Working Title: Where Does the Time Go, Answering THE Question ...

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  • 1. Time Trials: Uncovering the Whole Truth about Workforce Productivity Metrics By Jonathan Lacefield No matter what type of product or service an organization produces and or delivers, workforce costs have a significant impact on organizational goals and profitability. Many businesses have tried to dissect the relationship of labor to time to profit. However, most organizations manage workforce costs at a macro level using aggregate metrics based on assumptions to derive the amount of time it takes to produce a good or service. The results are, predictably, inaccurate, incomplete, and out-of-date. Businesses making decisions without visibility into the actual amount of time it takes to produce a good or service are at risk. The answer lies in simplicity. Ask “Where does the time go?” at a meaningful level and then hunt for the answers by driving down to the greatest level of detail available. Structuring detail data into higher level, meaningful, and analytical-ready information provides the only accurate calculation of the time required to deliver goods or services, and is the basis for Time Performance Management (TPM). TPM is the technique for managing workforce performance through the automated collection and aggregation of actual time data with actual production data that drives the “time cost to deliver” set of metrics. Why Sweat the Details? The driving force behind workforce performance management is cost. The goal is to maximize the return on labor costs, thus increase profits, by ensuring that the organization is effectively allocating labor in proportion to the amount of labor required to produce goods or services. But, faced with thousands of employees and tens of locations, where do you cut and where do you invest to maximize return? These decisions require clear visibility into an organization’s actual cost of labor, derived by combining live productivity data with live workforce time data. Building the foundation for analysis on such detailed data allows executives to manage labor costs toward corporate objectives through highly aggregated metrics while giving management at various levels of the organization the ability to understand their operational effect on the corporate objectives through disaggregated versions of the aggregated metrics used to set the corporate objectives. For example, a manufacturing company that produces multiple products needs to determine which product has the greatest effect on its production costs. Determining the total cost of production for all products is pretty straight forward, but to take action, more information is needed. By collecting detailed workforce time data and combining it with detailed production data, the manufacturer can start with the total cost of production for all products and then drill into this “expensive” product to identify the shift that has the
  • 2. highest cost impact on this product and determine why this shift is so expensive. Are excess costs due to over allocation of employees? Time clock or company policy abuses? Or, is this unrealized impact of sick or vacation time? Once the “expensive” shift and reasons for the high costs are identified, the manufacture will be able to take the corrective actions necessary to manage the “expensive” product’s cost to a more acceptable level. In this example, understanding the reasons why the product costs so much to produce, enables the manufacturer to utilize its organization’s knowledge and expertise to make strategic decisions and operational adjustments at the appropriate level to lower the cost of production. Build Metrics from the Bottom Up TPM uses the same fundamental techniques applied in any Corporate Performance Management (CPM) methodology. A core set of metrics, Key Performance Indicators (KPIs), are identified to measure progress toward a defined, focused goal. However, unlike some CPM methodologies, this approach recommends calculating KPIs at the lowest possible levels and aggregating these metrics up to the strategic level. This bottom-up approach provides the critical ability to dig deeper into values to find the operational answers that affect strategic goals. The core set of metrics used to determine the labor investment in a product or service can be simplified to one high-level metric, “time cost to deliver” (TCD.) TCD is defined as the total cost of labor (time) to produce or deliver x units of goods or services (productivity). TCD can be presented in two ways. First, as the sum of all labor costs to produce or deliver all goods or services during a period of time, referred to as “Total Time Cost to Deliver.” The alternate presentation is “Time Cost to Deliver per Unit,” defined as the average actual cost of labor to produce or deliver one unit of goods or services. TCD is the core metric that truly shows where time has gone. These metrics must be aligned to the organizational structure to provide meaningful insight, and their goals or thresholds should be organizational-centric. Along with the TCD metrics, separate, organizational-centric, time-centric and productivity-centric metrics should be presented to allow managers at all levels to investigate and understand the drivers of the TCD metrics. The process that creates TCD metrics and structures the dimensions for TPM is an automated process that utilizes database and data transformation technologies. The conceptual process is described in Diagram 1.
