Consultancy Utilization

  • Jason Smith
  • Sunday, May 24, 2020
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Every consultancy is concerned about utilization numbers. In this post I want to explore what utilization is and how it impacts the delivery of the services you as a customer contracted them to deliver. This is yet another facet to consider next to cloud partner programs when vetting your consultants.

The Single Purpose Consultancy

First let’s start simple. Lets consider you have a single purpose consultancy. For simplicity you have a series of highly skilled engineers in one cloud provider, and this is what your company specializes in.

10 engineers

So no consultancy usually operates at 100% billable. You may find they ideally operate at 80%, maybe more or maybe less, depending on their strategy.

80% utilization

Of course these 20% are engineers that do not bring in any revenue, but quite the opposite are sucking up revenue, because they have to be paid.

20% loss

But it is all quite necessary. There are a lot of activities you need to engage in, to maintain a consultancy, to ensure your engineers don’t leave, to solidify your position in the market, and to maintain your level of skill.

So those 20% are doing things like:

  • Attending trainings
  • Building stuff you can demo
  • Researching new tech
  • Writing blog posts
  • Attending conferences

other stuff

Another very important reason you would maintain this reserve is anticipation of the next contract.

waiting for contract

Every consultancy tries to maintain a steady sales pipeline and they don’t want to be left understaffed if a great opportunity comes knocking. When you do secure that contract and (if you are looking to grow) you will then add more engineers (if you can find them) so you are no longer operating at 100%.

growth

Consultancy growth is a bit of a tight rope walk. Unless your contracts are projected out a year ahead and you are absolutely positive your engineers won’t just get up and leave, you are almost constantly trying to balance utilization. As you grow your sales pipelines need to grow more robust as your financial risk from underutilization grows much larger.

growth

This was a very over simplified example, but it is only here so we can extrapolate to larger examples.

The Do All Consultancy

If you look at some of the large System Integrators (SI) we see they tend to cover everything under the sun from SAP, Oracle, cloud migration, DevOps, Containers, Blockchain and whatever else may be in demand at the time. In most cases you will see that they do in fact have this diverse talent pool.

100 engineers

So lets says they are able to pull in a diverse set of contracts.

100 engineers at 70%

In the above graphic you can see 70% utilization. That is not a bad number, but it is also not great. Now lets consider your pipeline only sees demand for SAP and AWS. With another contract unfulfilled because you don’t have any AWS people left.

100 engineers at 40%

No company could operate like this. 40% utilization is not tenable, even on the short term. So what is normally done, is what I like to call “engineer packing”.

This is where you take a few experts in their respective field and have them consult with the customer directly, sometimes moving them from project to project, while implementation is actually performed by people that are learning that particular system on the job.

engineer

You are now paying for talented engineers, but they just are not talented in what you need.

Overhead

These issues exponentially grow as you deal with large international consultants which try to maximize profit by near shoring or off shoring the work being done. This can bring in a large number of issues around hand off confusion, communication problems, hours dedicated, etc.

This is further compounded by regional account relationships, profit allocations and their own internal politics. Which is all beyond the scope of this article.

Of course there is finally the issue of the massive overhead these large consultants generate. Every non-engineer in your tech consultancy is someone you are paying for but is not generating value for your company. These sources of overhead eventually leads to diluting the talent pool further, because as a whole they should be figured into utilization.

Conclusion

Just like my previous article on Cloud Partner Programs you have to find a way to vet the teams you are offered either through hiring or contracting someone capable of vetting these teams.

Also take the time to evaluate the consultancy itself. Check if their staff is 60% C level, operations, marketing, or anyone else that cannot deliver for you. These extra staff will either drive up costs or drive down quality, most likely both.

FikaWorks

At FikaWorks we work as direct hires with your company, with little to no overhead. We have no drive to grow because it is not incentivized. We do want to be gainfully employed, but we recognize brand trust is our best way to meet that goal. This is why every time we consider a new member we recognize they must serve our brand, meaning we grow with great caution.