StrategyDriven

Business planning is the art and science of identifying what a company should and should not do balanced by its available resources. While much of business planning focuses on setting strategic direction and defining tactical activities, achieving balance requires that significant attention be given to the critical area of resource projection.

Annualized resource projection involves a number of processes that together paint a picture of the organization’s resource availability and needs. Creation of this picture begins with development of two key elements: resource availability and standardized activity assumptions. These assumptions are then applied to the proposed activities identified during the alternative development process. The resulting all encompassing list of resource loaded activities is further honed through an iterative process involving resource projection and alternative selection into the final portfolio of activities to be pursued. Derived from this portfolio is the organization’s time bound resource availability and needs.

Capacity planning refines the annualized resource projections; giving the organization insight to the additional resources needed in order to account for the inefficiencies associated with resource scheduling; personnel hiring delays and qualification; and equipment maintenance, calibration, and retooling. Each of these inefficiencies prevent resources from being available one hundred percent of the time; thereby forcing the organization to either increase its asset base or decrease its level of activity. Capacity planning reveals the average level of inefficiency providing insight to the resource and activity planning adjustments to be made.

Posts in this category are dedicated to discussing the leading practices of companies successfully executing a resource projection program in support of strategic planning.

Popularity: 20% [?]

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There are 52 weeks in a year. So a full-time employee works 52 weeks in a year, right? Wrong…

In fact, employers typically pay employees to not work 10 percent or more per year. Consider these common benefits:

• 2 weeks or more of annual paid vacation (US average = 2.6 weeks)
  Source: The Atlanta Journal-Constitution
• 2 weeks (10 days) of paid holidays per year (US average = 2 weeks)
  Source: Bureau of Labor Statistics
• 2 weeks (10 days) of yearly sick leave (US average = 1.6 weeks)
  Source: Compdata Surveys
• 1 week (40 cumulative hours) of professional development training, workshops, and conferences (US average = 1 week)
  Source: American Society for Training and Development

Taken together, these benefits reduce the average employee’s time dedicated to production activities from 52 to 45 weeks per year; a productivity loss of 13.5 percent. This level of effort is further reduced as an employee advances in tenure and is awarded additional weeks of vacation. It is this phenomenon that is critically important to strategic planning.

An Example…

Consider two 100 employee organizations, one with an average employee tenure of 7.5 years and the other an average tenure of 16 years. Each company provides employees with a vacation benefit that increases every five years:

1 – 5 years of service: 2 weeks of vacation annually

6 – 10 years of service: 3 weeks of vacation annually

11 – 15 years of service: 4 weeks of vacation annually

Over 16 years of service: 5 weeks of vacation annually

The first company, with an average employee tenure of 7.5 years expects to pay out 300 person-weeks of vacation benefit annually. The second company, with an average employee tenure of 16 years expects to pay employees a total of 500 person-weeks vacation annually; 200 person-weeks of vacation benefit more than the first company. To compensate for this added loss in employee availability, the second company will have to hire five additional full-time employees. Assuming these employees receive a total (salary and benefits) annual compensation of $100,000, the second company realizes a workforce liability of $500,000 more than that of the first company.

Planning Implications

The impact of accrued vacation benefits is significant; reducing capacity without effecting costs. Subsequently, planners must understand the potential for and impact of upcoming changes in vacation benefits in order to adequately prepare their organizations for this impending challenge.

Strategic Resource Planning

Strategic resource planning is performed at an organizational level. These planners must understand the aggregate changes to the organization’s overall vacation benefit payout so they can:

• identify aggregate personnel resource shortfalls
• adjust the company’s projected work capacity based on those shortfalls

and develop a strategic plan that accounts for the capacity loss with one or a combination of the following:

• projects to be eliminated
• product and/or service offerings to be reduced
• staffing increase and the associated expansion in the human resources budget
• additional overtime to be paid and the accompanying human resources budget increase

Project Resource Planning

Project resource planning occurs at a tactical level where a vacation benefit change for even one team member can drastically impact the ability of the project team to achieve its timetable. Therefore, project managers must be aware of changes to the amount of vacation awarded individual team members and then work with each individual to schedule vacation at times that are both convenient to the individual and practical for the project.

Production Resource Planning

Production resource planning also occurs at the tactical level. Unlike project planning, however, some production facilities cannot be shutdown for periods of time to afford mass vacations like those that occur around holidays. Managing time off for production workers, therefore, often has associated with it rules governing the number of persons allowed to be on vacation at any one time. These policies ensure that a minimum number of critical staff is always on duty thereby ensuring continued production.

Regardless of the planning mode, it is important to properly characterize the availability of personnel resources and to recognize changes over time. When estimating the number of individuals needed to provide a service, complete a project, or work an assembly line, planners must consider the employees’ effective work weeks, not the number of weeks in a year. Not doing so will lead to under staffing, in turn resulting in overtime, cost overruns, and potentially employee dissatisfaction and attrition. While using employee and organizational data is best, absent quantified information planners should consider the 45 week year as the standard for employee availability.

