Manpower optimization using full time equivalent (FTE)
- 1. Manpower Optimization Using Full Time Equivalent (FTE) White Paper by: Eng. Mohammed Matar Mohammed.m@Kafaa.sa
- 2. P a g e 1 | 11 FTE – WHITE PAPER Version: 1.0 Contents 1- Executive Summary...............................................................................................................................................2 2- Case Study Overview............................................................................................................................................3 3- Methodologies.............................................................................................................................................................3 3.1 Tracking Hours....................................................................................................................................................3 3.2 Percentage Tracking ....................................................................................................................................4 3.3 FTE Management...........................................................................................................................................4 4- Solution approach...................................................................................................................................................4 4.1 The annual workload hours:......................................................................................................................5 4.2 The annual available working hours..................................................................................................5 4.2.A) The total scheduled annual hours ..........................................................................................5 4.2.B) Paid Time Off (PTO):.........................................................................................................................6 Sick-leave impact:..............................................................................................................................................6 Public holidays:......................................................................................................................................................6 Annual vacations.................................................................................................................................................7 Annual time for weekend hours:.............................................................................................................7 5- ........................................................................8 6- Solution Driven Options for Clients..........................................................................................................10
- 3. P a g e 2 | 11 FTE – WHITE PAPER Version: 1.0 Manpower Optimization Using Full Time Equivalent (FTE) 1- Executive Summary Effective manpower optimization can make a significant difference to the success of an organization. Every organization aims to increase efficiency and reduce operational costs, whilst maintaining high standards. Nonetheless, with increasing competition and market demand, organizations often put a lot of focus on meeting client expectations, whilst possibly ineffectively managing their own growth, thus, resulting in a creep in costs. The ability to collate genuine internal data and transform it into valuable knowledge to enhance performance and drive efficiency is essential. This allows organizations to set benchmarks, have a good visualization of performance, and ensure operational excellence. Full-Time Equivalent (FTE) approach is a technique which enables organizations to achieve that. This paper sheds light on FTE process and highlights organizational benefits. Moreover, it features how KAFAA successfully operated FTE management for one of its clients in the manufacturing industry.
- 4. P a g e 3 | 11 FTE – WHITE PAPER Version: 1.0 2- Case Study Overview productions and packaging units, with over 200 employees across its production department and other departments. As the organization grew, so did employment rates, however, operational efficiency was reduced, which resulted in conflict between departments and manpower utilization. KAFAA was consulted to formalize roles and responsibilities, standardize processes, assess employee workload and build an optimal operations structure, essentially KAFAA needed to ensure operational excellence across the organization. For purposes of this paper, the focus will be on employee workload assessment, specifically, the utilization of FTE which resulted in developing an optimal operations structure KAFAA have successfully utilized FTE for a client in the manufacturing industry, which has resulted in a 28% increase in productivity and a 20% decrease in labor costs. 3- Methodologies There are several methods to track and measure resource utilization, such as Tracking Hours, Percentage Tracking and FTE Management. 3.1 Tracking Hours This is the most basic approach, where the standard working hours per day are clocked. Along with its poor accuracy, it fails to identify actual hours worked. 28% Productivity 20% Labor cost
