over budget from an ‘earned’ perspective and by how much?
The formula for this is
CPI = EV / AC
A value of less than one is over budget and value of greater than one is under budget

Looking at our Sample Scenario the Dashboard entry on our Microsoft SharePoint Site for our on the second week would look like.





This concludes the series of articles on Earned Value, next series of articles we will look at using Windows SharePoint Services to help manage your projects.

Earned Value for Dummies Part 2 - The ‘Earn’ in Earned Value.

In the previous article we looked at a simple metric called the variation at completion (or the VAC as it is shortened to) which simply compared the budget at completion (BAC) to the forecasted cost at completion (EAC) to get a figure which indicates a forecasted budget overrun/underrun on the project.

Now let’s look at the ‘earned value’ of the work completed thus far on the project to calculate project performance.


The Earned value is how much of the current cost have been “earned” on the project.


The earned value is simply the total budget (sum of PV or BAC) divided by percent complete (how much of the work has been done). By comparing the Earned value with the Planned Value you get a cost variance which is used to calculate how you are tracking to budget. A positive cost variance is good, negative bad. Let’s look at the example from the first article.


After Johns disastrous second week when he lost his laptop and caused a two week overrun (as he had to re-do his work) John completed the task. Note how at the end of the second week his Earned Value was $0 i.e. he hadn’t earned any of the cost yet as he had not done any of the work.



This cost relationship can be illustrated in a graph to show the trends in the earned value against Actual and budget costs over time (see below)




In the Next Article “Exotic Earned Value” will take a look at the more exotic earned value calculations namely the Schedule Variance, the Schedule Performance Index the Cost Performance Index and the Cumulative Cost Performance Index.