1. Measuring the Effectiveness of the Workforce
AS Business Studies
Measuring the Effectiveness of the Workforce

2. Objectives
You will learn how to calculate the various methods of measuring the performance of the workforce.
You will learn how to interpret and analyse these measures of workforce performance.

3. Key Terms Workforce performance
These are the different methods of measuring the effectiveness of employees such as:
Labour turnover
Labour productivity
Absenteeism
The percentage of the total workforce who leave in any given time period (e.g. one year).

4. Key Terms Labour productivity
The contribution made by employees to the output of a business.
Absenteeism
The number of working days lost as a result of an employee’s absence from work.

5. Measuring the efficiency of an organisation
The efficient use of resources is studied in the Operations Management section of the course.
But, in the same way that machines and vehicles must be used rather than standing idle, it is possible to measure the workforce performance, and therefore make a judgement about whether or not it is efficient.
The aim is to reduce unnecessary costs to the business thereby improving efficiency.

6. Method 1: Labour Turnover
Also referred to sometimes as staff turnover.
This refers to the number of employees who leave and join a business over a specified time period, such as 1 year.
Labour turnover can be classified into 2 types:
Voluntary – when the employee leaves for their own reasons. This is usually unplanned as far as the business is concerned. Most likely to happen in the first few months of employment.
Involuntary – refers to dismissal or redundancy.

7. Labour Turnover
Normally voluntary turnover is much higher than involuntary and is calculated using the following formula:
Labour turnover = No. of leavers over a given period
___________________________ x 100
Average no. of employees over a given period
* In the UK the average is currently between 16 & 18%

8. Why should labour turnover be calculated?
Most businesses should be concerned if the rate of labour turnover is rising, as this would suggest that a growing number of employees are unhappy at their place of work.
According to the Human Resource Management Guide, the cost of labour turnover is about £8,200 per employee, which rises to £12,000 for professionals and managers.
The calculation of labour turnover may encourage businesses to investigate the causes and find solutions which will save the business money and may have a longer-term benefit in terms of better recruitment, selection & training and the motivation of employees.

9. Labour Turnover example
Medium sized business, which is about to introduce a new training programme and bonus scheme:
Q1. Calculate the labour turnover rate for each year.
Q2. What do the figures suggest about the introduction of the new training and bonus scheme?
Q3. Make a list of what the costs of labour turnover might be?
Year 1
Year 2
Year 3
Year 4
Average no. of employees 42 41 43
Number of leavers 3 6 2

10. Labour Turnover example
Year 1: 3 /42 x 100 = 7.14%
Year 2: 6/41 x 100 = 14.63%
Year 3: 2/42 x 100 = 4.76%
Year 4: 2/43 x 100 = 4.65%

11. Causes of high labour turnover: Internal Factors
Ineffective leadership and management technique
Poor communications
Wages and salaries are lower than those being paid by firms offering comparable jobs in the area
Poor selection procedures – wrong people to the wrong job
Boring / unchallenging jobs – lack of career development
Poor working conditions
Low morale and motivation as a result of the above issues

12. Causes of high labour turnover: External Factors
An increase in vacancies for more attractive jobs.
Jobs with better pay, offer better training and working conditions
More interesting jobs
Better career progression
Job closer to home
Easier transport links

13. Problems of high labour turnover
High recruitment and selection costs
High induction and training costs
A need to redesign jobs
Reduced productivity
Low morale among existing workers

14. How to improve labour turnover
Better monitoring system knowing how labour turnover in the firm compares with the industry average.
Use exit interviews
Improve the recruitment & selection programme
Improved induction and training
Reduce the turnover of long-term workers – FIRM SPECIFIC HUMAN CAPITAL

15. Method 2: Labour Productivity
Labour productivity can be measured in 3 ways:
1. Output per employee:
Total value of output per period
__________________________________
Total no. of employees per period

16. Labour Productivity Labour productivity can be measured in 3 ways:
Labour cost per unit of output:
Focus on production costs is preferred by many businesses.
Total labour costs
______________________
Total output
An increase in labour productivity will reduce labour cost per
unit of output and will improve competitiveness.