- 5. P a g e 4 | 11 FTE – WHITE PAPER Version: 1.0 3.2 Percentage Tracking This is a more accurate systematic approach compared to tracking hours. It tracks the hours worked on various tasks and allocates a percentage. Thus, management is able to identify how much time is spent on all tasks concerning a specific employee. This can be used to track performance levels within a department. However, it fails to incorporate factoring variants. 3.3 FTE Management FTE Management is the most accurate, this technique is adopted to assist leadership in analyzing manpower performance, employee behavior and efficiency to make informed decisions regarding utilization, budget control and organizational structure. This method allows for a better analysis technique, where the cost of labor is reconfigured into FTE units. Moreover, deploying FTE as an informative tool enables root cause analysis to identify hidden issues, as well as monitoring 4-Solution approach Research must be conducted to gain an understanding of how the organization operates, and identity management issues. This sets a foundation to clarify employee working patterns and HR policies. Such knowledge is necessary for designing an optimal operational structure, once the FTE is calculated using statistical methods. FTE calculation depends on two main factors. The first factor is the annual workload hours and the annual available working hours is the second main factor. FTE = The annual workload hours / The annual available working hours
- 6. P a g e 5 | 11 FTE – WHITE PAPER Version: 1.0 The annual available working hours = The total scheduled annual hours PTO Series of meetings and interviews will be conducted to assess employee workload. Subsequently, the number of annual workload hours is divided by the annual available working hours. Below sections are explaining each factor separately with details. 4.1 The annual workload hours: Calculating the annual workload hours starts with the classification of tasks for each operation. The stopwatch and record list are needed to apply the time and motion study for each task. The table below shows an example of a record sheet. TABLE 1.0: Annual workload hours 4.2 The annual available working hours Calculating the annual available working hours is the total scheduled annual hours excluding the Paid Time Off (PTO). Below subsections are explaining each factor separately with details. 4.2.A) The total scheduled annual hours The formula below shows how to calculate the scheduled annual hours: Operation No. Task Duration (Hour) Freq. / week Annual Time (Hour) Task 1 A X (A*X) * (No. of weeks/year) Task 2 B Y (B*Y) * (No. of weeks/year) Task 3 C Z (C*Z) * (No. of weeks/year) The total annual workload hours Sum of all the above
- 7. P a g e 6 | 11 FTE – WHITE PAPER Version: 1.0 Sick-leave impact (hrs)= Average sick leave days × contractual number of working hours The total scheduled annual hours = 365 × contractual number of working hours 4.2.B) Paid Time Off (PTO): Paid Time Off (PTO) is any period that an employee is paid while taking leave from work. The identification of PTO depends on the company's policy, however it varies from one company to another. This paper shows some examples of PTO that is commonly used, such as sick leave impact, public holiday, the Below are real examples that were used follow: • Sick-leave impact: Calculate the Average number of sick-leave days per employee by utilizing the HR database for at least one year. Consider that each sick-leave day is equivalent to the contractual number of working hours per day. According to government regulation laws, steady working hours shall not exceed 48 hours a week. • Public holidays: Calculate the Average number of public holidays per employee based on government regulation and HR policies. Consider that each public holiday is equivalent to the contractual number of working hours per day. Public Holiday (hrs) = Public holiday × contractual number of working hours
- 8. P a g e 7 | 11 FTE – WHITE PAPER Version: 1.0 Annual time for weekend (hrs) = contractual number of working hours × number of weekend per week × 52 • Annual vacations Calculate the annual allocated personal vacation days as per the company regulations. These regulations must be in line with the labor law. • Annual time for weekend hours: Calculate the annual time in an hour for weekend per employee based on HR policies. Consider that each weekend is equivalent to the contractual number of working hours per day. Then, multiply by 52 weeks/year. 5- KAFAA’s FTE Application and Case Study Results 5.1 Client Concern The client experienced a noticeable drop in efficiency, whilst employees reported work overload across the manufacturing facility. factors where identified; • Employee Underutilization. • Management conflict across departments regarding resource allocation and performance. • Employees unclear of their roles and responsibilities. FTE Management was recommended as a suitable solution to resolve the c
- 9. P a g e 8 | 11 FTE – WHITE PAPER Version: 1.0 5.2 Operational Excellence Assurance al excellence team initiated this engagement by closely monitoring, analyzing and recording operational activities. This process involves identifying the duration of every task as well as its frequency on a weekly basis. A calculation is carried out for all the tasks composing an end to end process to identify annual workload hours. three operational streams (OPERATION #1, #2 and #3). Each of which operates in two shifts on a daily basis. KAFAA team monitored and recorded the workload hours by using TABLE 1.0. T measure. As per the calculations in subsection 4.2.B, PTO is an important variable for available working hours (annual) calculations. The below measures were concluded. PTO measures. Operation No. The Total annual Workload hours 1 7014.8 Hrs 2 1444.7 Hrs 3 2456 Hrs PTO* Hours (annual) Contractual Hours 624 Public Holidays 72 Sick Leave 24 Annual Vacation 184 * The PTO was calculated for each employee as per the company regulations with (8) contractual hours per day, the weekend was one day and a half.
