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

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.

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).

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.

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.

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.

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%

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.

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

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%

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

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

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

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

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

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.

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.

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

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.

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

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.

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

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.

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

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

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

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

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

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

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

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.