  • 3. Diagram 1. Step 2 Step 3 Step 1 Step 4 Data Combination Calculation and Data Source Collection Presentation for Analysis (Time to Productivity Distribution) Analytical Storage Configuration Direct-Hourly Labor Source InDirect-Hourly Labor Source Direct-Salary Labor Source Organizational-Centric Standards and Thresholds Time Subject Area InDirect-Salary Labor Source Temporary Labor Source HRMS Time Cost Source Where Does the Time Go Analysis Interactive Role-Based Dashboards Interactive Role-Based Scorecards Time to Productivity Distribution Logic Time Performance Management Analytical Environment Where Does the Time Go Analysis Advanced Analysis Tools Time Cost to Deliver KPI Multi-Dimensional Analysis Tools Time Cost to Deliver Metrics Time Cost to Deliver Dimensions Where Does the Time Go Analysis BI and Reporting Tools Productivity Data Source 1 Calculations Productivity Data Source 2 Productivity Subject Area Productivity Data Source 3 Four Steps for Time Performance Management As shown in diagram 1, calculating TCD metrics requires two data subject areas, “Time” and “Productivity.” Creating a Time Performance Management environment can be generally represented as a four-step process. o Step 1: Identify and collect all sources of data. o Step 2: Combine the sources of data into the two subject areas and then distribute the time subject area into the productivity subject area. o Subject area-centric metrics should be calculated at this time. o Step 3: Calculate TCD metrics, apply standards, and prepare the data into an analytical structure. o Step 4: Present this information for analysis so executives, management, and analysts can ask and answer: “Where does the time go?”
  • 4. The Time Subject Area The time subject area represents the hours and costs accrued during the production of x number of goods and services. This data is used to calculate the numerator in the TCD metric and is derived from two main sources of data, time and time cost. Time subject area data is the collection of four labor-type data sources: direct hourly labor, indirect hourly labor, direct salary labor, and indirect salary labor. These four labor types can be grouped into two categories, hourly labor and salary labor. The following definitions outline the requirements of each labor type. o Direct Hourly Labor Direct hourly labor refers to hourly labor that has a direct impact on the production or delivery of a good or service. This is the labor type most commonly associated with workforce cost management. Temporary labor is usually included with this labor type, but it requires a separate data feed from the temporary labor provider. o Indirect Hourly Labor Indirect hourly labor refers to the hourly labor that is required to perform tasks to support the production or delivery of a good or service but does not have a direct impact on the production or delivery of a good or service. For example, maintenance is critical to healthcare providers. Hospitals employ large teams of hourly employees to keep facilities clean and in working order. However, these employees do not provide patient care. Maintenance employees’ time is usually shared across patient centers; therefore, we categorize maintenance as indirect hourly labor. o Direct Salary Labor Direct salary labor, like direct-hourly labor, refers to salary labor that has a direct impact on the production or delivery of a good or service. However, unlike hourly labor, salaried employees’ cost per hour must be derived. o Indirect Salary Labor Indirect salary labor, while conceptually similar to indirect hourly labor, can be much more complex because it includes management and other corporate support functions. Deciding what roles to include in this category and how to derive hourly labor costs for individuals is unique to the objectives of the organization. The level of effort required to derive indirect salary labor is large, but the value on workforce labor cost is usually small, due to complexity of both creating the cost per hour and distributing this cost across goods and services. These four labor types have predictable levels of importance when calculating the TCD metric (Diagram 2). In general, hourly labor costs far exceed salary labor costs in their
  • 5. contribution to the TCD calculation. The “direct hourly cost to deliver” metric has the greatest impact on the TCD metric, while the indirect hourly and direct salary metrics have somewhat less value to the TCD metric. Finally, indirect salary labor provides the smallest contribution to the TCD metric. Diagram 2. Time Cost to Deliver Hourly Time Cost to Deliver Direct-Hourly Time Cost to Deliver Indirect-Hourly Time Cost to Deliver Salary Time Cost to Deliver Direct-Salary Time Cost to Deliver Indirect-Salary Time Cost to Deliver This diagram shows the impact of the components of the Time Cost to Deliver metric. Time Data Sources Time data are data that give detail on the amount of time that was spent doing a specific task or job. This data requires different feeds to capture the various labor type data required to calculate the TCD metric. The most granular and available data source is usually the time data source for hourly labor. One of the best and most accessible sources for this data is a time clock system. This data is employee-centric. The data inherently has an employee identifier tied to it, which will allow for the combination of the other data sources required for TPM. This data is calculated at a punch level and some time clock systems associate a specific task to the punch by having employees punch-in when they arrive at a job station.
  • 6. Salary labor does not normally have a granular and accessible source, unless direct salary labor employees use time clocks to clock in and out. Salary labor typically requires business logic to estimate and structure the data to the task or job level of detail required to calculate the TCD metrics and allow disaggregating functionality. Time data is one of the most challenging aspects of constructing the Time Performance Management system due to the large amount of data and the different levels of granularity at which labor type (direct hourly, indirect salary, etc) data is gathered or derived. There is significant effort involved in working with this data, and taking advantage of third-party, pre-built, time-centric data applications will reduce the level of effort required to collect and conform the different labor type data into a single, employee-centric subject area data source. Time Cost Data Sources Time cost data details either the cost per hour for an hourly labor employee or the cost per year for a salary labor employee. This data usually comes from a human resource management system and is inherently structured around an employee. Historical data is very important to maintain as employees’ hourly rates or salaries change over time. Time cost data will be combined with time data to calculate the cost associated with time. To combine these sources all employees’ should have an hourly cost associated with each unique employee record. Combining the sources into one employee entity will require the employee entity to contain and maintain audit attributes associated with wage changes. The time cost data source should not constitute any significant level of effort to collect and structure as long as history is correctly maintained in the source system. Productivity Subject Area Productivity data represents where the time has gone. In other words, the productivity subject area represents the output from the time investment. This subject area displays how much of the deliverable was produced during a particular period of time, and is industry-specific because it represents the goods or services produced. This subject area should be sourced from a system or collection of systems that provides the number of units of goods or services produced or delivered during a time period with as much context detail as available. For example, productivity data for manufacturing should at minimum be collected at a line, shift, and location detailed level. Productivity data for a Hospital System should be collected at a facility, room number, admitted date, and discharge date detailed level.
