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Why Is Utilization Such a Big Deal at Public Accounting Firms?

As it’s only been a few days since we learned about the death of Pan Jie, the PwC auditor who died in Shanghai, many people are questioning everything, from high pressure culture within the Big 4 to this most recent contribution from the mail bag wanting to know why utilization is such a BFD:

Hey Caleb,

Been reading all the comments on the Shanghai PDub girl perhaps overworking to death, and everyone seem to have the same opinion on the same thing: overworking, but undercharging. And, this topic of utilization has really been troubling me since the first day I joined public accounting. So can someone care to explain why utilization is such big deal at the Big 4s??

I really don’t get it. Because ultimately, in my opinion it is purely a [key performance indicator] that is on paper, and is not a real depicting of a company’s financial performance. From when I last checked, the concept of OT pay is no longer applicable. So it’s not like by charging more hours, the firms are not paying me more and thus impacting their bottom line. Of course, if I need to bring on more people to the team to complete the audit, it may impact the bottom line for that engagement. And, also maybe there are the out-of-pocket expenses that you need to consider for employees beyond 8 hours. But I am sure [out-of-pocket expenses] during busy season will not break for audit budget. But besides that, everything is pretty much fixed, from the audit fee, staff’s salaries, expenses, etc. So I really don’t get this utilization game that management is playing.

Is my mind too simple, or can someone explain it to me?

Here’s my take on utilization – it partially factors into how firms determine if they’re getting their money’s worth out of employees. Say you’ve got two employees that are effectively the same (hours, performance, etc.) except one takes all five weeks of their PTO while the other doesn’t take any PTO. The difference of two hundred hours – on paper – shows that one employee is one creating 200 additional hours of value for the firm versus their co-worker who does not. If both of these individuals met their utilization goals for the year, then there’s really no issue. But if the five weeks of PTO taken by the first employee causes them to fall short, a friendly HR professional or performance counselor will have an easy decision as who should be crowned a top performer at evaluation time. Regardless of firms saying “we want you to take vacation” they want you to meet utilization goals first.

As for budgeting, depending on the engagement you may have wiggle room and you may not. If you’re serving a small client, regular late-night dinners could easily blow the budget and zap the realization, especially if you’re billing all the hours you’re working. So if you’re trying to make utilization goals but have a tight budget, you may have to cave on either charging all the hours or starving to death. Not an easy choice and is one reason why serving small clients can be a double-edged sword.

So essentially I agree with you, utilization is primarily a performance indicator and not much else. It simplifies the ability to determine someone’s value on paper. Low utilization indicates that you suck at your job or no one likes you. High utilization means you’re a workhorse and a team player. When it comes to cutting the weakest link, the decision is pretty easy. I admit that I’m far removed from the latest trends in determine valuable employees so veterans of the utilization game and people in the know are invited to chime in with theories on utilization and its usefulness (or lack thereof).

The Fortune 100 Best Companies to Work For: PricewaterhouseCoopers #71

Next on the F100BCTWF is PwC. While one of you (yes, we’re speculating that it was an inside job) was irked enough at P Dubs to send bogus checks out to randos, enough of you still love the place to keep it on the list.

PwC – Previously ranked #58. More lemons into lemonade from Fortune, “Accounting firm had minor layoffs (less than 1% of the staff), canceled 2008 year-end holiday parties, and gave two extra paid holidays to employees.”

Other interesting stats per the snapshot:
New Jobs (1 year): 402
% Job Growth (1 year): 1%
% Voluntary Turnover: 8%
No. of Job Openings at 1/13/2010: 5,097
Most common salaried job: Manager/Supervisor with average salary of $93,274

Still not sure about that number of job openings but it’s less unbelievable than the 11k that Deloitte had in their snapshot.

We still get the feeling that PwC is the biggest of Big of Brothers what with everyone’s utilization getting extra special attention. We’re not saying utilization can’t be considered but motivating employees with something more useful, like say, tighty whiteys, may be a better approach. Certainly wouldn’t hurt the ranking.

Ernst & Young #44
Plante & Moran #66
Deloitte #70

Pictures of the Day: One Idea to Help Keep the Utilization Up

As you well know, it’s key for all of you to stay as fully utilized as possible this busy season, and sometimes little things make all the difference.
A reader provided us with the following idea:
The strategically placed marker board will come in handy when all those great ideas pop into the grey matter.
Or you can just memorize Giants statistics.

Say what you will about the impracticalities of this set up but at least you won’t have to chase down a key.
We strongly encourage you to submit any chicanery that you might cook up this busy season. We’re here to help you stay sane.

PwC Is Here to Remind You that Someone Is Watching Your Utilization

scrutiny.jpgEarlier this month, we mentioned a rumor we heard about PwC putting in calls to the rank in and file of one industry group in the tax practice. The caller was just letting them know that their utilization was getting the crook eye by the partner in charge of the group. Not exactly something that would give you the warm and fuzzies Well, now have another report of P. Dubs putting people on notice:

I was recently informed that despite my good performance and strong mid-year reviews, “[my] utilization is being watched.” Its nice to know that this company values cold metrics as opposed to quality, hardworking employees.

Here’s a question: who at PwC thought that notifying employees that their utilization is being scrutinized was a good idea? Especially since Bob Mortiz sent an email to say that it’s unlikely that there will be layoffs in tax and assurance?
One email says “don’t worry, everything is fine” while someone else calls you up in order to scare the bejesus out of you by letting you know that despite your fine performance someone is watching. Can anyone explain the rationale? Our emails to PwC have gone unreturned, so we’re all ears.

Rumor Mill: PwC Tax Practice Eyeing Utilization

Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for pwclogo.thumbnail.jpgWe’ve received a tip that human resources for PwC has made calls to staff saying “the lead partner [of the] group is reviewing everyone’s utilization numbers one person at a time.”
This is occurring in at least one industry group in the New York tax practice. Although our source stated that it was not unexpected for utilization to be scrutinized, it seemed unusual for a lead partner to be examining so many individual utilization numbers. Then again, PwC isn’t really known for a transparent performance review process.
Since the forced ranking trend seems to be in full effect, this could be the new standard operating procedure. The timing also seems dubious in the wake of (or during) last week’s layoffs in the advisory practice.
If you’ve recently been informed that your utilization rate is getting a close eye (and this comes as surprise) or if you know of the motivation behind such close inspection, email us at [email protected].