How to Calculate Unit Utilization

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A unit is any one item. Utilizing a unit means putting it to use. Unit utilization is a measure of how much a unit is utilized during a specific time period and is expressed as either a fraction or a percentage. For groups of similar units, such as all rooms in a motel, average unit utilization is the same as capacity utilization. (This is not true for groups of dissimilar units, such as a factory with different kinds of machines.) As an example, let's calculate average unit utilization for a motel since a new advertising campaign began.

  • Write down the time it takes to use a unit once and label it "Single Usage Time." If the motel rents rooms by the day, Single Usage Time = 1 day.

  • Write down the specific time period of interest and label it "Period of Interest." Be exact. If the new ad campaign started February 1 and the manager has data through April 25, Period of Interest is from February 1 through April 25.

  • Count the number of possible Single Usage Times in the Period of Interest. Write the result down and label it "Possible Usage Times." From February 1 through April 25, Possible Usage Times = 28 days + 31 days + 25 days = 84 days.

  • Count the units. Write the count down and label it "Total Units." If the motel has 12 rooms, Total Units = 12 rooms.

  • Multiply Total Units by Possible Usage Times. Write the result down and label it "Maximum Possible." For the motel, Maximum Possible = 12 rooms X 84 days = 1,008 room-days.

  • From financial records, get the actual number of single usage times for the unit(s) during the period of interest. Write this down and label it "Actual." If the motel invoiced a total of 655 room-days from February 1 through April 25, Actual = 655 room-days.

  • Divide Actual by Maximum Possible and write it down. For one unit, this is "Unit Utilization." For more than one, it is "Average Unit Utilization" or "Capacity Utilization." For the motel, Average Unit Utilization = 655 room-days / 1008 room-days = 0.65 = 65%

Tips & Warnings

  • Sometimes one or more units are out of service during part of the period of interest. If one motel room was closed for renovation for a week during that period, you could optionally adjust for this by subtracting seven room-days from the Maximum Possible.
  • Don't mix apples and oranges during calculations. If Actual for an extended-stay motel is in room-days and Maximum Possible is in room-weeks, the result will be incorrect.
  • This calculation only reflects usage times. Other factors, such as cost of operation and billing rates, also affect profitability.

References

  • Photo Credit discount on the mind image by Dmitri MIkitenko from Fotolia.com
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