Scheduling is often one of the most overlooked areas of workforce management, but one where even small improvements can make a huge difference in daily operations - and ultimately the bottom line. There is frequent discussion about payroll, HR administration, talent management, and time and attendance, but where does scheduling fit into the bigger picture? In addition to the obvious response of assigning shifts, the answer lies in labor cost visibility.
For many companies, especially those in the service industry, labor is their biggest variable cost. CEOs and CFOs generally don't like surprises, making forward-looking labor cost visibility worth far more than backward-looking payroll reports. To stay within budget, companies must have a sophisticated, yet simple, scheduling process and system that can provide accurate visibility into labor costs. To correctly calculate labor costs and remain on target, companies must be able to report on future schedules over a variety of date ranges, view labor cost totals by client or internal department, enter revenue forecasts and margin targets to flag non-standard labor costs, and compare forecasts to actual payroll costs.
Talk to any company out there and saving money is top of mind. But what many of them don’t realize is that they can quickly and simply cut costs based on how they manage workforce scheduling and labor forecasting.
A common misconception by firms looking to gain better visibility into future labor costs is understanding the difference between scheduling and time tracking. It is often said, “We have a pretty good swipe system (or punch clock, or faxing time sheets) for time tracking and payroll, so I don’t think we need a scheduling system.”
Time tracking is a well-established process in any services firm, since payroll and client billing usually depends on it. A mature software industry also exists around time tracking. However, everything about time tracking is past tense. Number of hours worked, paychecks, tax implications, and client invoices are all based on what happened last week or last month. So the misperception that time tracking will suffice is the equivalent of saying, “I don’t need that windshield. I can drive to work just fine with my trusty rearview mirror.”
To make the difference between time tracking and scheduling self-evident, we can look at two questions and how quickly an organization can provide an answer. First: “How much did you pay out in hourly wages last month?” The answer is usually accurate and pretty quick because most organizations, especially regionally and national organizations, have a time tracking system is in place.
The second question, “What is your payroll line item going to look like next month?” garners a different response. Now we’re into the realm of future labor forecasting and scheduling, and responses tend to get fuzzy. Any number of variables could change next month to drive that payroll line item, but more often than not you hear, “It should look a lot like last month.” Really? Your labor costs are pretty steady month over month? I thought your business was seasonal? Isn’t your biggest client growing at a 30 percent clip, or losing market share at nearly the same rate? Didn’t you say that 60 percent of your revenue is driven in the eight weeks around Christmas? By nature, many services businesses are very dynamic and deal with a number of external variables that can sway their financial position.
Now combine these challenges with the operational challenge of rolling up a labor forecast for the next month in any business where labor is a highly variable cost. More than 95 percent of our customers, from small businesses to national organizations, come from a manual scheduling process – spreadsheets, whiteboards, or e-mailing around the schedule. None of these common manual methodologies provide even simple reporting capability like total hours scheduled across all employees over the next month. Without the ability to run basic reports on scheduled hourly labor next month, forget about trying to forecast the associated costs.
Labor Cost Forecasting in Action
An example from a global hospitality company sheds some light on how labor cost forecasting can be addressed in the real world. Centerplate operates all concessions and catering at Safeco Field, home of the Seattle Mariners. The general manager and controller needed forward-looking visibility into variable labor costs for 10 line managers who schedule 600 hourly employees. Scheduling at the stadium was previously managed using various spreadsheets (the kitchen used a whiteboard). Additionally, the Safeco Field operation has at least 20 different pay codes among hourly workers (a common challenge for organizations with hundreds or thousands of workers), creating yet another layer of complexity in understanding future labor cost implications.
Reporting on forecasted labor costs with that many moving pieces was impossible for Centerplate Safeco Field given the myriad independent spreadsheets floating around between line managers who are each making independent day-to-day decisions about scheduling. Yet achieving forward-looking visibility was essential to the organization so they could proactively manage labor costs, hold line managers accountable for the number of hours and dollars they are scheduling, and understand estimated labor costs, and margins based on changing ticket sales and forecasted revenue.
With centralized and intuitive scheduling systems, companies like Centerplate benefit from accurate, real-time management reporting and associated labor cost forecasting. For example, if the unit controller at a Centerplate site like Safeco Field believes labor costs look high for a weekend home stand compared to expected revenue, she can immediately quantify how removing a bartender or cashier shifts will affect labor costs and expected margins. Many businesses tend to find this information out two to four weeks after the fact when the books are closed for the previous month (i.e., driving with the review mirror).
Labor Cost Forecasting Checklist
The following checklist of best practices will help organizations accurately calculate and forecast labor costs:
- Assign each employee with an associated standard labor pay code or a specific override pay rate. This allows every assigned shift on the calendar to be converted from hours into labor costs for forward-looking reporting.
- Account for unassigned shifts. For planning purposes, organizations can add unassigned shifts to the calendar for events further in the future, and forecast these shifts at default rates until specific employees are assigned. Provide labor cost totals by client or internal department.
- Compare forecasts in the online scheduling system to actual payroll costs in the time tracking or payroll system, which can be commonly achieved through a Web services interface.
Remember that the goal of labor cost forecasting is not to achieve 100 percent adherence to actual labor costs. Rather, the business objectives are to get to 90 to 95 percent accuracy (as compared with 70 percent accuracy of back-of-the-envelope calculations) with real-time visibility to management and line managers. Business decisions can then be made and acted upon before costs are incurred based on good, accurate data. Just as importantly, line managers and executives can see quantified impacts of scheduling decisions, which is especially critical as this information rolls up across layers of managers and departments.
As most operations executives will tell you, scheduling managers like to make sure they have enough staff on hand. After all, it makes life a little easier. But if every manager schedules one too many shifts every day of the month, the outcome is the inevitable, “ARE YOU KIDDING? How did we miss our margins that badly?” Providing schedulers and management with forward-looking visibility into labor costs can make a big difference in reducing those uncomfortable conversations. Not surprisingly, windshields are pretty useful after all.
Rob Eleveld is the CEO of Shiftboard, Inc., a leading provider of online and mobile scheduling. With 15 years of experience providing business software solutions, Eleveld has helped companies simplify process and performance management for a variety of clients and industries. Prior to joining Shiftboard, he was founder and chief executive officer at Vykor, Inc., a supply chain software company for manufacturing companies. He also served as a sales executive at Onyx Software Corporation, providing enterprise solutions for customer relationship management (CRM). A former submarine officer in the United State Navy, he holds a Masters of Science in Manufacturing Engineering Systems and Masters of Business Administration from Stanford University, as well as a B.A. in Engineering Sciences from Dartmouth College. For more information, visit www.shiftboard.com.