The Labor Budgeting and Labor Standards Connection

I recently had a client whose procurement team requested that we decrease our travel cost estimate because it exceeded their percentage-to-services target. This was a challenge because the project required a great deal of travel to their remote sites. Since we had little control over travel costs, the natural question was to ask which sites they were willing to cut from the travel list.

This made me think of a similar correlation…

Many retailers will reduce labor when sales are lower than expected. This will help maintain a percent target, but it will come at a cost. If the labor model is correct, the work is still there; so, what tasks are the associates not going to do because the labor was reduced?  From experience, most of the time it’s customer service. Associates will always do the tasking work that is required of them, but the soft stuff – the less tangible service, is going to drop. When that happens, the ice you’re walking on is only getting thinner. Making such cuts may be the easy way to achieve cost reduction, but there is a better way to do the same without sacrificing those all-important soft tasks.

Creating Budget Solutions with Labor Modeling

Finance isn’t going to migrate away from percent-of-sales budgeting any time soon. However, with a labor standards-based model in place, unexpected budget changes, or budget changes that must be made to better serve a client, can be spread out more efficiently, allowing the percent-of-sales metrics to suffer a softer blow—or perhaps no real damage at all.

Rather than allowing an entire function like customer service fall by the wayside, labor modeling can help strike a balance between all essential tasks. Intangible services can still have their place, if even at a reduced scope.

The improvement in operations brought about by a more efficient labor model will help reduce the negative impacts of budget decreases.

Where Labor Modeling Makes the Biggest Difference

We typically see our clients experience three common labor modeling challenges:

  • Operational inefficiencies that lead to wasteful labor hours
  • Inconsistent processes from store to store, which impacts labor required
  • Imbalance in labor hours across stores (some too many, others too few)

All these problems are addressed when an organization builds a good labor standards-based model. Taking into account factors like location-based differences and the amount, and even experience level, of labor available at each location, can help build a more accurate labor model.

The better your model addresses these challenges, the easier it will be to adjust and adapt to changes.

Once a better model is adopted, the impacts from budget constraints are typically minimized. Additionally, the new labor model provides insights into what tasks can be postponed or require modification to accommodate the constraints from the finance team. In essence, you’ll have a feedback loop for continuous improvement.

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