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Nathan A. Ives is a Strategy & Operations Manager at Deloitte Consulting LLP, a StrategyDriven contributor, and co-Host of the StrategyDriven Podcast. For over fifteen years, he has served as trusted advisor to executives and managers at numerous Fortune 500 and smaller companies in the areas of management effectiveness, organizational development, and process improvement. To read Nathan’s complete biography, click here.

Popularity: 30% [?]

For the purposes of personnel resource estimation, what is an individual worth? The answer may seem obvious. A full-time equivalent (FTE) or full-time employee is typically considered to be “worth” 2000 hours of labor per year; calculated as the product of fifty, 40 hour work weeks.

But does any full-time employee really work just 40 hours per week? According to the Bureau of Labor Statistics report, American Time Use Survey, published June 28, 2007, persons employed full-time work an average of 9.3 hours per day or 46.5 hours per week. Should 46.5 hours per week be used as the standard assumption for making personnel resource projections?

While receiving 2325 hours of labor per year per employee instead of 2000 would be nice, a 16.25 percent increase in labor received at no additional cost, it is perilous to base any plan, be it the organization’s strategic plan or an initiative’s project plan, on such a labor rate. First, unless explicitly included in the terms of their employment agreement, professionals generally feel they are paid to work 40 hours a week; making demands by employers for long-term working hours in excess of 40 hours per week appear to be uncompensated and therefore unreasonable. Continued without adequate employee valued compensation, long working hours often result in rising attrition and lower work efficiency. Second, employees working over 40 hours per week do so because they harbor goodwill for the organization, feel a sense of commitment to the team, take exceptional pride in their work, and/or desire above normal recognition. Goodwill, commitment, and pride develop over time; being earned by the organization. Since at any given moment a sizable portion of an organization will have less than a year of service and not all employees will ever harbor these feelings, extended hours based on employee goodwill, commitment, and pride are undependable. Lastly, workers are increasingly seeking to balance their work and personal lives. Thus, employees are becoming less likely to voluntarily work extended hours.

Adverse employee reaction to extended working hours is not the only reason for avoiding excessive work hour estimates during planning. An individual’s efficiency tends to decline as the number of hours worked increases. Subsequently, the extended working hours associated with long work weeks result in less and less output; invalidating the value assumptions associated with an hour of labor.

So what is the labor worth of an individual? All things considered, a person should typically be considered to produce 40 hours of work per week.

Final Thoughts…

There are exceptions to every rule, including the use of 40 hours per week to estimate the labor productivity of individual employees. Exceptions to the 40 hour work week include:

• professionals, such as doctors, who are on-call beyond their normal working hours
• professional services employees with a defined number of billable hours per week over 40
• represented employees who, by contract, are required to work over 40 hours per week as demanded by their employer (usually with an upper limit)

Common to these exceptions is the upfront communication to workers that they will be expected to work beyond what is considered the 40 hours per week norm. For all employees, this communication should take place as a part of the hiring process and on a case-by-case basis for special events and business needs. Additionally, employees must feel their added effort is recognized and valued by the organization. This may take the form of increased compensation, public and private praise, and/or expanded responsibility; consistent with that which the employee values.

The thumb rule of the 40 hour work week is based on the socially accepted full-time work hours for Americans. The same rule is applicable in other countries adjusted to that region’s socially or legally acceptably work week hours.

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Nathan A. Ives is a Strategy & Operations Manager at Deloitte Consulting LLP, a StrategyDriven contributor, and co-Host of the StrategyDriven Podcast. For over fifteen years, he has served as trusted advisor to executives and managers at numerous Fortune 500 and smaller companies in the areas of management effectiveness, organizational development, and process improvement. To read Nathan’s complete biography, click here.

Popularity: 35% [?]

Human beings are social creatures having both emotional and physical needs. Businesses able to satisfy these needs will be better positioned to attract and retain talented personnel; giving these businesses a much needed advantage in the increasingly knowledge driven marketplace where human resources are increasingly limited. Such organizations will further benefit from increased worker engagement because employees feel more connected and valued.

Meeting these very personalized needs requires an ongoing time investment, social time to build and maintain co-worker relationships, to connect with customers and clients, to contact family and friends, as well as time to physically relax, refresh, reflect, and rejuvenate. This time investment varies day-to-day and person-to-person making it extremely difficult to measure. Time studies, project management research, and this author’s managerial experience suggest that knowledge workers, on average, require a twenty percent time investment in these personal activities. Stated another way, professionals spend about one and a half hours of an eight hour workday on non-productive but personally necessary activities. Hence, professionals, those whose breaks are ill-defined, can be assumed to work at eighty percent efficiency when fully engaged.

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Popularity: 47% [?]

Standardized activity resource assumptions enable decision-makers to anticipate the quantity and type of resources needed to perform approved work; facilitating selection between competing alternatives, long-term resource planning, day-to-day scheduling, and performance measurement. Over time however, personnel, process, and business environment changes will necessitate reevaluation and alteration of the organization’s standardized activity assumptions. To accommodate these changes and maintain the benefits of using standardized assumptions requires establishment and use of a change control process.

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Popularity: 42% [?]