Last month we looked at labor productivity through the lens of the project schedule. By looking at how much time we took to complete a project, we could predict loss or gain to margin.
But we can also predict loss or gain to margin by looking at how much volume each field person produces. Let's call this number “employee productivity” (EP). Many companies calculate EP simply by dividing annual gross volume by the number of field employees. For example, employee productivity for a company producing $1.2 million annually with six people in the field would be $200,000 ($1,200,000 ÷ 6).
Rarely, however, do all employees start work January 1 and work 40 hours per week throughout the whole year. Some employees take a week or more of vacation, some employees call in sick on occasion, and some employees leave the company before December 31. Changes in the field work-force affect our calculations.
We can solve this problem by first defining a more accurate picture of hours worked called a full-time equivalent (FTE). Then we can calculate how many FTEs worked last year and determine average volume produced by each. The calculation has three steps:
Hours available. Add up vacation time, paid holidays, regular staff meetings, and other nonproductive work or downtime for all employees. Then divide by the number of employees to get an average. Now subtract the average nonproductive hours from 2,080.
Total FTEs. Next, establish a baseline by totaling up all of the hours worked by all field employees last year, then divide the total by the “hours available.” This gives you total FTEs.
Finally, divide annual produced volume by the number of FTEs.
Periodically calculating this number helps answer any number of questions important to any company owner or production manager, such as:
- How many new employees do I need to hire to increase my volume by X dollars?
- How do I measure my investment in field training and education?
- How does my EP compare to other companies like mine?
- Among stable and well-trained field staff, how has EP changed over the years?
- How much more work could I produce if I increased field efficiency by 10% or 15%?
—Judith Miller is a Bay Area construction business consultant and trainer specializing in accounting, finance, and computerization.