Making utilization a target in your firm could result in some undesirable behaviors.
In 1975, British economist Charles Goodhart wrote: “Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.”
Duh…
Luckily for the rest of you, his statement has been recast more accessibly as, “When a measure becomes a target, it ceases to be a good measure.” It is known colloquially as Goodhart’s Law. I ran across the reference on X (formerly Twitter).
Examples of the law in action abound. For example:
- Airlines, setting targets for on time departures (where on time equals good), pushing back from the gate to meet their numbers but idling their passengers for long periods of time on the tarmac. (Full disclosure – I’m not sure if this really happens. I fly too much to make the airlines angry at me.)
- Call centers using call duration as a proxy to measure how quickly their reps solve problems. Setting call duration targets indirectly encourages those reps to transfer calls or terminate them early. Short calls became more important than solving problems.
Of all the key performance indicators that design firms track and use, utilization (or chargeability) is the one most prone to proving Goodhart right – again.
Efficient utilization of people’s time is fundamental to our businesses – there is no way around that – and it’s a core determinant of a firm’s profitability. Utilization, whether measured in hours or dollars or both, measures the appropriateness of a firm’s structure and the successful execution of its work processes. When a firm meets its utilization goals that should mean it is calibrated correctly – it has the right number of the right people doing the right things – and that work is flowing through the system to those right people. When individuals are meeting their utilization goals, generally expressed in hours, it should mean that work is flowing to them correctly and they are executing tasks with the expected level of efficiency.
When utilization – the measurement of structure and process – becomes the target, it can produce behavior that stands in the way of leaders understanding what is going on in their firms.
- Timesheet hijinks. Light week? I’ll just pile some hours into this project that I know has some fee to work with.
- Slow rolling work. Light week? I’ll just make something that should take two hours take four hours.
- Holding on to work. Light week? One of my coworkers is the right person for this, but my hours are down so I’ll do it myself.
I don’t think the answer is to stop measuring utilization on a firm or individual basis. The metric is too important not too. But I do think the answer is two-fold:
- On an individual level, be clear about what should be happening, and then provide direction on what to do if that is not what is happening. For example: “When everything is working well here, you should be spending 32 hours of a 40-hour week on client project work. If it looks like you’re going to honestly come up short, tell me and we’ll try to direct something your way. If we can’t, we’ll figure out together how to best fill your extra time.”
- On an organization level, take responsibility as a manager and leader for the measurement and do the work to address structural and/or procedural and process problems in your firm.
This year, resolve to measure a lot of things – including utilization – but be judicious about what you choose as targets for your people to hit. For help with this, or with any other business matter that might be vexing you, please give me a call. Our agents are standing by to assist you.
Tom Godin is director of strategic planning at Zweig Group. Contact him at tgodin@zweiggroup.com.