  • 7. Distributing Time to Productivity To distribute time data into productivity data you will need to create business rules that tie the lowest levels of the time subject area labor types to the productivity detailed levels. This is normally a manual process that requires a significant time investment to create but a nominal ongoing effort to maintain. The productivity subject area drives this process. All time records will join to a productivity record with no time records left unassociated. The distribution process also includes weighting indirect labor time records so that indirect laborers’ time is spread out among all the different goods or services produced during the time worked. The goal of this process is to distribute time data into productivity data at any dimensional level (organization, products, time, locations, etc.) necessary to show worker productivity at all possible levels. Calculating Time Cost to Deliver Conceptually, calculating the TCD metric is done after distributing the time subject area into the productivity subject area. From a high-level, the algorithm for the Time Cost to Deliver metric is: SUM(Time Costt) From a high-level, the algorithm for the Time Cost to Deliver per Unit is: SUM(Time Costt)/SUM(Production Countt) Where Time Costt represents the labor cost accrued during the time period to produce or deliver the number of goods or services represented in the Product Countt metric. In other words, the subscripted variable t in this algorithm represents the amount of time it takes to produce or deliver x number of goods or services. The subscripted variable t represents a very important aspect of this process because it infers that the TCD metric(s) can be calculated at the most granular level, one unit of goods or services produced, and can be aggregated up to any desired level. This allows an organization to analyze labor costs from a top down perspective while having the ability to drill into lower levels of the organization to dig deeper for answers. Presenting for Analysis Once data has been collected, combined, and calculated it is time to effectively present the TPM information to the organization to promote analysis and action. This is the part of the TPM process which allows people to ask: “where does the time go?” At this point in the TPM process data has been transformed into information which will be presented at a meaningful-level throughout your organization. A meaningful-level of presentation means that the information should be tailored to the individual, role, or organization level that has been designated as the consumer of this information. For example, a CFO will be presented with enterprise level and enterprise wide strategic and relevant TCD metrics measured in dollars, while a line manager will be presented with
  • 8. variations of the TCD metrics restricted to information about their line(s) and shift(s) workforce time and production. TPM presentation should start with a one-page role-based dashboard which acts as a jumping-off point where users will analyze their meaningful-level aggregated TPM metrics and KPIs and then dive into a metric or KPI for deeper analysis. Pre-built, TPM metric-centric or KPI-centric parameterized reports, ad hoc analytical areas, or multidimensional (pivot table) reports will provide access to the deeper analysis. A library of pre-built reports categorized by your organization’s TPM subject areas, for example TCD by product, or absenteeism affect on TCD, should also be utilized as an easy–access environment of common and repetitive information. The contents of this environment can be restricted by role to ensure people in your organization only see what is relevant and needed for their job. Presentation is a very important and somewhat difficult part of the TPM process because none of the other steps matter if your organization does have clear, meaningful, and secure access to the information. Your organization will gain more value from TPM by keeping the presentation area as simple and easy to understand as possible. If you organization has not been successful with providing restricted and role-based access to information, consider getting outside help to ensure this step is done correctly. Conclusion Can your organization answer the question: “where does the time go?” Most organization can’t. But, if they can, the answer takes so long to find or is not at a meaningful organizational level that it is not useful to manage production costs. Utilizing the Time Performance Management process of automated collection and aggregation of actual time data with actual production data to derive the “time cost to deliver” set of metrics, provides organizations with a powerful tool that provides vision into the organization’s production costs. And, because you can’t manage what you can’t see, companies will finally be able to say: “I know where my time goes and I can do something about it!” About the Author Jonathan Lacefield is an Analytical Consultant Level V with Kronos Inc, Experts at Improving the Performance of Business and PeopleTM. Jonathan has more than seven years experience leading, designing, and delivering analytical initiatives for healthcare, telecommunications, retail and manufacturing industries. Kronos is the industry leader for workforce management. He can be reached at Jlacefield@Kronos.com.