Few things in business are more frustrating than low employee productivity as it usually results in low profit. Time and time again I see inefficiencies (waste) across business impacting negatively on productivity. If you haven’t already, it’s time to instil lean methodology and a culture of productivity throughout your business.
Three Over Fifteen
The Law of Three Over Fifteen (3/15) simply states that for every 15 minutes an employee works, 3 minutes of time is wasted or spent on unproductive tasks or things that add little or no value to the business. In some businesses it’s much more and in some it’s less, but 3 minutes is a strong average. These things are numerous and include excessive chatter, time spent looking for electronic files, time spent walking to retrieve items, time spent waiting for the previous step in the process to be completed, etc, etc.
So what? Well consider that 3 minutes in every 15 represents 20%, which is one day per week that each employee is unproductive. If you have 5 employees then you have 5 days per week of waste, 10 employees equals 10 days per week of waste, 15 employees equals 15 days per week of waste, etc etc. The real kicker is when you calculate in dollar terms the impact of this on your business over the course of a year.
What is the Cost?
Every employee should either contribute to efficiency (speed) or they should contribute to growth (volume or profit), or both. They are two sides of the same coin.
There are several ways to measure the impact of lost productivity. Here are just a few to consider. We will assume that each employee below attends work for 1,650 hours a year (37.5 hours x 44 weeks)
Sales employee example
Let’s assume there are 4 people working in the sales function of a $10M fibre-glass pool manufacturing business. Their contribution to the business is primarily growth. On average each sales person can bring in $2.5M of sales which is $1,515 per worked hour. That’s their value to the business. 3/15 in this instance represents $500,000 per sales person per year of lost sales potential. Scary stuff.
Production employee example
Pete works as a designer in a branding business. Pete’s contribution to the business is primarily growth. On a charge out rate of $150 per hour Pete’s maximum potential billings per year equals $247,500. 3/15 in this instance represents $49,400 per year in lost billings potential from Pete.
Jim works in a lean $10M shed manufacturing business. It has been calculated that an efficient worker in this business can produce $1M of sheds each per year, therefore Jim is part of a 10-man production team. 3/15 in this instance represents $200,000 per person per year of lost production or $2M per year across the production team. Jim’s contribution to the business is primarily growth.
Administration employee example
Jill’s contribution to the business is primarily efficiency. Jill earns $25 per hour and works 37.5 hours per week. Including super it costs the business $27.38 per hour or $1,027 per week to employ Jill. Jill’s recovery cost though is $1,213 per week because she only attends work for 44 weeks per year, not 52 weeks.
Of those 44 weeks a year Jill attends work, she is unproductive (wastes) 3 minutes every 15 minutes or 1 day per week. This costs the business $10,674 a year ($1,213 x 20% x 44). If you have five Jill’s in the admin area then it’s a $53,372 cost to the business, equivalent to one full time salary.
Identifying Waste in Your Business
This is worthy of an article (or potentially many) on its own so I will cover this off in some detail next time. It’s important to note that even though no-one can be productive for 15 minutes every 15 minutes, there is always ample opportunity for substantial efficiency improvement which can result in mind-blowing improvements to productivity and therefore profitability. I have been part of it many times.
A Culture of Productivity
This is about your leadership. Instilling a culture of productivity is hugely important. You must be able to engage with each employee in conversations about the value they bring to the business (efficiency or growth), so they become and remain motivated to produce as much quality output as possible. Getting staff involved in identifying waste and involved in implementing efficiency initiatives is a great place to start. Then, regular conversations and live scoreboards to show them how they are performing works well.
Make sure that you have included productivity as one of your core values statements and bring it to life in all staff communications; team meetings, newsletters, and one on ones.
Lastly, understand the value you bring to the business (your hourly rate) and ensure you are spending most of your time working on high value activities, not on tasks that you could pay somebody $30 per hour to do.