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Labor Expense Management – Start with the Basics

Even as we hope that we’ve seen the bottom of the recession, many of us are still watching our expenses closely.  While economic output may have stopped contracting according to economists, it doesn’t feel like the recession is over.  Most families are  saving more, paying down their debt and cutting back on discretionary expenses like lattes and vacations.   Faced with job losses and pay freezes, we’ve rediscovered the difference between necessity and luxury.

Businesses are in the same boat.  According to an April survey by Watson Wyatt, 70% of businesses have implemented some level of layoffs or downsizing.  For many, though, the difficult measures they’ve already taken haven’t been enough.   So what more can organizations do if they need to manage expenses even more closely?

They can get back to basics.  For families and businesses, this means measuring what you spend so you can plan and manage to a budget.  It means inspecting your largest variable expenses for opportunities to reduce those expenses.  For most organizations, that’s the workforce, somewhere between 30% and 80% of their operating budget on average.

According to Nucleus Reseach, many companies still rely on paper based or semi-automated timekeeping and payroll solutions, yet payroll errors can cost them over 1% of their payroll per year. In my conversation with David Caruso earlier this year, he indicated that more manufacturers are focusing on the use of automation to manage labor cost and productivity as they’ve reached the point of diminishing returns with other strategies for cost containment.  It can be hard to justify the capital outlay to invest in the hardware and software needed to automate time and attendance data collection, however the measurable returns are there to be had.

What has your company done to make the case to spend more in order to save more?

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  1. The solution is not more hardware or software. It can be found in 1. understanding the market and all the forces that may impact one in the next 5 years, 2. Taking a hard look at what is dysfunctional inside, 3. segmenting the workforce (especially the leadership positions) into mission critical, differentiating skills, operational necessities and removables, 4. optimizing processes by reviewing inputs, throughputs and desired outputs, 5. Integrating service delivery, 6. building a strategic-operational-leading indicator measurement system that is linked. After you do that apply predictive analytics to your labor cost/productivity system. Then you can decide if there is a need to spend more money on tools.

    August 3, 2009
  2. I’m going to agree 100% with Dr. Jack, technology is the enablment mechanism, but it isn’t the solution. Dramatic cost savings can be had in labor budgets through accurate workforce planning & forecasting, labor demand & supply allocation managment, workforce / schedule optimization, and extensive optimization of business process.

    Software can assist with this, it can lower costs for the tactical application of it, but it isn’t the problem solver at the end of the day.

    August 12, 2009

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