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By: Matt Ingold

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April 15th, 2016

Reducing Overtime Costs with Lean Strategic HR Thinking

Strategic HR | FMLA | Reducing Overtime

We’ve been writing a lot about reducing overtime costs over the past few months. While it’s unrealistic to believe that overtime can be completely eradicated, with the application of Lean Thinking, employers can find some immediate overtime cost savings by changing a few environmental conditions.

Let's see how applying some Lean HR thinking to overtime costs can help us deliberately forge environments that curb excessive overtime scheduling.

For those who are unfamiliar with Lean Thinking, Lean is focused on reducing waste from the processes commonly referred to as:

  • Transportation
  • Inventory
  • Motion
  • Waiting
  • Overproduction
  • Over processing, and
  • Defects

Originally applied to manufacturing environments, Lean methodology has expanded into all areas of process management, including Human Resources. (See Lean HR by Dwane Lay)

When considering the waste applicable to overtime, we need to look beyond the obvious result (or output) of “unnecessary overtime” and dive deeper into the inputs that generate unnecessary overtime shifts.

Let’s consider the problem of unnecessary overtime through the Lean Process Equation. Don’t be intimidated by the math.

If Y=the output of a given process           f(X)=the inputs required to produce a process

Y=f(X)

If we fill in the variables, we get:

Unnecessary Overtime=f(X)

Consider some of the inputs that lead to a decision resulting in unnecessary overtime. "X" may be equal to the following:

  • Lack of accessible real-time data on hours worked by employees
  • Lack of accessible global scheduling data
  • Poor or unknown policies governing the application of overtime
  • Unplanned employee absenteeism
  • Poor process for notifying employees of shift availability
  • Lack of depth in skilled positions
  • Unknown time-off schedules
  • Unknown worktime preferences
  • No notifications when a scheduling decision will result in overtime pay
  • Poor business culture (overtime is just the cost of doing business)

All of the above inputs result in the output of unnecessary overtime.

Now, if Human Resources were to create a project that focused on reducing overtime costs through the reduction of unnecessary overtime, the following equation would apply.

Reduce Unnecessary Overtime=f(X)

Consider some of the inputs that lead to decisions resulting in reducing unnecessary overtime. "X" may be equal to the following:

  • Provide supervisors with real-time data on hours worked by employees
  • Provide supervisors with a global scheduling tool that filtered out employees based on required skills and those whose hours-worked falls below the overtime threshold
  • Develop and reiterate policies governing the application of overtime, and grow accountability through overtime audits (there is a way of doing this without micro-managing)
  • Implement a global leave management tool (studies show this reduces unplanned overtime by 7%)
  • Implement a scheduling tool that automatically notifies employees by text or email of available shifts
  • Cross-train skilled positions to grow the pool of available workers for skilled-shifts
  • Implement a scheduling tool that instantly flags shifts that will result in overtime pay
  • Develop a campaign that rewards supervisors for effectively reducing (curbing) overtime in their department

Related Blog: Key's to Reducing Overtime Costs for the Mid-Market Employer

When we consider unnecessary overtime through the process equation, we can start to see that it is an environmental problem: by adjusting the inputs that shape the work environment employers can effectively change the outcome. Research has shown that these environmental changes can result in a 32% reduction in annual overtime. This equates to roughly $100,800 in annual savings per 100 employees.

That being said, a complete environmental change can be a daunting task. Perhaps the first step is just altering one input. A small 1% reduction can result in significant immediate savings.

 

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About Matt Ingold

Matt serves as Benetech's Director of Business Development. He helps employers reduce the cost of personnel management, and discover where improved talent management can give their business a competitive advantage.

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