Blog Archives

Key cost metrics for a process

6/21/2011

The two key metrics for measuring the cost of a process are:

Volume drivers processed per FTE per annum
The more a person can process the better. If you can increase this measure your cost performance must be improving.

Process cost per volume driver
The lower the cost per item a person processes the better. If you can reduce this measure your cost performance must be improving.

The Volume Driver is the main item that flows through the process. For example:
Accounts Payable = Vendor invoices
Accounts Receivable = Customer Receipts
Credit Management = Customer Accounts
Purchasing = Purchase Orders
Payroll = Employee Pays
Call Centre = Phone Calls
Inwards Goods = Goods Receipts

The above is not an exhaustive list, they are just examples

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The fully loaded cost of an FTE = Direct Cost + Indirect Cost

6/15/2011

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It is important to understand the effect of cost choices because if you choose to rent premises in the heart of the city, then you will have a higher “fully loaded” FTE cost than someone who rents premises in the suburbs. When you compare your cost performance against others you need to understand this. You could process the same volume per FTE as someone else but at a higher cost because of your organisations cost choices.

An easy way to estimate an FTE’s “fully loaded” cost
The “fully loaded” cost is most likely in the range of 2 to 3 times the salary / wage cost of the FTE

eg: if the FTE is paid $50,000 pa the fully loaded cost of that person will probably be in the range of $100,000 to $150,000 pa.

You can test this by taking your:

Total organisation annual budget
Total organisation annual salary / wage budget
Divide both by the number of FTEs in the organisation

Compare the two results and you will get an idea as to what your organisations “fully loaded” cost multiple is.

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What should be included in calculating the cost of FTEs

6/8/2011

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There are two elements to the cost of having a FTE:

Direct costs
These are directly employee related (e.g.: salary / wages, non-monetary benefits, stationery, training etc.). These costs go up or down according to the number of employees

Indirect costs
This refers to the apportioning of the overall business costs such as premises, IT, management time and HR. These costs will not necessarily increase or decrease significantly as the number of employees change. Some may be seen as “step costs” (eg: premises – you maybe able to fit in 1 more person, but not 10, so at some point you will need more accommodation).

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How to calculate the number of FTEs involved in a process

6/2/2011

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Full time equivalents (FTEs) is the:

Number people involved in the process
Multiplied by their hours worked per week
Divided by the weekly hours a standard person would work in a week

FTE includes all part-time workers and overtime. Occasional overtime can be ignored, but if people regularly work overtime during a week or at month end, this should be included in the calculation.

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Sorry for the gap in blog entries

6/2/2011

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Sorry for not posting to the blog. We have been distracted by a big assignment in Australia but now have this well underway and we have lined up the next seven months of blog entries so we won’t miss blog entries again.

The next 4 blog entries look at measuring the cost of a process
The 14 after that look at measuring the quality of a process
And then 12 look at what influences the performance of a process

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