While I agree that capacity utilization needs to be at the forefront of any planning effort, I don’t agree with the idea that capacity utilization is always inappropriate.

Sure, if you’re the only person working on any project, capacity utilization is the right approach. If someone else is working on a project and you’re not, then capacity utilization is the wrong approach.

That’s exactly right. In fact, if you’ve ever been in a service organization, you know that most projects never last more than a few days due to the constant turnover of employees. So a project that takes weeks to finish, or months to complete, will be completely under capacity. If you’re the only one working on a project, the project is at most a few days, and you’re probably not the only one working on it.

The best way to determine if your organization is under capacity is to look at your capacity utilization rates. By this we mean how often employees are on a project. If your utilization rates are more than 5%, you are probably under capacity. If they are less than 10%, then its likely you have a problem.

Capacity utilization rates are one of the key metrics in any service organization. However, while that metric can be a good predictor of future capacity utilization rates, it can only tell you about capacity utilization rates in the last few weeks, months or even years. The more important metric to look at is how much your resources are being used now, not how many you have in the pipeline.

Because of the sheer number of people these services are dealing with, it is important to look at the resources that are being used to get the job done. An example is the cost of a helicopter to a doctor, or the amount of manpower that is needed to put together a building. That all comes down to resources used.

The fact is, the cost of a helicopter to a doctor is not a lot. It is not a lot of money for an operation that is so complex and the result is so important. The problem is that most service providers don’t have a clue how much any of their resources or staff are being used. I’ll leave it up to you to figure out how much of that helicopter you really need to make a house call.

What’s good about the helicopter metaphor is that the helicopter represents all the employees, and the doctor represents the resource. So if you are a helicopter pilot, you can actually fly a lot of the time because you have the equipment to actually fly the helicopter. That’s really cool.

If you are a service provider, you can’t fly because you are working for a third party. You might think that you are on an independent contract, but you are actually on a third party contract. That third party is the provider or the insurance company. So you can’t fly because you are working for a third party. So if you are a middle man, then you can’t fly.

In my industry, we have one of the highest capacities utilization rates of all service providers. The reason is we don’t have an independent contract with the third party. So we have to fly for them when we can, but we dont have that flexibility. Instead, we have the ability to use the services of the third party, but there isn’t a third party contract saying youre doing well if you fly.

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Radhe

https://rubiconpress.org

Wow! I can't believe we finally got to meet in person. You probably remember me from class or an event, and that's why this profile is so interesting - it traces my journey from student-athlete at the University of California Davis into a successful entrepreneur with multiple ventures under her belt by age 25

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