The utilization rate also known as chargeability ratio is the percentage of total labor dollars or hours spent or 'charged' to project production. The utilization rate may be calculated several ways and may be based on dollars or hours. This labor-related key indicator is calculated by dividing total direct labor dollars or hours by total labor dollars or hours. The best measure of firm-wide utilization is based on dollars since the billing net multiplier is applied to direct labor dollars, not hours.

The utilization rate is also calculated based on 'standard' hours. The concept of standard hours is based on full-time-equivalents (40 hours per week times 52 weeks per year). Calculate the utilization rate based on standard hours by dividing direct labor hours for the period by total standard hours for the period. The utilization rate 'rule of thumb' for technical personnel in design firms is usually around 85%.  The utilization rate 'rule of thumb' for total staff is 65% to make a profit.  Compare the firm-wide standard utilization rate to the labor budget utilization rate. 

No overtime is included in the labor budget since that would be an undesirable long-term commitment.  If overtime were included in the labor budget, the firm would be committed a year in advance to work overtime just to meet its profit target.   Total available hours in the labor budget are measured as full-time-equivalents (FTE).  A full-time-equivalent is based on standard hours of 2080 hours per year (40 hours per week times 52 weeks per year).  By using standard hours and full-time-equivalents, the key indicators of financial performance are more comparable among firms and the same firm from period to period.  Determine the number of full-time-equivalents resulting from overtime by dividing total overtime hours for the period by standard hours for the period.