Measuring the effectiveness of a workforce

Unit 2: people in organisations

Labour productivity is a measure of the output per worker in a given time period

Labour productivity =

Output per period/ number of employees per period

Labour productivity

If output in a given month is 20,000 units and 40 people are employed during that month to produce the goods, what is labour productivity?

LP= output per period/ no. of employees per periodLP= 20000/40LP= 500 units per worker

Example 1

LP may be increased by appropriate human resource management (HRM) policies, e.g.

• Recruitment and selection of suitable employees• Provision of training to enhance skills of existing employees• Appropriate remuneration and non-financial benefits to improve

motivationOther factors that may increase productivity;• Improved working practices• Improved technology and equipment

How to increase labour productivity

• Output will be increased using the same number of employees

• Implies a lower labour cost per unit (if wages stay the same)

• May result in lower priced goods/ higher profit margins

An increase in Labour productivity

From example 1, if improved machinery is introduced that cause output to increase to 30,000 units using the same number of employees, what is the new labour productivity figure?

LP= output per period/ no. of employees per periodLP= 30,000/40LP= 750 units per worker

Example 2

In example 1, if labour costs are £1000 per worker per month, total labour costs are £40,000 (£1000x40). What is the original labour cost per unit?£40000/20000units= £2

In example 2, if labour productivity increases to 30000 units, what is the new labour cost per unit?£40000/30000units= £1.33

Example 3

Labour turnover is the proportion of employees leaving a business over a period

of time (usually one year)

Rate of labour turnover=

x 100

Labour turnover

no. leaving over a given period/average no. employed over a given period

If the average number of staff employed in a firm last year was 250 and the number of employees who left the firm last year was 10, what is the labour turnover?Rate of labour turnover=

x 100

LT= (10/250)x100LT= 4%

Example

no. leaving over a given period/average no. employed over a given period

LT indicates how content the workforce is in a firm. If the LT is increasing this could be a sign of dissatisfied employees. Can you think of reasons why this might occur?

Causes of a high labour turnover

Internal External

Ineffective leadership/ bad management

Poor communication

Low wages/salary

Poor selection procedures

Unchallenging jobs

Poor working conditions

Low motivation/morale

More attractive jobs elsewhere- higher paid, better training and working conditions, more interesting, closer to home

• High recruitment and selection costs• High induction and training costs• Redesigning the job• Reduced productivity• Low morale among existing employees

Problems of a high LT

• Monitoring and benchmarking• Exit interviews• Recruitment and selection• Induction and training

How to improve Labour Turnover

Can you think of ways in which businesses can improve labour turnover?

Absenteeism is the proportion of employees not at work on a given day

Rate of absenteeism= no. of staff absent on 1 day/

total no. of staff

x100

Absenteeism

If 21 people out of a workforce of 300 are absent on a given day, what is the rate of absenteeism?

Rate of absenteeism= no. of staff absent on 1 day/ total no. of staff

x100RA= (21/300)x100RA= 7%

Example 1

total no. of days lost due to absence in the year/(total no. of days that could have been worked

x no. of employees)

X 100

Annual rate of absenteeism

If the total no. of days that could be worked is 250, the total no. of employees is 80 and the number of days lost due to absence is 600, what is the absenteeism rate for the year?

ARA= (600/ (250x80)) x100ARA= 3%

Example 2

Causes of absenteeism

Can you think of ways businesses can reduce absenteeism?

Strategies to reduce absenteeism

Flexible working practices Making jobs interesting Improving working conditions Improving employee/employer relations Introducing attendance bonuses

Rate of absenteeism due to health and safety=

No. of working days lost per year due to health and safety/Total no. of possible working days

X 100

Health and Safety

1. Outline 2 ways in which a firm might increase its labour productivity (4)

2. In a firm output in a particular month is 60,000 unit, 75 workers are employed and labour costs are £1000 per worker per month. Calculate labour productivity and labour cost per unit (6)

3. Explain two causes and two consequences of a high rate of absenteeism for a firm (10)

Questions