Hey, it’s Collin. Welcome to Engineering Echelons, a newsletter full of ideas and insights to help engineers excel at management.

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Highlights:

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Staff utilization is a hot-ticket item for professional services firms. But despite the constant emphasis on it, few truly understand what it means or why it matters.

Let’s start with the definition: utilization is the ratio of billable hours to total hours worked. The higher the utilization, the more time someone spent on billable (project) work.

That gives you some insight into how “productive” staff are, but it’s an incomplete metric on its own. To get real value from it, you need to overlay it with contract terms and pair it with other metrics.

This edition focuses on contract terms.

Contract terms matter a lot. If you have staff working on a project that are invoiced by the hour (i.e., time and materials), you’re financially incentivized to bill as much time as possible. Utilization directly drives revenue.

Lump sum contracts flip that logic. These are invoiced by deliverable or milestone, not hours spent, so hours on the project become costs that eat into profit. Here, you’re financially incentivized to limit the time it takes to complete the work.

Utilization still matters for lump sum work, but it needs to be approached differently. Instead of driving revenue directly, it measures opportunity cost. Limiting time on a single project reduces utilization. That means production staff has time left over for other work. So the name of the game here is to limit time spent individually on an array of lump sum projects (or tasks) simultaneously, such that the overall time spent per employee on billable work is high, while costs to each project are minimized.

Two contract types, two different mindsets for executing the work. Without considering the parameters of the contractual mechanism, you won’t be as effective as a manager.

Jim Collins (author, management consultant) on innovation:

“Innovation by itself turns out not to be the trump card we expected; more important is the ability to scale innovation, to blend creativity with discipline.”

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Bob Iger (former CEO of Disney) on good leadership:

“At its essence, good leadership isn’t about being indispensable; it’s about helping others be prepared to possibly step into your shoes—giving them access to your own decision making, identifying the skills they need to develop and helping them improve, and, as I’ve had to do, sometimes being honest with them about why they’re not ready for the next step up.”

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Scott Mautz (author) on thriving in your organization:

“If you want to thrive in leading from the middle, it can’t be all about you. It’s about helping everyone and everything around you to thrive. It’s about the ecosystem, not the ego system.”

This article in The Architect’s Newspaper discusses succession planning at iconic architecture firms. It provides insight into how to think about and approach firm longevity in professional services.

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Looking forward to hearing from you. See you next time.

Collin