The efficiency equation

Can you have a formula for making people more cost-effective?

Ben Hughes is an assistant director of the infrastructure and capital projects division of Deloitte Corporate Finance.
Ben Hughes is an assistant director of the infrastructure and capital projects division of Deloitte Corporate Finance.

While many companies place great emphasis on driving efficiency throughout business processes and built assets, they tend to avoid the more complex and seemingly intangible aspects of people and culture.

With staff costs equating to approximately 80% of corporate expenditure, process costs 12% and property 8%, the greatest investment impact is to be gained by creating environments that benefit people.

While the focus on reducing costs has been the prevailing mantra during the downturn, there is now a growing case for providing an effective work environment to improve employee performance.

What exactly are workplace efficiencies? Is it staff headcount reduction as a means to improve profit, or is it a complex description for saving on consumables? The reality is neither.

If you were a CEO, would you like each member of your staff to effectively work for free for two days per year? Similarly, would you like to reduce your rent bill by 25-50% per annum? Of course you would, but the question is ‘how’?

One of the more reliable indicators of people performance in the workplace relates to productive working hours. One approach that has been developed by Deloitte quantified the average number of productive working days for an employee (excluding holidays, sick leave, training/administration) alongside the real cost to the organisation for each productive day (including salary, insurance, car and housing allowances, gratuity payments and training or office overheads).

In this instance, the number of productive days was determined to be 160 per annum and the real cost of each day was about $985. Whilst the amount of working time may appear to be low, it is based on the fact that staff typically have 25 days holiday, eight days of sick leave, ten days of training and spend a portion of time on general office admin and downtime between projects.

Taking this into account, a productivity increase of just 1% would add an extra 1.6 days, or around $1,576. When extrapolated across an organisation of 500 people, the metrics become quite compelling – an additional 800 days of work, with a value of $780,000 for a given year. This will vary between workplaces, but the statistics are compelling.

The measurement of the cost of property is arguably more straightforward. Reductions in property costs normally accrue through the reduction in the quantum of space (through more efficient space planning), which is facilitated by higher occupational densities (through agile working and desk sharing) and further enhanced through the reduction in backlog maintenance and running costs of outdated stock (by getting rid of unwanted space).

Considering the two key metrics we have discussed – people and the built assets they occupy, we can quantify the value created through applying Capital Efficiencies in the workplace.

Let’s assume we have an organisation of 1,000 staff and, using the value of a productive day at $985 per member of staff and applying the 1.6 additional days that a 1% increase in productivity would derive, we can easily reach an extrapolated “added-value” of circa $1.57mn of additional value extraction per annum.

If we assume simplistically that that organisation occupies around 6,250m2 of leased office space, at a cost of circa $400 per m2 per annum, then the annual rental bill would be $2.5mn. Let’s then assume that as a result of Capital Efficiencies being applied to this workspace, there is an area reduction of 25% through improved spatial planning. This could theoretically translate to a reduced annual rental bill of $1.9mn.

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