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Budgets are done every
year and all of them address revenues, expenses and labor costs. For many companies, the budget is a once a year exercise which focuses on analyzing
past costs and projecting future costs. Many organizations use comprehensive
spreadsheet models which incorporate basic principles of flex budgeting. In the most successful
processes, senior and middle management participate
so that all involved understand how the budget was constructed and what the underlying assumptions are. Once the budget is complete, actual performance is
analyzed relative to budget each month. Assumptions are reviewed and questioned, and may even be revised if the results are satisfactory.
Unfortunately, too many organizations still settle for
the annual and periodic reviews. Cost management
needs to be a daily and weekly endeavor, especially
where labor is concerned. Reviewing labor costs at
the end of the month does not go far enough in
helping managers control costs. The process is
too dependent on senior management reviewing
results and asking middle management to explain
what happened. For labor management to be
effective, department heads need to receive regular
information that helps them plan and critique. The
information system must be designed to operate at
both the senior and middle level, giving all involved
individuals essential information.
To accomplish this, the budget and labor
management processes need to be integrated. The
labor standards which drive the budget must be
available for weekly planning and analysis. While
this approach is common for housekeepers, it’s
not sufficiently wide-spread to meet the needs
of all departments. Too many labor categories are
budgeted as a percentage of revenue rather than
in either hours per day or hours per unit (or units
per hour). Labor budgets need to be developed
using standards that the manager can understand
and manage to. Food staffing (kitchens, stewards,
servers) should be budgeted based on covers per
hour. The department manager needs to be able to
manage labor based on covers per hour for the day,
week and month. If staffing standards are available in
covers per hour but the budget does not use the same
approach, there will be discrepancies in performance.
And the same is true if the budget includes covers
per hour but there’s no system in place to help the
manager plan and analyze performance using the
same measurements.
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Certainly, average check (and average unit price) is
of concern to all. However, shortfalls in average unit
price need a different solution than problems with
productivity. A budget (or a labor standard) which
does not reflect the different challenges posed by
managing revenue and managing costs does not help
an organization manage costs effectively.
To effectively manage labor, the tools and system
must make staffing standards available for short-term
planning and analysis. There should be an information
system that allows managers to develop a Labor plan
that is based on the forecasts and that tells them
how well performance compared to standard daily
and weekly. This helps them constantly critique
and refine labor use. It also positions them to
proactively communicate with senior management
rather than, as is so often the case, waiting for senior
management to review a report and ask questions.
The same standards should be incorporated into
the periodic and annual budgeting. Integrating the
processes ensures that middle management is
properly positioned to manage performance. This
creates an environment in which information is shared
and used by all involved to improve performance
throughout the year.
As an executive at UniFocus, Ken Heymann oversees the
Business Advancement Services Division as well as the
development and installation of Watson R.M.™, resource
management software. With twenty years of industry
experience, he is an expert on organization development,
change and quality management.
Reprinted from FocusEd, Spring 2005 edition.
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