The cost of labour versus the cost of technology and training
Businesses can struggle with the plans to spend money on new technologies and the training of their staff. Also, people hold on to the old way of doing tasks for too long and avoid change until it becomes absolutely necessary. These can be very costly delayed investments for a business as labour cost savings generally have a very quick investment payback period. As Labour is one of the largest costs in any business, investing in new technologies and training to remove inefficiencies and streamlining processes has the potential to lead to significant savings and increased output.
In the below example, we will look at the potential savings a business with 10 semi-skilled operatives can achieve where labour efficiency is improved.
Assuming that each semi-skilled operative receives gross pay of €22 per hour, working 45 hours per week. This will typically end up costing the employer €28 per hour when all costs are factored in. All employers in Ireland are obliged to pay additional costs on top of an employee’s gross pay. These additional costs include employers’ PRSI at 11.05% (currently), 4 weeks annual leave and 9 days public holidays.
Labour cost savings where efficiency is improved for 10 semi-skilled operative
In the above example, improving the efficiency of 10 operative on gross pay of €22 per hour saves €857,528 over 5 years when efficiency is improved by 30%.
How can technology improve productivity?
· Improve communication across the business
· Increase connectivity of staff, including those working remotely
· Eliminates the need to ask and wait for another staff member to send manually created information
· Keeps Information Secure
· Information is recorded once and available for easy retrieval
How can training improve productivity?
· Substantial reduction in the duplication of effort
· Much less time spent correcting mistakes and the problem solving necessary to correct bad performances
· Creates less need for supervision
· Boost confidence Levels
· Less employee turnover costs
What is the payback period when a business invests in new technology and training?
In the above example, the payback from a €90,000 investment followed by a 20% improvement in efficiency has a payback of 0.79 of a year (approx. 10 months).
Every business should regularly review their processes to identify inefficiencies. Designing and implementing new more efficient ways of doing tasks will be hugely beneficial to your business. Even if your business is highly profitable, significant amounts of money can be lost through hidden inefficiencies. Introducing new technologies and training staff to work smarter will lower labour costs and/or increase output.
Management thinker Peter Drucker is often quoted as saying that “you can’t manage what you can’t measure.” High performance businesses are constantly measuring and seeking new ways to do things better.
An essential part of running a successful business is to ensure that your accounting system is setup to measure your performance. Regular financial feedback will greatly help to guide business operations at all levels. Stores staff need to know exactly what is in stock and what orders are due for delivery. Accounts receivable staff need to know what customers must be contacted today for a request of payment. Management need management accounts and insights to key metrics such as margins, labour efficiency and cashflow. This information must be easily available on your accounting software and will greatly help with improving efficiencies throughout your business.
If you would like to find out more about the services GLT have to offer or would like to sign up for our latest bookkeeper course commencing on the 31st of March, email ger@gltbusiness.ie today. Don’t forget to follow us on our social media platforms.
