DEFINITION

The Utilization Rate measures the overall efficiency and effective use of labor. 

FORMULA

Utilization rate = direct labor hours / total labor hours

Shown as a percentage 

RELATED TERMS

Direct Labor
wages or salaries billable to a specific project and client.

Total Labor
The sum of direct labor and indirect labor (in time). If measured in dollars, it is also called total salary. 

INSIGHT

The utilization rate is important for firms that need to maximize the productive time of their employees. The utilization rate indicates the productive use of labor for an individual or the firm as a whole. It is common to exclude absent hours from the utilization calculation. A target for the firm as a whole is 60-65%, while technical staff (including principals) have a target of 75- 80%.

You definitely need to know this for the ARE.

Additional Resources:

YouTube | Hyperfine
Utilization Rate for PCM/PJM
https://youtu.be/PDsnyBff1AM 

PROBLEM

1. Refer to the employee time sheet. Calculate the utilization rate (as a percentage) for each week and for the month overall. Note: Firm Staffing = Office Operations
   
   
2. As a recently licensed Architect, Natalie’s firm has increased her billing rate to $125/hr. Over a three week period she billed $9,375 to projects. What is her utilization rate? Round to the nearest whole percentage point. 

SOLUTION

Part 1

Part 2