1. 2.5 Measuring the Effectiveness of the Workforce People in Business Measuring the Effectiveness of the Workforce “It is much more difficult to measure non-performance than performance. Performance stands out like a ton of diamonds. Non-performance can almost always be explained away.” Harold Geneen “I always arrive late at the office, but I make up for it by leaving early.” Charles Lamb

2. 2.5 Measuring the Effectiveness of the Workforce Measuring the Effectiveness of the Workforce In this topic you will learn about:  Methods of measuring workforce performance Labour productivity Labour turnover Absenteeism

3. Labour productivity  Labour productivity can be defined as output per worker.  We can use the following formula: Output Number of workers  We would look at labour productivity over a period of time e.g. 1 year 2.5 Measuring the Effectiveness of the Workforce

4. Labour productivity Worked example:  A car firm produces 100 000 cars per year  It has a labour force of 1000 workers  What is the labour productivity (output per worker) Using the formula then: 100 000 =100 cars per worker 1000 2.5 Measuring the Effectiveness of the Workforce

5. Labour productivity Labour cost per unit = Total Labour Cost / Number of units produced 2.5 Measuring the Effectiveness of the Workforce In 2007 Laptops4u had 100 workers who produced 10000 laptops. With a recession looming they laid off 20 workers at the end of 2007. In 2008, with 80 workers, they produced 9000 laptops. Work out the labour productivity for Laptops4u in both 2007 and 2008. In 2007 each of the 100 workers was paid a £10000 annual salary at Laptops4u. What was the labour cost per unit for Laptops4u? The firm did not increase wages in 2008. What was the new labour cost per unit?

6. Labour productivity Answer 1 In 2007 Laptops4u had 100 workers who produced 10000 laptops. With a recession looming they laid off 20 workers at the end of 2007. In 2008, with 80 workers, they produced 9000 laptops. Work out the labour productivity for Laptops4u in both 2007 and 2008. 2007:10000/100 = 100 laptops per worker 2008:9000/80 = 112.5 (113) laptops per worker Answer 2 In 2007 each of the 100 workers was paid a £10000 annual salary at Laptops4u. What was the labour cost per unit for Laptops4u? The firm did not increase wages in 2008. What was the new labour cost per unit? 2007: 100 x £10000 = £1000000£1000000/10000 laptops = £100 per laptop 2008: 80 x £10000 = £800000£800000/9000 laptops = £88.90 per laptop 2.5 Measuring the Effectiveness of the Workforce

7. Labour productivity Labour Productivity is extremely important in the car industry. The Chinese have recently moved into the UK car market by taking over the MG brand. Watch this clip from the BBC and see if you can work out the current weekly labour productivity. As the Chinese invest more money into capital equipment such as the latest technology what do you think will happen to labour productivity? 2.5 Measuring the Effectiveness of the Workforce You will need access to the internet to watch this video clip

8. Labour turnover  Labour turnover (staff turnover) can be defined as the rate of change in a firm’s labour force.  We can use the following formula: Number of staff leaving x 100 Total Number of staff  We would normally look at labour turnover over a period of 1 year 2.5 Measuring the Effectiveness of the Workforce

9. Labour turnover Worked example:  A car firm has 1000 full time employees in 1 year  Of these, 50 employees leave the company  What is the labour turnover for the company? Using the formula : 50 x 100 = 5% 1000 2.5 Measuring the Effectiveness of the Workforce Do you think this is high or low? What are the advantages of labour turnover? What are the disadvantages of labour turnover?

10. Labour turnover 2.5 Measuring the Effectiveness of the Workforce In 2007 Laptops4u had 100 workers who produced 10000 laptops. With a recession looming they laid off 20 workers at the end of 2007. In 2008, with 80 workers, they produced 9000 laptops. Work out the labour turnover for Laptops4u between 2007 and 2008. Make a list of six factors that might lead to high labour turnover in a business. Choose two of these factors and explain what you think that a firm could do to reduce labour turnover in these circumstances.

11. Labour turnover Answer 1 In 2007 Laptops4u had 100 workers who produced 10000 laptops. With a recession looming they laid off 20 workers at the end of 2007. In 2008, with 80 workers, they produced 9000 laptops. Work out the labour turnover for Laptops4u between 2007 and 2008. Number of staff leaving x 100 20 x 100 = 20% Number of staff100 Why is staff turnover important? Watch this clip from Australian site www.profitablehospitality.com to find out: www.profitablehospitality.com 2.5 Measuring the Effectiveness of the Workforce You will need access to the internet to watch this video clip

12. Absenteeism  Absenteeism can be defined as the number of staff who miss work as a proportion of the total number of staff  We can use the following formula Number of staff absent per time periodx 100 Total number of staff days worked per time period  We would normally look at absenteeism over a period of time e.g. 1 month 2.5 Measuring the Effectiveness of the Workforce

13. Absenteeism Worked example:  A car firm has 1000 full time employees  Of these, 40 employees did not turn up for work on a Friday  What is the absenteeism rate for that Friday Using the formula then: 40 x 100 = 4% 1000 2.5 Measuring the Effectiveness of the Workforce

14. Absenteeism 2.5 Measuring the Effectiveness of the Workforce At Laptops4u absenteeism was seen as a problem. In 2007 there were 100 workers who worked an average of 225 days each a year. Altogether, the workforce took 4500 days off. What was the absenteeism rate for 2007? In small groups think of 3 different ways to reduce the absenteeism rate. How will these methods reduce absenteeism? What are the costs to a business of absenteeism: a)In the short term? b)In the long term?

15. Absenteeism Answer At Laptops4u absenteeism was seen as a problem. In 2007 there were 100 workers who worked an average of 225 days each a year. Altogether, the workforce took 4500 days off. What was the absenteeism rate for 2007? 100 workers x 225 days = 22500 days 4500 x 100 = 20% 22500 2.5 Measuring the Effectiveness of the Workforce

16. Activity – Mini Airlines Company information 20072008 No. of workers1000900 Aircrafts Produced200225 Days workers absent15002000 Total no. of days available for work 2000018000 2.5 Measuring the Effectiveness of the Workforce Mini Airlines took over a small aircraft manufacturer in 2007 and immediately invested in factors of production at the company. New capital equipment in the form of machinery and new methods of training were brought into the firm. The result was an increase in labour productivity but, at the same time, a rise in labour turnover (2007 = 6%) and absenteeism. With reference to the information in the table work out the figures for the different measures of workforce performance. For each measure suggest why there might have been differences between 2007 and 2008.