IB Business and Management

Measuring the effectiveness of the Workforce

What happens if businesses don’t plan their human resources effectively?

• If businesses don’t make the most of their workforce this can lead to many problems. These can be remembered at the 5R’s:

• Recruitment – Higher recruitment , induction and training costs

• Resources – An increasing amount of resources being focused on solving HR issues rather than achieving business objectives

• Reduced Morale – of staff who are facing continual changes

• Reduced Productivity – Lower levels of productivity leading to higher costs and lower profits

• Reputation – The business’ reputation is damaged

4 methods of measuring effectiveness of workforce

Monitoring:•Labour Turnover•Absenteeism•Waste Levels•Labour Productivity

LABOUR TURNOVER

What is Labour Turnover?

• Labour turnover refers to the movement of employees in and out of a business.

• However, the term is commonly used to refer only to ‘wastage’ or the number of employees leaving within a period of time

Measuring Labour Turnover

• The simplest measure involves calculating the number of leavers in a period (usually a year) as a percentage of the number employed during the same period:

• For example, if a business has 150 leavers during the year and, on average, it employed 2,000 people during the year, the labour turnover figure would be 7.5%

Labour Turnover = Number of Leavers x 100 Average number employed

Patterns of Labour Turnover

• The highest rate of labour turnover tends to be among those who have recently joined a business. Why?

• Longer-serving employees are more likely to stay, mainly because they become used to the work and the business and have an established relationship with those around them.

What might cause a business to have a

high labour turnover?

Causes of High Labour Turnover

A high level of labour turnover could be caused by many factors:

• Inadequate wage levels leading to employees moving to competitors

• Poor morale and low levels of motivation within the workforce

• Recruiting and selecting the wrong employees in the first place

• A lack of promotion opportunities leading to employees moving to competitors

What problems could a high labour turnover create for a business?

Problems of Labour Turnover

High rates of labour turnover are expensive in terms of:

- Additional recruitment costs- Lost production costs- Increased costs of training replacement

employees- Loss of know-how and customer goodwill- Potential loss of sales (e.g. if there is high

turnover amongst the sales force)- Damage that may be done to morale and

productivity (an intangible cost)

Can you think of any benefits oflabour turnover?

Potential benefits

• Some level of labour turnover is important to bring new ideas, skills and enthusiasm to the labour force.

• A "natural" level of labour turnover can be a way in which a business can slowly reduce its workforce without having to resort to redundancies (this is often referred to as "natural wastage“)

ABSENTEEISM

Absenteeism

• Measures how many workers miss work as a percentage of total workers

Measuring Absenteeism

• Absenteeism per day:

• Absenteeism per year:

Absenteeism = Number of staff absent x 100 Total number of staff

Absenteeism = Total number of absences x 100 Total possible number of working days

Example

• A firm employs 50 staff. Staff work 5 days per week for 48 weeks of the year

• Total possible working days = ?• 240 days x 50 = 12,000• If the total absences for the year were

750 days, the absentee rate would be ?

• 750/12,000 x 100 = 6.25%

What might cause a business to have a

high absenteeism rate?

Causes of Absenteeism

A high level of absenteeism could be caused by many factors:

• Poor working conditions• Failure to respect the needs of workers• Failure of team working• Lack of accountability• Bad culture within the organisation• Stress caused by over supervision or

inappropriate tasks

What problems could high absenteeism create for a business?

Problems of high Absenteeism

High rates of labour turnover are expensive in terms of:

- Lost production- Extra overtime for other staff- Stress of other workers- Poor levels of customer service- Further absenteeism - snowballing

How can a firm lower absenteeism?

Solutions….

• Flexitime• Job enrichment• Improved working conditions• Attendance bonuses• Systems of monitoring and

administering absences

WASTE LEVELS

Waste Levels

• The level of waste produced by a firm is a clear indicator of it’s efficiency.

• Companies would like this to be as close to zero as possible

Wastage = Quantity of waste materials x 100 Total production

Costs of Wastage

• Scrapped materials• Re-working damaged goods• Lost reputation caused by faulty

goods being sold or delays in delivery

LABOUR PRODUCTIVITY

What is Labour Productivity?

• A measure of the efficiency of the workforce by assessing their level of output

Labour Productivity- Why is it important?

• Labour costs are a huge part of overall costs

• Business efficiency and profitability are closely linked to productive use of labour

• In order to remain competitive it is important to keep unit costs down

Factors Influencing Labour productivity

• Extent and quality of fixed assets• Ability, skills and motivation of

workforce• External factors (eg. Reliability of

suppliers)• Methods of production organisation

Calculating Labour Productivity

• Labour Productivity is calculated by:

• It is usually expressed in terms of output per employee per period of time

• Eg. 1000 units per employee per week

Labour Productivity = Output per period (Units) No. of Employees per period

Question

• Cadbury’s employ 200 production staff. Calculate their labour productivity if they produce:

1. 200,000 chocolate bars per week2. 470,000 chocolate bars per week3. 130,000 chocolate bars per week

1000 units per employee per week

2350 units per employee per week

650 units per employee per week

Calculating Labour Productivity

• You can also measure labour productivity in terms of the amount of labour hours per unit produced:

Labour Productivity = Units produced per period Number of Labour hours per period

How can a company tryTo improve it’s labour

Productivity?

Ways to improve Labour Productivity

• Measure performance and set targets

• Invest in capital equipment (computerisation and automation)

• Invest in employee training• Organise the workplace in a way

which is conducive to productive effort

Task -

Best Motors

Personnel Performance – Best Motors

2007 2008 2009 2010 2011

Output 780 803 805 790 811

Wastage 10 11 12 11 13

Average No Of Workers

23 25 25 24 26

No of Staff Leaving

3 2 4 6 7

Working Days Per worker per year

240 240 240 240 240

Working days lost to absence

124 102 145 169 204

Questions

1. For each year calculate:a.Labour Turnoverb.Absenteeismc.Waste levelsd.Labour productivity

b. Using your results what conclusions can you draw about the effectiveness of the workforce at Best Motors?

c. What additional information would you want to know in order to gain a betterUnderstanding?

d. Suggest a policy approach to deal with Best’s human resource difficulties.