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Direct Labour Multipliers
2

Direct Labour Multipliers

Direct Labour Multipliers

(OP)
What Direct Labour Multipliers are your current employers running for their rates, and how does it line up with utilization?

Every company I've worked at has ran between 2.25 - 3.3 DLMs (the lower DLMs for large government projects or small Geotech consulting firms that made most profit on testing services rather than engineering) and utilization targets of 75-100%. I have come across a few firms that either have a blank 'high DLM low utilization' policy or run high DLMs and low utilisatoni for staff at certain career levels (e.g. they might have a DLM of 5-6 for a principal).

My current employer is trying to run a DLM of 5-7 for everyone and utilisation of 80-90%. I have never seen any other firm attempt this in the engineering space

RE: Direct Labour Multipliers

My current company tries for 3.3 to 3.6 multipliers. We're in a specialist industry, with many high-tech specialist engineers, so that helps.
I've worked in the Power Industry, with small multipliers and it was no fun. Limited outside (or inside) training, no brown bags, lots of pressure to stay billable. They charged for the accountants to set up the project numbers. For every copy and long-distance call, you had to put in a charge number. Bonuses were small (many years zero), and some years they used the 401K match in lieu of a bonus.
As many times as I read your post, I think 5 to 7 is a typo. Is that real?

RE: Direct Labour Multipliers

Are they trying to profit a million dollars for each employee? My experience has been that more experienced/senior staff have a lower utilization but are charged at a higher hourly rate. Entry level staff should be billable around 80-90 percent of the time, while senior staff may be as low as 30 percent.

RE: Direct Labour Multipliers

(OP)
Essentially they end up absorbing alot of hours as 'write offs' into projects and the end result is DLMs of 2.6-3.3. We don't actually charge more overall (i.e. the overall fee is 100k, but my hourly rate is 310/hr instead of 180-200 for equivalents at competitors) so they budget less hours and then things take longer. They go in circles with a cycle of project managers freaking out about 'writeoffs' and project profits so people charge time to admin codes and then the management freak out about time to admin codes and crack down.

The net result at a business level is the same as far as I can tell so they aren't actually benefiting from it unless they see it as a strategy to confuse people.

RE: Direct Labour Multipliers

We call it "realization" but high realization and high DLM suggests grossly high overhead, somewhere, and a potential unprofitability in the company. We think we have high DLM and it's under 4.5 and we have high overhead because we're in a building that's 2.5x our needs.

TTFN (ta ta for now)
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RE: Direct Labour Multipliers

Probably between 2.3-3 here, with 90% utilization target. 5-7 will run you out of business, or in your case, you need to buy work. You probably have to be the only provider of a specialized service in your region to make that work.

RE: Direct Labour Multipliers

(OP)
The baffling part is we aren't the only provider of a specialized service. It's a global business but in this specific market while we are a big player we are viewed rather poorly - the 'angle' the business has is that we have alot of resource; we have a poor reputation for delivery, timeliness, quality, and technical excellence.

RE: Direct Labour Multipliers

Depends on the contract type. 2-3 for cost+, 3-4 for FFP, and 1.0 for time&material. Utilization is ~95%.

RE: Direct Labour Multipliers

geotech,

what calculation are you using?

Notional annual salary divided by ?? I've used 1950 (52 weeks x 37.5 hours), but others use different numbers.
Assume this ignores all other taxes, medical, holidays, sickness etc?

I've not seen this measure used before, but in my experience in O&G based on 1950 hrs/year it tended to be about 2 for higher level consultancies and maybe 1.7 to 1.8 for large manhour "bulk" detail design projects of millions of man-hours. Less experienced engineers it might be 2.5 to 3.

We tended to use "gross margin", i.e. all payroll costs including holiday and sick pay, taxes, Social security payments etc which adds on a fair bit, but not overheads, profit, management etc. They aim for about 35 to 40% gross margin where I work. don't usually get it, but that's the aim...

Utilization of billable hours is hopefully 85 to 90%. more than 90% and certain people end up under pressure and overall schedule and efficiency falls.

I've seen this before where in order to win the project with inflated hourly rates, unrealistic manhours go into the bid which then get exceeded or people fiddle the system and book hours to other non re-imbursable numbers / codes to make it work. Falls down in the end because the numbers everyone is using become unreliable when 40% of the manhours are going to job no 999999 and it's only those PMs who manage to hide the overspend get praise...

Only if a fair portion of your work comes from extras or variations based on your high hourly rate does it even start to make sense. IMHO

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