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2.3.5 LABOUR COST AND ITS CONTROL
18.104.22.168 Labour Cost
Labour cost is one of the most significant factors for studying the economic viability of any project before venturing into the field. It helps in studying the extent of expenditure incurred by entrepreneurs on labour welfare and social security aspects, in addition to wages/salaries paid to them. In addition it helps in
(a) Reliable costing,
(b) Wage fixation on a realistic basis,
(c) Logical collective bargaining,
(d) Evolving implementation at and evaluation of welfare measure,
(e) Study of trends over a period of time,
(f) Location of industry
(g) Labour cost data
Are also important for policy formulation at national and regional levels. With this data, labour cost are collected every year, which includes the expenses incurred by the industrial establishments on wastage/salaries, bonus, contribution to provident and other funds, and staff welfare expenses in respect of all employees employed directly or through contractors. The aggregate of these components gives the labour cost. When used in conjunction with the number of man days worked, this gives the average labour cost per man day worked.
Maintaining labour costs is becoming a difficult task in light of the current personnel challenges facing operators. The challenge of controlling labour cost is often further complicated by current operating practices, including:
- No clear standard for labour: A manager knows what a slice of cheesecake costs and can set an appropriate price to achieve a desired cost level. There is not the same clarity when gauging the relationship between the cost of an manhour and the sales revenue that is generated as a result of that time.
- Lack of appropriate benchmarks: With the exception of multi-unit chains, food service operations vary enough that it becomes difficult to compare labour costs. As a result, there is often continual pressure to reach the lowest labour cost possible as opposed to achieving labour cost efficiency.
- Management capabilities: Many managers have never been trained on how to effectively control labour and often lack the tools necessary to aid in these efforts.
- Supervision and training: Ineffective training programs and a lack of supervision leads to poor performance. Managers must be physically and mentally active to ensure that the standards established through proper training are adhered to.
- Hiring process: Reactive hiring, full-time labour intensity and the reliance on hiring previous experience have made recruiting practices inefficient and increased the cost.
- Scheduling: The use of set schedules, minimum shift times, and break practices have made labour planning less flexible, impaired performance, and inflated costs. Developing a labour plan will reduce the likelihood that managers will make reactionary decision without assessing their impact on the overall operation. The planning process should be rigorous to ensure that strategies are rational and to improve the likelihood of success.
22.214.171.124 Tools for Labour Cost Control
The following labour planning framework will outline the steps required to develop an effective labour plan:
- Determine Labour Objectives
Effective planning should be guided by the organization's desired results, taking into consideration factors such as the style of service, facility design, price levels labour availability, and market wage rates. The task of determining labour objectives is more than just trying to get the most work out of the fewest people. Even individual units within a larger chain will have to plan for and manage labour differently.
- Establish Labour Budgets
Developing a labour budget is a quantitative way of expressing the operation's labour objectives. Budgets provide a benchmark to measure future performance and guide management decision making. Several different strategies are employed when developing budgets. Aggressive, or optimistic, budgets are used as targets. Managers try to get as close to budget as possible, but are not necessarily expected to achieve the budget targets. Conservative budgets may be established to reflect the worst case scenario. Managers are expected to be aggressive in making changes during the daily operation to improve on this budget.
- Implement New Schedules
Schedule templates derived from the planning process are efficient operational labour strategies. For each week, managers just need to select the template that reflects the anticipated sales volumes and assign available staff members to the prescribed shifts. This will greatly reduce the time required to complete the weekly scheduling activities and will avoid any bias created by individual employee scheduling expectations.
The development and implementation of efficient schedules provides operations with an opportunity to achieve lower labour cost. These efforts will be wasted if managers neglect to control labour on a shift-by-shift basis.
Using a manual labour control sheet where employees must come to the manager on duty to be signed in or out is often a much more effective system. Not only are the work hours recorded accurately the first time, the most important benefit of these manual systems is that they place control over labour into the hands of the management team. It becomes easier for managers to follow labour plans, verify that employees are on time and prepared for work as well as check staff uniforms and physical appearance.
- Perform Variance Analysis
Evaluating the labour cost performance occurs by comparing actual results to the budget. The detailed information provided is useful in identifying the causes of labour cost problems. It is just as important to look at the actual labour dollar expenditures and the labour mix when measuring performance.
Total labour cost could appear to be constant, but individual department performance may vary with improvements in one area offsetting the inefficiencies in another. Managers must also remember the impact of fixed labour on labour cost percentage when sales volume increases or decreases. These activities are referred to as cost drivers.
- Implementing Effective Labour Cost Control
Labour represents a significant percent of the operating costs for small to midsize organizations, so effective labour cost control is critical to the bottom line. Fortunately, labour is an expense can be controlled, especially if one gain insight into important issues such as:
Unnecessary overtime: Pay for overtime and un-worked hours can be 1.3 percent of total payroll.
Buddy punching: 19 percent of employees admit to buddy punching once a year; these costs can reach from 1.5 percent to 3 percent of gross payroll.
Unscheduled absenteeism: Its rate in the US hourly workforce is approximately 9 percent; almost one in ten workers is absent when he or she should be at work.
- Reduce your Labour Management Costs
It's a complete and easy-to-use solution that addresses an organization's workforce challenges and helps to control labour management costs without overburdening budget or IT resources.
Lower the administrative costs associated with staffing, scheduling, managing, and paying employees strengthens
- the effectiveness of operations managers by providing them a line-of-sight
- the detailed employees' activities (by cost center level, by project)
- the repartition of worked hours among regular hours, overtime hours, night shift working hours, hours worked during the week-end
- the comparison between scheduled hours and hours actually worked
- Saves money by reducing overtime.