How to calculate utilisation, and why the number misleads

The formula

Utilisation is productive time as a share of available time:

Utilisation % = (productive hours ÷ available hours) × 100

Two variables, and both are harder to agree on than the formula suggests. “Available” is usually contracted hours less leave, training and known absence. “Productive” is where the argument starts: billable, or all client-facing work, or anything that is not administration?

A worked example

The arithmetic is trivial. The judgement is not. Take a team of five people on 38-hour weeks:

• Available time: 5 × 38 = 190 hours per week
• Recorded as productive: 114 hours
• Utilisation: 114 ÷ 190 × 100 = 60%

That is an illustration of the calculation, not a benchmark. Whether 60% is good, bad or exactly right depends entirely on what the other 76 hours consisted of, and that is the part the percentage hides.

Why the number misleads

1. The numerator is defined by whoever benefits. Change what counts as productive and you change the answer without changing a single hour of work.
2. It rewards being busy. Utilisation cannot distinguish an hour of valuable work from an hour of rework caused by a broken handover. Both count, so the metric is indifferent to whether the time was well spent.
3. It punishes the things that improve it. Training, documentation and process improvement all reduce measured utilisation in the period they happen. A team managed purely on utilisation will stop doing them.
4. Above a point, it degrades output. Queueing theory has described this for decades: as utilisation approaches the ceiling, waiting times rise sharply, because there is no slack left to absorb variation. A team at 95% is not 95% effective, it is fragile.

How to make it defensible

Utilisation is still worth tracking, provided it is never the only number and never stands alone without its definition attached.

• State the definitions in the report itself. What counts as available, what counts as productive, and over what window.
• Pair it with where the rest went. The non-productive hours are the interesting part, and they should be attributed to causes rather than dumped in a residual category.
• Track the trend, not the level. A move from 60% to 68% with the same work tells you something. The absolute figure is only meaningful against your own history.
• Never set it as a target without a consequence model. If you push utilisation up, decide in advance what the team is allowed to stop doing.

Common questions

How is utilisation calculated?

Utilisation % = (productive hours / available hours) x 100. Available hours are contracted hours less leave and known absence. Productive hours are whatever the organisation has defined as productive, which is the part that varies most between businesses.

What is a good utilisation rate?

There is no universal answer. It depends on the work mix, how much slack is needed to absorb variation, and what has been excluded from the denominator. Comparing your rate to a quoted industry figure is usually comparing two different definitions.

Why can high utilisation be a problem?

Because near the ceiling there is no capacity left to absorb variation, so queues and delays rise fast. High utilisation also suppresses training and improvement work, which lowers the future ceiling.

What is the alternative to utilisation as a metric?

Track where the non-productive time actually goes, attributed to causes. That tells you what to change. Utilisation only tells you how full the bucket was.

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