100% capacity utilization is ideal for businesses that want high burnout, involuntary turnover, and scathing Glassdoor reviews. Everyone else, read on.
Let’s talk about resource capacity utilization. Specifically, the idea that 100% is the ideal resource utilization rate for project-based businesses.
We see the logic. High resource utilization means more people earning money for the business. And 100% is the highest you can get. Therefore 100% resource utilization rate = optimal utilization. Right?
Sadly, wrong.
Think back to the last ultra-busy day you had. Your whole day scheduled to the max. No time to stop, or it’ll put everything behind. Even taking a bathroom break feels indulgent. Head down. No distractions. And if anything slips, you end up playing catch-up for the rest of the day.
It sounds pretty stressful. But this is what 100% resource capacity utilization looks like.
It’s easy to see how that approach to business can quickly lead to employee burnout, reduced productivity, and involuntary turnover. Not to mention having no spare capacity for unexpected issues, overruns, or even opportunities.
Here’s everything you need to know about creating the optimum resource capacity utilization rate – including what it is and how to calculate it.
Capacity utilization is the extent to which you use your capacity. It’s as simple as that. It measures how much of your resources’ full potential you’re using – whether that’s people, equipment, or facilities.
It’s closely linked to the concept of operational efficiency and maximizing your potential output. For example, if your facilities are available 24 hours a day and you’re only using them 20 hours a day, that’s 4 hours of capacity that’s wasted. Your capacity utilization in this case is roughly 80%.
Resource capacity utilization specifically refers to how you're using your human resources. It’s essential for capacity planning and workload balancing. It can be applied to individuals, teams, or the entire company. We’ll talk about the sweet spot for resource capacity utilization in a minute. But – spoiler – it isn’t 100%.
Tracking resource capacity utilization is important because utilization rates are tied to so many critical business factors – from staff engagement, productivity, and satisfaction, to revenue realization and project outcomes.
If you’re consistently operating under resource capacity – low capacity utilization – you aren’t turning staff time into revenue effectively. You pay your staff regardless of what they’re doing. When they’re not engaged in billable or other productive work, they’re burning money instead of earning it. That eats into your profitability.
But if you’re consistently over capacity, you’ll be putting staff wellbeing and project outcomes at risk, by overworking your key assets: your knowledge workers. Working above capacity quickly reduces professional acuity, productivity, and morale.
Plus, if you don’t know what your capacity is or how much you’re using, how can you plan what projects to take on?
Resource capacity utilization is a delicate balancing act – one you need to manage carefully if you want to optimize your business performance.
And, as we always say, if you don’t measure it, you can’t manage it. So if you want to improve capacity utilization, it’s essential you track it.
Given the information above, you might think that 100% is logically the optimum resource capacity utilization rate. Not too much, not too little.
But it’s not. Let’s do some math and look at what it means.
Imagine an employee has 30 hours a week available for work. Here’s what capacity utilization looks like for different assignments:
This team member is underutilized. They might feel bored and unengaged, and this inefficiency is eating into your profit margin because their potential is not fully tapped.
This colleague is overutilized. They're working beyond their capacity, which can lead to burnout, increase the risk of turnover, and decrease overall productivity and quality control.
While this might seem ideal, it's still problematic. This person is overutilized too. They are at full capacity and have no room for unexpected tasks, creativity, helping colleagues, or even essential downtime like breaks. Another fast-track to burnout.
Aiming for a 100% capacity utilization rate might sound like the best way to maximize the ROI on your investment in staff. But it actually comes at a cost that can reduce your profitability – when staff start quitting and clients begin complaining.
Because no person can operate at 100% capacity, 100% of the time. We’re not built like that. We need time to think and get creative, to rest and reflect, to bounce ideas off colleagues or ask for their help.
Although these activities aren’t necessarily billable, they are part and parcel of having human staff and all the glorious things they make possible.
(Like many metrics used in business, the idea of capacity utilization rate comes from manufacturing, where we’re talking about equipment and facilities. Manufacturing capacity utilization might well achieve 100% but that’s because they’re talking about machines, not people. We think this is SO important. Read more about the kinder way to interpret utilization rates ➡️).
Plus, what about when things go wrong – or very right?
No, 100% resource capacity utilization is a bad idea. So what should your resource utilization goals be…
A good capacity utilization rate is 80%. And, within that, 80% should be billable utilization.
80% of 80% 🤯 Why?
Because your resources need 20% of their total capacity for creativity and dealing flexibly with the day as it unfolds. And then – within the remaining time – they need 20% for non-billable work that contributes to business goals, like meetings and training, filling in their timesheets, or any other admin they may need to do.
Let’s apply that utilization rate calculation to our team member who has 30 hours available each week.
We asked our CEO Tim Copeland what optimal capacity utilization looks like – and why 100% is a dangerous target:
If you're allocating 100% of your staff’s time on work, you don't have a lot of breathing room for creativity - or, frankly, sick leave and things like that. Instead, if you're targeting, say, simply 80% of plan to work and allowing enough space for work to just happen or things to be a bit more spontaneous, you allow for a lot more creativity. That is one of the things that you can do to actually build a higher-quality organization. If you trust that the people are going to spend their time well, you don't really need to plan for every hour what they're going to be doing".
An 80% target capacity utilization rate allows for:
Plus you know it’ll help you understand capacity for new projects – and help you deal with the unexpected without it derailing your plans. It just makes sense.
Read this far? Chances are you agree with tracking resource capacity utilization. But you don’t want to crunch utilization rates manually for every team member. You could put the formula into a spreadsheet, but then you still have to extract and interpret the results. So what can you do?
Resource management software will calculate and monitor your resource utilization automatically and show you utilization rates at a glance. This makes it easier to monitor and compare utilization across every person and team in your organization.
So you can:
Curious? Start your free Runn trial today ➡️
