WORKSHEET #29: Measure Economies of Scale by Type of Employee
Step 1:
Determine the types of FTE the Company wishes to measure for Economies of Scale. This should include at least three types: Do, Supervise and Think employees.
Step 2:
Determine the salary grade levels and type salary grade mid-point for each FTE type the Company uses.
Step 3:
Count the number of FTEs by type for the Company as a whole and for each functional cost organizational unit.
Step 4:
Use the same level of detail of analysis to count the FTEs for the Company as a whole and for each functional cost organizational unit at an earlier period, at least three years ago.
Step 5:
Count the number of annual units of Output for today and at the earlier period.
Step 6:
Calculate the rate of growth, in percent per annum, for the numbers of Do, Supervise and Think FTEs and for the numbers of final Output for the Company as a whole. Do the same calculation for each functional cost organization unit.
Step 7:
Review the current Productivity (i.e., FTEs/Output) and rates of Economies of Scale creation (% per annum growth vs. growth in Output) for the Do, Supervise and Think employees for the Company and for each functional cost organization. Identify those organizations producing Diseconomies and Super-economies of Scale. Explain the differences in rates of Economies of Scale creation.
Step 8:
Estimate the target the Company must set for Supervise and Think employees in order to close its remaining gap on its financial performance goals:
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Determine the amount of profit shortfall the Company faces after it considers improvements made in the section Managing Costs: Quantifying Cost Reduction Objectives.
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Determine the limits on the growth of average FTEs across the Company (i.e., the weighted average cost for the FTEs for the Company as a whole) to close the portion of the gap that the Input People must contribute.
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Calculate the number of company-wide weighted average FTEs the Company may add in order to support the financial goals it has set.
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Estimate the number of FTEs of Supervise and Think employees that the Company may add in order to reach this goal.
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Assign these growth of FTE targets to each of the Company’s functional cost organization units.