- 10. P a g e 9 | 11 FTE – WHITE PAPER Version: 1.0 Successively, the sum of PTO was deducted from the total scheduled annual hours to get the annual available working hours. The last FTE variable was identifying tasks for each of the three operations (OPERATION#1, #2 and #3). respectively, the annual duration for every task was documented. TABLE 4.0: FTE utilization and employee reduction rate. The Table above shows the impact of FTE deployment on a number of employees for each operation in the manufacturing facility. Notably, there was an overall 22.78% reduction rate. The FTE model deployed by KAFAA is regulated respectively to alterable variables, where the percentage of work completed for a specific process model, may be impacted by factors such as employee skill set, machines condition, and contractual annual hours. 5.3 Results More than 22% headcount reduction occurred after FTE deployment on operation#3, the number of resources decreased to 22 employees instead of 40, which saved approximately 300,000 SAR in 2017. Moreover, KAFAA aligned with management and the HR department to redesign operational structure, roles, and responsibilities and define existing and required skillsets. Operation Structure Operation No. No. of employees (before FTE) No. of employees (After FTE) 1 11 11 2 28 28 3 40 22 Total 79 61 Reduction Rate: 22.78% 22% Headcount Saved 300,000 SAR
- 11. P a g e 10 | 11 FTE – WHITE PAPER Version: 1.0 respectively, standardization was ensured across all operational facilities. Moreover, employees were trained on the required standards as a means of change management ensuring efficiency rates are increased. Benefits encountered by the client; • Optimized resources utilization. • Optimized resource budgeting. • Identified leakage hours (wasted paid hour). • Optimized HR employee management. • Eliminated leadership conflict across departments. FTE deployment and management aligns perfectly with manufacturing facility operates optimally. 6- Solution Driven Options for Clients Whether your organization is looking for methods to drive efficiency, optimize spending or manpower utilization, KAFAA provides all rounded operational excellence solutions for various industries to meet specific needs. It is highly recommended to adopt FTE management to identification of inconsistencies and improvement opportunities. Such knowledge is then integrated by KAFAA to enhance operational efficiency, spending and HR employment allocation. Subsequently, providing your management team with a clear visualization of operational effectiveness.
- 12. P a g e 11 | 11 FTE – WHITE PAPER Version: 1.0 About KAFAA Efficiency Excellence Kafaa is a company that provides a wide range of management consultancy and business transformation services that aim to add value to our clients, utilizing our local, regional and global expertise. We strive to build a real Partnership with our clients. It is our policy to work closely with each client with passion and commitment on a long- term basis. To ensure achieving the best results, our team integrates easily with our clients for better understanding of their needs. Our subject matter expert will be happy to discuss FTE with you in more details. As per our vision, we will ensure to provide you with distinguishable performance. For more information, visit us at: www.kafaa.sa Executive Leadership Mohammed Nashar Alrashidi (CEO): • Managing & Operating both corporates and new companies • Lean and Operational Excellence • Business, organization and cultural transformation • Starting businesses and project management Majed Almeleak (GM): • Supply chain excellence • Lean and operational excellence • Transformation and project management • Business, organization and cultural transformation Hazem Hamam (Associate Partner): • Lean and operational excellence • Initiatives management • Business, organization and cultural transformation • FMCG and Power Generation Mohammed Matar (Consultant): • Production Planning management • Shipping planning management • Building KPIs • Auditor: Author: