Capacity reducing time is any time that reduces a persons total capacity to work on either client or internal activities. The time allocated to capacity reducing activities reduces a persons total available capacity for the purposes of productivity and utilization calculations. Examples include:
- Annual Leave
- Public Holidays
- Sick Leave
- Parental Leave
- Bereavement Leave
- Leave without pay
Of a contracted 160 hours in a month, the available time for work on client and internal activities might only be 120 after deducting capacity reducing activities:
- 8 hours of sick leave
- 16 hours public holidays
- 16 hours of annual leave
Internal or admin time is not Capacity Reducing it is Productivity Reducing.
Capacity Reducing time's effect on Productivity
If in the 120 hours of contracted available time the person worked 130 total hours with 100 hours of client work and 30 hours of internal activities, their productivity would be:
100/130 = 77%
Being Client time / Total time excluding Leave
77% of their time was spent on client work. Note that the capacity reducing time has an effect here (it is excluded from total time) but the expected contracted time does not. Productivity is always a number less than 1.
Capacity Reducing time's effect on Utilization
To calculate their utilisation we first need to know the Expected Capacity. This is typically measured as a percentage of total available time we would expect a person to spend on client work. In this case let's use 75% for a full time billable team member.
160 contracted hours
-40 hours of capacity reducing time =
120 contracted available hours
* 75% = 90 expected client hours
Utilization = Actual client hours / Expected client hours
100/90 = 111%
This persons was 111% utilized. They achieved more than the expected contracted client hours for this period. Utilization can be a number greater than 1.
Where Capacity Reducing time turns grey is in the area of professional development. Because the accounting professional is always changing and evolving professional development is a necessary part of an accountants year. Some practices choose to include this time as Capacity Reducing time because it is necessary, budgeted for and it reduces the total available time a person has to work on either client or internal activities. They might call this:
- Professional Development Leave
Because this time is identified as capacity reducing, it will not negatively impact a persons productivity. In this way we do not penalise a person for developing themselves by showing lower than expected productivity. The risk here is that too much time is put to this capacity reducing activity and our revenue targets are not achieved.
Some practices achieve the best of both worlds here by having an admin activity for 'Internal Training' which does reduce a persons productivity and a separate activity on the capacity reducing job called 'Professional Development Leave' or similar. They then define the type of training and development that goes where and by whom and when it is used in order to maintain sufficiently high productivity in their practice while developing their team.