Workforce analytics Part 2: Informing labor cost optimization


Lisa Disselkamp, on June 21, 2016.

In Workforce analytics Part 1, we discussed three key questions about labor spending that workforce analytics can help organizations answer: (1) How am I doing?, (2) If there are problems, where and when are they happening specifically?, and (3) Is there a business case for change? In Part 2, we look at the how to use the answers analytics uncovers and put them to work in the form of labor cost optimization: the process of refining policy, people, process, and technology to realize desired savings and improvements.

For example, look at how just one labor-related policy, shift premiums, could lead to higher costs. Many organizations provide incentives for working the second or third shift or working a holiday or weekend. Oftentimes we find those policies are so vaguely written that gaming or gifting can’t be prevented.

If the policy is not written so the shift premium for working the second shift starts squarely at 3:00, leakage can happen if a worker clocks in 15 to 30 minutes early. We call this margin gaming. An organization might also be counting hours the wrong way, so it might have a minimum shift guarantee where workers are guaranteed four hours of pay, but if someone only works two hours, they still get credit for four. Two of those hours are nonproductive. How is the technology system counting those hours? Those hours might be included in overtime calculations because the overtime policy never excluded them, so the technology systems weren’t designed to exclude them either. Workers quickly learn to game these kinds of gaps in the policy-technology-process mix.

These are the types of issues we look for in examining policy, people, process, and technology and where these areas converge. Every organization has its own unique scenarios that have crept in over time. We know that it takes a special analytics model to expose what’s really going on and predict where it might continue. Labor cost optimization looks at: how these systems count and parse time; where employees can touch the system and influence how things are interpreted in their favor; loopholes in policies and contracts; and how to build in accountability. It uses purpose-built tools and methods to expose and prevent costly gaps.

This level of know-how leads to the actual design for remediation. We call it “Design with Intent,” and labor cost optimization is the new operating model for employers to optimize their workforce. Enabled by the insights of technology, employers can restructure how they operate in terms of timekeeping and scheduling. Design with Intent focuses on desired outcomes and traces back from these outcomes to determine how the systems, policies, processes, and people should work.

An ongoing process
Labor cost optimization using analytics as an enabling tool is not a project, but rather a process and an ongoing activity to sustain and monitor for savings over time. A client once said to me, “Lisa, you’re like CSI Payroll.” I thought that was humorous, but quite apt. Labor cost optimization involves some detective work—going in, profiling the opportunities, looking at how the system is allowing certain behaviors and certain computations in the math of these system, such as the counting of hours and margin rules. It’s really analyzing where leaks are happening and going in and fixing them. And you can become a profiler too.

We’ve touched on a few simple examples of workforce improvements, but there are many more. The domain of workforce management is rapidly becoming an area of external and internal attention and innovation. I hope you have read about the Workforce Management Office model, for example, in the Workforce Asset Management Book of Knowledge (John Wiley & Sons Publishing, 2013). Or you may have had a chance to view our webinar, Analytics and workforce management: New ways to reduce labor leakage, discussing other ways employers are using analytics to address labor leakage and other timely workforce issues such as schedule equilibrium, ACA reporting, and changes to FLSA rules and compliance. I hope you’ll read and watch and take away thought-provoking insights into how to find and overcome workforce problems and realize the full value of your people.

The optimal workforce management model has incorporated labor cost optimization methods and analytic tools. Leaders operating in this model can provide metric-oriented answers to those three essential questions we posed. For example:

Question: How am I doing?
Potential answer: “Our workforce management covering our entire workforce activities are targeting 5 areas of leakage with a projected savings of $x million and x% increase in productivity this year.”

Question: If there are problems, where and when are they happening, specifically?
Potential answer: “The key areas of remediation include a dozen specific timekeeping and scheduling activities. We have identified the situations that are contributing to these problems and are on track year-to-date with measurable improvements.”

Question: Is there a business case for change?
Potential answer: “The total savings opportunities have a cost-benefit ratio of 3:1 (or greater) and revealed a payback in X months. If we need to get more aggressive to increase this ratio, we know where we need to push harder and how much.”

For HR, Finance, Operations, and IT leaders, the labor cost optimization model changes the conversation and your workforce outcomes


Lisa Disselkamp CWAM, is a director in the HR Transformation practice of Deloitte Consulting LLP. Her work focuses on workforce management (WFM) business practice and technology design including timekeeping, labor scheduling, leave management, and labor optimization analytics. She has led large and complex multi-state WFM system assessments and deployments. Lisa has authored three books on WFM systems. She is a contributing member of the American National Standards Institute (ANSI) and International Standards Organization (ISO).

As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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