Balancing customer service and production level while controlling staff costs is an issue for every business, large and small. It’s an issue because it’s important for key results (customer and employee retention, revenue, expenses, and profits) yet doing it well requires predicting the future. You must anticipate both customer and employee behavior! Other than that, it’s easy!
Forecasting Production Hours
Every solution for planning people requirements involves forecasting the future volume of business and the amount of work an average employee can produce. This tells you production time required. You should forecast each month separately, to recognize seasonal peaks and valleys. Your business could even require a weekly breakdown in the most variable months, such as November in retail. Later, when it comes to scheduling staff, you’ll consider whether volume of business on any particular day is significantly higher or lower than the week average (e.g. Monday may be 110% of average weekly requirement). But stick to a monthly forecast for now.
Refer to your records of demand and productivity to decide:
- Current demand growth vs. same time last year, and vs. the last few weeks.
- If work-time per unit varies by type of unit, you may want to make three separate forecasts, one each for big, medium, and little units
- Expected growth for the next 12 months, based on above or other inputs.
- Today’s employee work-time needed to produce the average demand element (unit, widget, order, task).
- If work-time per unit varies by type of unit, you may want to make three separate forecasts, one each for big, medium, and little units.
- Expected change in that work-time per element for the period you are forecasting. For example, consider a new machine, or a change in staff’s average experience level.
Forecasting Non-Productive Hours
The next step is translating production hours required into people required. No, you don’t just divide by eight hours to find number of people required. Just look in the mirror, and you’ll realize people are not productive all the time! Unlike robots, employing a person involves planned off-line time (e.g. scheduled breaks and lunches, training, meetings, vacations, holidays), unplanned unavailability (absence and unscheduled breaks), and on-line “ready-to-serve” time to make sure someone is available so that incoming customers do not have to wait too long.
- For planned off-line time, consider your policies. For example, a company may expect 10 days of vacation, 10 holidays, and 12 days in training/meetings (about 2 hours per week), which sums to 32 days or 12% of 260 workdays in a year (52 weeks x 5 days).
- For a service business, add some level of idle time while employees are on-line, so someone is available for the next customer without excessive waiting. This applies if idle time is not already built into your work-time estimate. First, decide on your target level of customer waiting time. If they leave without buying due to the wait, will they come back later, or buy elsewhere? Then estimate how much on-line idle time is needed to meet that target. 10% is a minimum, or 26 days per year.
- For unplanned off-line time such as absence, consider your experience. Maybe that uses up 3% of payroll time, or 8 days per year.
Forecasting People Needed
To find the number of people needed, combine production time required with your forecast of nonproductive time per employee, and then divide that by scheduled hours per employee to find “equivalent full-time” (EFT) people needed. Later, you may decide to meet some of these EFT needs with two part-time people each.
- Total nonproductive time in this example is 32 + 26 + 8 days = 65 / 260 = 25%.
- To find EFT people required assuming eight hours per day without scheduled break/lunch, divide production hours required by .75 (that is, 1.00 – .25 nonproductive in this example). Assuming you needed 100 production hours in the average day, you need 125 payroll hours, or 16 EFT.
- Note the arithmetic here. You divide by productive hours by (1 minus nonproductive % of total). You do NOT multiply productive hours by 1.25. If you did that, you would be 5 hours (one person) short.
Knowing how many people you need per month is the first step in deciding staffing. The next step is deciding how to fill those requirements: hire permanent or temporary employees, whether full or part-time; build and store inventory in low months; work overtime, outsource, or even accept backorders in peak months. See the next article for Staffing techniques and for Scheduling.
Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business, certified as a Turnaround Professional (CTP), Business Development Advisor, and SCORE Mentor. He can be reached at 630-512-0406 or email@example.com. See www.tom-gray.com. For Tom’s new book Business Techniques for Growth: More Tools for Small Business Success, and its predecessor Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbooks.com/