17. Labour Productivity Labour productivity can be measured in 3 ways:
3. UK productivity:
Total UK output
______________________
Total UK hours worked
This is the preferred option of the government to compare with international rivals using a measure of total output per hour worked.
Using this measure, the UK falls behind France, Germany and the USA.

18. How to increase labour productivity
Using appropriate Human Resource Management(HRM) policies such as:
The recruitment & selection of suitably skilled and trained employees.
The provision of training to enhance skills and attitudes of existing employees.
Appropriate remuneration and non-financial benefits that improve motivation and effort.
Other factors include:
Improved working practices
Improved technology and capital equipment

19. A business’s efforts to increase productivity are likely to be more successful if it ensures that:
Employees recognise why the business needs to increase productivity, because it needs to reduce costs in order to become more competitive and hopefully safeguard jobs in the long-term.
Employees are involved in the changes.
Jobs are not lost.
Employees gain extra rewards as a result.

20. Labour Productivity example
Same medium sized business as before. The new training programme and bonus scheme was introduced in Year 2.
Year 1
Year 2
Year 3
Year 4
Average number of employees per year 42 41 43
Number of leavers 3 6 2
Value of output (£)
£1,500,000
£1,300,000
£1,600,000
£1,800,000
Total labour costs
948,600
951,200
962,400

21. Labour Productivity example
Calculate the labour productivity per year using the output per employee method.
Calculate the labour productivity per year using the labour costs per unit of output method.

22. Labour Productivity example
Calculate the labour productivity per year using the output per
employee method.
Year 1: 1,500,000 / 42 = £35,714.28
Year 2: 1,300,000 / 41 = £31,707.32
Year 3: 1,600,000 / 42 = £38,095.24
Year 4: 1,800,000 / 43 = £41,860.46
Calculate the labour productivity per year using the labour costs per unit
of output method.
Year 1: (948,600 / 1,500,000) = 63p
Year 2: (951,200 / 1,300,000) = 73p
Year 3: (948,600 / 1,600,000) = 59p
Year 4: (962,400 / 1,800,000) = 53p

23. Why should labour productivity be calculated?
In a competitive market, any business needs to be sure that it is using its resources efficiency.
If the output per employee id falling, this suggests that there is room to improve efficiency.
Again, these figures provides the business for an investigation into possible causes.
Staff might need specific training, or that the payment system needs to be revised to improve motivation.

24. Method 3: Absenteeism
Absenteeism is seen as a good indicator of satisfaction at work and can be calculated using the following formula:
average number of staff absent on one day
________________________________ x 100
Total number of staff

25. Absenteeism example
Same medium sized business as before. The new training programme and bonus scheme was introduced in Year 2.
Calculate the percentage absenteeism rate for years 1-4.
Year 1
Year 2
Year 3
Year 4
Average number of employees per year 42 41 43
Number of leavers 3 6 2
Value of output (£)
£1,500,000
£1,300,000
£1,600,000
£1,800,000
Total labour costs
948,600
951,200
962,400
Average no. of staff absent on one day 5 1

26. Absenteeism example Year 1: 5 / 42 x 100 = 11.9%

27. Absenteeism
Absenteeism costs the UK £11.6bn a year, according to the Confederation of British Industry (CBI).
On average, absenteeism costs the UK industry 2.9% of total costs.
Royal Mail radio report

28. Strategies to reduce absenteeism
Introducing more flexible working practices – e.g. More teleworking, part-time working, job sharing or flexitime.
Ensuring that jobs are interesting and challenging
Improving working conditions
Improving relations between employers and employees
Introducing attendance bonuses

29. Why should absenteeism be calculated?
This represents a high cost to the business
Creates bad atmosphere within the workplace
Possible negative public relations – difficult to retain and recruit new staff?
Existing staff see this as the norm, therefore they might be more absent from work – especially if management do not try to maintain this problem

30. Do you agree with Martin Goodyer on his views of absenteeism?

31. Examiner’s Tip
You should memorise the formulas for measuring the performance of the workforce.
Remember that all the information will be provided in the exam text.
Start your calculations by writing down the formula, it helps you to focus on the information you need and will get you marks for knowledge.