However, this operation is going to require more than 100 FTE to complete their work. Staff will want to take holidays, be sick, need training, meetings and breaks etc. So how many more staff will our hypothetical operation need to make sure they have enough to complete all their work? 20…? 30…?
The answer depends entirely on their Shrinkage. Finance will often add a notional figure (often 20%) to the base figure. In this case, they’ll give the operation 120 FTE.
But unless their shrinkage is less than 16.6% they will never be able to complete all their work with 120 FTE!
So let’s take a look at the common items that make up Shrinkage:
|Holidays||% of time staff are absent due to holidays|
|Sickness||% of time staff are absent|
|Other Leave||% of time lost to other leave (study, personal etc)|
|Breaks||% of the time given to paid breaks|
|Training||% of time staff spend on training|
|Meetings||% of time staff spend in meetings|
|121’s||% of the time taken for monthly 121 meetings|
|System Downtime||% of time lost to system downtime|
|Special Projects||% of time spent doing special ‘one-off’ work|
|Other||% of time spent doing anything else|
Let’s go back to our example. Our Administration centre doesn’t have very good control over their shrinkage. In fact, they don’t measure shrinkage at all. But we measured it and it turns out their shrinkage is 50%!
So that would mean they need 150 FTE to make sure they can complete their 100 FTE worth of work… right?
Unfortunately not. And this is common mistake organisations make when it comes to calculating shrinkage.
If we have 150 FTE and we take away 50%, we are left with 75 FTE. That’s 25 FTE less than what we need!
So how many FTE do we need if our shrinkage is 50%? The answer is of course 200 FTE. Once we remove 50% from 200 we are left with the 100 FTE we know we need to complete all our Administration activities.
So a shrinkage factor of 50% effectively doubles the amount of staff you’ll need!
The correct way to apply shrinkage to a base staffing need is:
Base Staffing Requirement
(1 – Shrinkage %)
Or in this case:
(1 – 50%)
But with effective control of their shrinkage, our Administration centre was able to reduce their shrinkage by half to 25%. They still require a base of 100 FTE each month to complete all the work that comes in, but now with reduced shrinkage, we can see they will need 133.3 FTE overall. (25% taken away from 133.3 = 100 FTE).
That’s a saving of 66.6 FTE just by measuring and more importantly managing their Shrinkage! And this is purely based on a centre that has a need for 100 FTE. What could your operation save by measuring and managing shrinkage effectively?
When calculating how many staff you need to run your operation, it is important that Shrinkage is factored based on reality, not on goals. If you want to run at a shrinkage level of 20% but in reality, your shrinkage is 30%, the result will be a failure to meet service standards, dissatisfied customers, unhappy managers and dissatisfied employees (no one likes failure).
Having said that, it doesn’t mean that you shouldn’t set high-performance targets for your shrinkage. If you don’t target your shrinkage and make it a Key Performance Indicator (KPI) for your managers, it will lose focus and gradually increase.
So what should your shrinkage be? How long is that piece of string again…? Shrinkage is one of those things that is independent of your organisation’s needs, values and requirements. For example, in complex environments, there may be a much larger requirement for training. In fact, it may be you’re in a heavily regulated industry where you need to provide a minimum volume of training for staff each month. Or perhaps your employers are generous and provide more holiday entitlements than the average employer.
If your statutory holiday requirements are more or less than 4 weeks, this figure should be adjusted accordingly. Your operation may not give employees paid breaks, in which case, this should be excluded. As mentioned above, your training requirements may greatly differ from the average given in the previous table. Your own circumstances must be taken into account when setting shrinkage targets.
However, it is our experience that a high performing operation (with an average environment) should be able to achieve the following:
So how should we target Shrinkage so that we can be sure it’s in control and not creating a strain on our staffing budget? There are 2 approaches to targeting shrinkage and both have their advantages and disadvantages.
Flat Target Approach
With this approach, the annual target is established and then that target is set for each month.
However, work has a terrible habit of coming in at different volumes each month. The staff we require to complete work changes each month. So there are times when we need less staff and times when we need more.
In this chart, the operation missed their shrinkage target 5 out of 12 months, however, their annual shrinkage performance was right on target at 24%.
Did it hurt the operation that some months were higher and some months lower? Perhaps not, especially if the peaks and troughs were aligned to the incoming workloads.
The advantage of this approach is that everyone knows what they are aiming for 24% is consistent each month, the goalposts are not constantly shifting.
Moving Target Approach
With this approach, the annual target is established and then amortised across the year based on forecasted need.
The target changes each month, but performance is more consistent. Notice that the performance is the same as the previous chart, but in this case they only missed 1 out of 12 months’ targets
There is more to managing shrinkage than this white paper describes. To learn more, contact Lean Consulting today.
You can download this whitepaper as a PDF “Managing shrinkage in an operational environment”
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