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Can someone explain utilization and realization to me? I just wrapped up my first week on an engagement (9/30 client) and am a first year at a national firm. I understand billable hours and the budget

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Realization: think about a Jos A. Bank suit...they say it’s a $999 value, but they’re only getting $199 for it. If your standard bill rate is the full-price suit, realization is the actual amount received as a percentage of the standard. So if your bill rate is $999 and realization is $199, then realization would be 20%

Utilization is a metric of your charged time as a percentage of a normal workweek (or other period of time). For example, a “standard” workweek is 40 hours. If you worked 40 hours and 36 of those were billable, your utilization for that week would be 90%

Hope that helps!

helpfullike

I'm not so much worried as I just want to understand it.

39/40 = .975

Is that good?

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, and I know I blew the budget. I think they were expecting that, tbh. But I'd like to understand what I need to do going forward to put myself in the best possible light.

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Eat time.

As a first year don’t worry about realization. Understand project budget hours and raise a flag if your going to exceed, but ensure you book hours worked. Utilization is the more important metric for staff to focus on.

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What do you do when your entire team eats hours and everyone up the chain is aware?

If the hours are booked to the job, then a decision can be made to ask client for overage or decide to write off. If the hours are not in the job you take that choice away from me. Worse, we potentially underbid next similar project. Eating hours may avoid short term uncomfortable conversations but is a long term loser.

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Utilization is how many billable hours vs total hours. If you bill 35 hours in a week you are 88% utilized.

Realization is what we actually bill the client vs your standard bill rate. A senior associate in consulting has a standard rate of 220. If we bill 200 per hour for the senior that would be a 91% realization.

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Be aware that RSM calculates these metrics differently than most firms. For example say you had 40 billable hours this week, and 10 non billable travel hours to get there. You might think you are at 100% utilization based on a standard week, but you are actually at 40/50 = 80% utility.

If the travel time was billable there would not be a concern on its impact on utilization. I generally do not bill travel for local clients (under 2 hours) and some clients negotiate out travel time clauses.

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You can be high in utilization which is the number of hours charged on a job and low in realization which is the number of hours you can bill for those hours. PA always seems to have a higher focus on one or the other depending on the year I’ve found. If you can get higher percentages on both 😇. ..... winner. You have to be creative about planning your jobs and charge hours for the work week and think in terms of what is on your list, what your hours are for the week. Etc.

What is realization even used for? Can anyone even influence it aside from the person who negotiated the contract? Given the Jos. A. Bank example above, I don't even understand why you would have this. Is it an ego thing so partners or whoever can say I charge $1,000 per hour, and really no one knows they're only getting half that?

Realization is how firms book revenue. Your standard bill rate is used as a static yard stick. In the example I used earlier a Sr has a standard bill rate of 220. For each hour they work I book gross revenue at 220 into WIP to be billed. I then set the job at a 90% realization which will now create a revenue reserve of 10%. So for each hour that gets booked by that Sr I reserve 22. I now have a net revenue booked at 198. When I ultimately bill 200 I will pick up a gain in my realization of 2.

Based on the job budgeted hours by level vs contracts fees. Factors can be fixed fee vs T&M, rate card by level Vs blended bill rate for all resources. Goal is to balance the internal score keeping with what you will be able to bill. Realization can also be adjusted during project to course correct.

I personally like to set my jobs a few percentage points lower than expected to be conservative on booked revenue. If all goes perfectly I pick up gains, otherwise I have some cushion to absorb some overages.

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