January 2008, Government Fleet - Feature
Overtime: A Cost-Effective Solution to Improve In-House Productivity
By John Dolce
Extra Hours Vs. Extra Employees
At what amount of OT work does hiring a new employee become cost-effective? With the target total of 717 annual productive hours per employee, a total of seven employees working the suggested maximum two OT hours per week comes closest to the goal:
2 hours OT/employee x 7 employees
x 52 weeks =
728 annual productive hours
Of course, fewer employees working more OT hours will also approach the 717-hour productive goal. If we increase the 430 hours of scheduled work per employee, that employee is accomplishing more productive work within the 1,260-hour window. Each hour of increased scheduled work reduces three hours of unscheduled work to one.
Calculating productive hours, using a target of 5 percent OT per employee, allows us to evaluate workload — to operate more productively in-house rather than increase our staff.
When increasing staff becomes cost-effective in terms of productivity, we must also realize that a new shop team member does not immediately provide 717 hours of net productivity within the 1,290-hour window. The learning curve a new employee experiences means all work that employee performs must be considered unscheduled, the less productive shop work classification.
One-third of an employee’s total potential productive hours — 430 — is the net productivity that can be expected of a new employee rather than 717 total net hours the experienced staff member produces.
The deciding factors in our OT versus new employee analysis are employee costs and facility overhead, which includes work space, tools, heat, light, electricity, uniforms, supplies, employee benefits, personal off-time, training, productive time, and other direct or indirect employee costs. The cost of a new hire includes the indirect costs and his or her actual productive costs.
Benchmark Against 5 Percent Overtime Goal
The 5-percent OT is a benchmark to measure what we are doing, how we can do it better, and if the workload is increasing. For a workload that’s temporarily increased, it’s more productive to use in-house staff to cover the temporary peak work with OT — or vendor it out and improve in-house staff productivity with scheduled work. Unscheduled work is a good choice to vendor out if the vendor can do it more cost-effectively.
In summary, use the 5-percent OT goal to cover immediate need and evaluate future options. The 5-percent goal is also a useful "flag" to proactively pay attention to a symptom, signaling us to examine the root cause and initiate corrective action.
Use the following rule of thumb: Measure, watch, and pay attention.
• Measure what’s meaningful.
• Watch everything.
• Pay attention to the key symptoms.