the ratio of the time that is performed compared to the standard amount of time.
Realization Factor Details
The realization factor is related to the field of statistics and probability. It refers to the amount of time that has been billed versus the probable amount of time worked. The realization factor links the time billed to the company revenue. This can be expressed as a percentage and can serve as a useful comparison between different utilities.
An organization needs to know how well it is using its time to maximize revenue. The realization factor can be useful if compared to another company or organization in a similar position. It can serve as a wake-up call to those who want to improve performance. Companies can then link data to the revenue, which is then linked to profits. To calculate the realization factor, use the following formula:
Realization Factor = (Total Billed Hours) / (Total Billable Hours)
The answer is the percentage of time a resource is worked compared to the number of hours a company could work a resource. A Realization Factor analysis is useful, but other metrics should be utilized when measuring a company's performance. Comparisons are only valid if there is a credible data set. However, the realization factor can be a useful term when measuring the number of work hours in a given year given the different labor conditions in different areas and the subsequent impact on performance.
Example of Realization Factor
Company X has endured some unforeseen events during the last financial year, and this impacted profits. Let's find out how much these events have affected the company.
Company X had a strike that lasted 10 weeks.
10 weeks x 40 hours = 400 hours
Then a fire broke out and caused the company to shut down for 5 weeks.
5 weeks x 40 hours = 200 hours
400 hours + 200 hours = 600 hours
In the United States, an average business works 48 weeks a year.
48 weeks x 40 hours = 1,920 hours
The 1,920 hours is the total available work time.
To find the realization factor, we divide the 600 hours of off time by the total available work time.
600/1920 = 0.3125 or 31.25% realization factor.
The strike and fire events caused the profits of Company X to be affected by 31.25%.
Significance of Realization Factor
After completing your realization factor calculations, you can now review what your realization factor means. A low percentage realization factor means that amount has reduced profits. In the example above, Company X had a realization factor of 31.25%, so their earnings were negatively impacted by 31.25%.
Companies and organizations want a realization factor to be high; this means that their employees are efficient with their time and complete their work to the fullest. But, low realization factors could also be due to discounts when billing clients or lack of billing hours reported. The realization factor is an in-house measure and helps to influence company decisions. Still, an organization should also see it as flexible and not telling its profitability.