optimising Hourly Labour: The Essential KPIs for Success

Labour costs are one of the biggest expenses for any organisation. Whether you run a retail store, a manufacturing plant, or a service company, a large portion of your business expenses will likely go toward payroll. It is important to manage these costs effectively to maintain a profitable business and keep everything running smoothly. One of the main challenges is finding a balance between having enough staff to meet business needs and not overspending on labour.

Legion’s Workforce Management Software can provide the solutions you need to help. Legion empowers businesses to efficiently schedule, track, and optimise their labour force, helping to control labour costs. By monitoring the right Key Performance Indicators (KPIs), you can ensure your labour costs align with your overall business goals.

What KPIs should you focus on? Let’s look at a simple guide for measuring labour performance based on five key metrics: Budget, Forecast, Schedule, Actuals, and Ideal. These five elements are the building blocks of a strong labour management strategy.

The Five Key Labour Metrics Explained

An effective labour model is built around the Five-Dimensional Comparison: Budget, Forecast, Schedule, Actuals, and Ideal. These metrics provide a complete picture of how labour resources are planned, allocated, and used in an organisation.

Each dimension gives important insights into how labour is managed in real-time. By comparing these metrics, you can spot any problems and make the necessary adjustments to align your labour performance with your business goals.

Let’s break down each dimension:

1. Budget

The budget is the planned amount of money you allocate for labour over a certain period. This includes wages, overtime, and benefits. It’s the foundation of labour cost management.

Why is the budget so important? It acts like a financial guide. Without a budget, you can’t measure whether your labour costs are within acceptable limits. A well-thought-out budget helps you ensure the company has enough staff to meet its needs without overspending.

Tip: Your budget should account for changes in demand, such as seasonal shifts, historical labour costs, and upcoming projects that may require additional staff.

2. Guidance

Guidance is the recommended amount of labour hours or costs based on past data, forecasts, and expected demand. While the budget focuses on finances, guidance gives you a tactical view to help manage day-to-day operations. It’s a valuable tool for managers to ensure labour is being used effectively to meet business needs without exceeding budget.

Think of guidance as a playbook, empowering managers to make informed staffing decisions that align with budget limits.

Tip: Regularly update your guidance to reflect shifts in demand. For example, retail businesses might adjust their labour guidance during busy periods like holidays or weekends, when foot traffic increases.

3. Actuals

Actuals refer to the real labour hours worked and actual costs incurred over a specific period. Once the work is complete, actuals reveal how things truly unfolded. Comparing actuals to both the budget and guidance allows you to see whether labour costs stayed on track or went off course.

If the actuals regularly deviate from the budget or guidance, it could mean there’s an issue, such as inefficient scheduling, unexpected overtime, or a staffing model that doesn’t fit the business needs. analysing these differences can help you find the root cause and make the necessary changes.

Tip: Leverage real-time data from Legion to monitor actuals throughout the day. This will give you immediate insights and help prevent overspending on overtime or understaffing during peak periods.

4. Scheduled

The schedule outlines the labour hours planned for employees over a specific period based on forecasts and business needs. A well-crafted schedule ensures that you have the right number of people working at the right time, which helps control labour costs.

The schedule serves as a link between guidance and actuals. By comparing the scheduled hours with the actual hours worked, you can assess whether employees worked as planned and if managers stayed within the guidance.

Tip: Maintain flexibility with your schedule. Build in a little extra time for unexpected changes in demand while still aligning with overall guidance.

5. Ideal

The ideal is the perfect scenario where labour hours and costs align exactly with the business’s operational needs, assuming 100% forecast accuracy. It serves as a benchmark for evaluating how well your labour model is working.

Even though it’s nearly impossible to always hit the ideal, it gives you a target to aim for. If you are consistently falling short, it may indicate that your labour model needs adjusting. Overstaffing leads to higher costs, while understaffing can lower productivity and hurt customer satisfaction.

Tip: Regularly compare your actuals with the ideal to identify areas for improvement. The goal is to move closer to the ideal over time, reducing both overstaffing and understaffing.

Key Comparisons Between the Five Metrics

Tracking these five metrics is important, but the real value comes from comparing them against each other. These comparisons give you a better understanding of your labour performance and highlight where improvements are needed.

1. Budget vs. Guidance

This comparison ensures that your budget is aligned with your operational guidance. If these two don’t match, it could indicate a disconnect between your financial plan and staffing needs, highlighting potential issues that may require adjustments.

Actions to Take:

• Review your budget inputs to ensure they account for all operational factors.
• Check your staffing model for any gaps or misalignments.
• Ensure the demand forecasts used in both the budget and guidance are consistent.

2. Schedule vs. Guidance

This comparison focuses on managerial performance. Are managers following the hours set by guidance? If not, why? Are they adjusting schedules due to emergencies or personal preferences?

Actions to Take:

• Investigate any deviations from the guidance to determine whether they stem from real business needs, employee preferences, or scheduling mistakes.
• Compare the suggested schedules with those that managers actually implement to identify patterns or trends.

3. Schedule vs. Actual

This comparison looks at both manager and employee behavior. Are employees working the hours in which they were scheduled? If not, why? Are they picking up extra shifts or working outside their set hours?

Actions to Take:

• Investigate discrepancies between the schedule and actual hours worked.
• Look into possible reasons for these deviations—such as emergency staffing needs or scheduling preferences.

4. Guidance vs. Ideal

This comparison evaluates the effectiveness of your labour model. If your guidance is accurate but you’re still not hitting the ideal, it might be time to revise your labour model.

Actions to Take:

• Reevaluate your staffing model and see if it matches up with ideal performance.
• Make adjustments based on real-world data to move closer to the ideal.

5. Budget vs. Ideal

This comparison helps you see if your budget aligns with the ideal labour model. For them to align, both the budget and guidance must be built on the same basic elements including demand forecasts, labour costs, operational needs, flexibility for variability (such as seasonality, holidays, or emergencies), and efficiency targets (ensuring labour is used exactly where and when it is needed).

Actions to Take:

• Review your budget to make sure it accurately reflects your operational needs.
• Reassess your labour model to ensure it aligns with the ideal.
• Confirm that demand forecasts are consistent across both budget and guidance.

Conclusion

Managing labour costs effectively is essential for any successful business. By tracking the five key dimensions of labour—Budget, Guidance, Actuals, Schedule, and Ideal—you can gain valuable insights into how well your labour resources are being used.

Your workforce management system is a powerful tool. By regularly comparing these five key metrics and making data-driven adjustments, you can keep labour costs under control while ensuring your business is always properly staffed. When done effectively, this will improve your company’s efficiency and profitability over time.

Ready for a demo to see how Legion Workforce Management Software helps you track the five key dimensions of labour? Contact us today!