Planned vs. Actual Hours: Enhancing Utilization and Resource Allocation In Agencies

How to Master Planned vs. Actual Hours to Boost Profitability in Professional Services

Effective management of planned versus actual hours is essential for agencies and consultancies focused on improving profitability and billable utilization. In fact, it's one of the most important agency metrics to follow. This metric sheds light on the accuracy of resource allocation compared to the actual effort spent on projects and tasks and is one of the great ways to improve your consulting firm's billable utilization. 

What Are Planned vs. Actual Hours in Resource Planning?

Planned vs. actual hours measures the variance between hours allocated for work and the hours genuinely spent on those activities. This evaluation is important across the whole consultancy, from company to individual level. It could also be named Planned vs. Actual Utilization.

• At the Company Level, it serves as a comprehensive indicator of how well the company's planning aligns with execution, essential for top management's strategic KPIs. If the numbers vary a lot from each other, there might be systemic errors in how the company is executing the resource allocation process.
• For Teams or Competences, it helps leaders assess if resource planning for specific skills or teams matches with the actual hours spent, guiding leaders in managing consultant groups effectively.
• On Project or Account Levels, it's essential for account managers and project managers to track if projects stick to their planned resources, which is key for achieving project goals and keeping clients happy. Read our article on Planned And Actual Utilization In Projects.
• For Individuals, it allows consultants to assess their time management and helps managers keep project timelines on schedule and teams within their desired utilization levels.

Key Insights from Planned vs. Actual Hours Analysis

The disparity between planned and actual hours can unveil several critical insights:

• Evaluating Resource Allocation Process: It indicates the effectiveness of the consulting firm's resource allocation and planning process, highlighting the adaptability of plans to real-world scenarios. If your plans are always different from the actuals, why to plan in the first place?
• Identifying Revenue Leaks: It uncovers scenarios where consultants don't fully utilize allocated hours, pointing to potential revenue not billed to clients — a direct hit on profitability.
• Detecting Overwork and Underutilization: When consultants log more hours than allocated, it signals possible overwork, risking burnout, and the inefficiency of not billing all possible hours. Conversely, underutilization points to a mismatch in resource planning.
• Assessing Pricing and Workload Balance: It helps in determining if the consulting company consistently underestimates or overestimates work, affecting project pricing and workload distribution. For fixed-price projects, completing tasks faster than planned is beneficial, but for time & materials projects, it suggests a need to expand the project scope given the budget is already reserved by the client.

How to use Operating to measure Planned vs. Actual Hours and Utilization

If you're the COO running a digital agency business, you should be capturing this metric. With Operating connected to your time tracking, it becomes a breeze. Our customers have captured thousands and thousands of dollars of revenue leak per month using our planned vs. actuals report. This has a direct impact on profitability.

Case Study: Wasted work down 90% from the previous year by analyzing planned vs. actual hours

Operating helps us identify all billable work, improving our profitability

Operating helps Inventive.io, a Texas-based IT services company have a clear resource allocation process and effectively monitor the deviations in planned workloads and time spent on projects. Before Operating, they had to do a lot of manual work to put together the right reports weekly to monitor time spent in projects.

Last year, pre-Operating, we absorbed $250,000 in unbilled work due to inefficiencies. This year, it's down to $25,000.

James Shaw, COO, Inventive.io

Conclusion: monitoring planned vs. actual hours can have a significant impact on profitability

A detailed analysis of planned vs. actual hours is crucial for improving billable utilization and optimizing your resource allocation process. Professional services firms that effectively monitor and act on these insights can fine-tune their resource allocation, close revenue gaps, balance workloads, and adjust project pricing strategies. Ultimately, this leads to a more resilient, profitable, and competitive business. Inventive.io's example is a great one. A tiny process enhancement, a big effect on gross margins.

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P.S. we have a complete article on top agency business metrics to follow.