Consider the cost
Personnel costs make of roughly 70 percent of most municipal budgets, but does your municipality currently devote 70 percent of its improvement and efficiency efforts toward this asset?
It is common to overlook the impact of utilizing Human Resources (HR) as a powerful fiscal tool, especially in the public sector. In public service, we aren’t focused on making widgets; people are central to our business. With that in mind, your staff can be your biggest asset or your biggest liability. Your employees are at the heart of your business, so why wouldn’t you optimize this resource? Even small improvements can yield significant results in the long-term.
The first step toward improving your bottom line is to outline and analyze the various personnel costs. Be sure to look beyond just wages and benefits. Consider every aspect of personnel cost, such as:
- Direct and indirect costs
- Fixed, stepped, and variable cost
- Ongoing and onetime costs
This snapshot of personnel costs will allow you to allocate your resources more effectively. Keep in mind that small changes to your repeated ongoing costs may have a larger impact than large changes to a onetime cost. Consider the soft costs too. How much political capital is required to make a change?
Remember, efficiency is not just about reductions. Strategic investment can allow you to do more with what you have. You may be familiar with this tactic in relation to technology investment. Another approach to enhancing your bottom line is through staff development. Your staff is the lifeline of the organization and your biggest investment. This investment is not just about the salary and benefits. Maximizing employees’ potential and furthering their job growth will not only benefit them, but the organization over the long term.
A good place to start is by utilizing your Human Resource department and coordinating a plan that will not only increase productivity but also increase job satisfaction. Maximizing job satisfaction can minimize turnover. HR’s scope should span the areas of recruitment, training and development, rewards and retention, productivity, redeployment and retirement, and working environment. It could start with something as simple as a developing a mentoring program, allowing junior associates to meet with senior executives once a month to exchange stories and ideas. What about allowing employees paid time off to attend a seminar or lecture in their area of focus? Showing your employees that you will invest in their career success will motivate them to contribute to the organization’s success.
Cost of turnover
When an employee leaves an organization, there are expenses associated with the turnover. For a typical employee, the organization will typically pay 150 percent of their salary to replace them. For management or sales, expect to pay 200 percent of their annual salary. With these figures in mind, it is even more pertinent for the organization to mark-up a plan that will reduce turnover.
At a minimum, when an employee leaves an organization, the organization can expect to incur costs for administrative staff effort to process the termination. The organization can expect to save some money as they will forgo having to pay salary and benefits for that vacant position in the short term, but those savings might be offset by adding a temporary employee to the payroll or paying overtime to current employees to cover the workload.
The expenditures for replacement of the vacant position can include costs for advertising and recruitment time, which includes screening, interviews, and drug testing. Funds will also be spent on training materials, supplies, technology, and on-boarding time. There is also an impact on productivity while the position is vacant. Once the position is filled, the impact on the productivity is still felt. The new hire will typically reach 25 percent of his/her productivity capability within a month, 50 percent within three months, and 75 percent within five months. Over the long term, the loss of revenue can be significant if the position is aligned directly with sales and/or fundraising.
Bargaining negotiations and legislative mandates
The bargaining negotiations can impact not only payroll but employee morale. When discussing contract language, be mindful that it directly impacts cost. Analyzing your fiscal situation before the bargaining is key to setting priorities. Consider your cost/benefit of any minor adjustments such as break time, paid or unpaid. One municipal department saved $350,000 a year by eliminating paid breaks and paid lunch, while another saved $50,000 annually by categorizing emergency service response to on-call differently than other on-call time. When making any change, take a broad look; consider the impact on non-reps, other contracts, and any operational changes.
Legislative mandates are similar to collective bargaining negotiations, because they can impact a large number of employees and have long-term implications. The difference lies in the fact that you can rarely control or negotiate legislative mandates, but you can make the most of them. At the very least, they provide an opportunity to build trust and goodwill through proactive communication efforts between management and non-management. Be transparent.
Legislative mandates can also provide an opportunity to review the current approach and make other improvements along the way. In understanding the implications of the mandate, develop a timeline to plan out the process, and utilize transparency by communicating early and often to employees. The strategic implementation of the mandate will allow you to gain insight into what the staff values, standardizing HR practices across the units to gain efficiencies, and, as a result, reducing labor costs.
Optimizing Human Resources
The role of the Human Resources department is integral to implementing changes that will impact the organization’s bottom line. It is important when working with HR to define the organizational priorities. Some key opportunities to express these priorities include the following activities:
- Budget process
- Position control process
- Functional analysis
Allow your HR department to be more than a transactional team, just processing forms. Empower them to become strategic partners. Each recruitment, each performance metric, each position description should be intentionally developed to align with the priorities of your organization. The HR department is in a unique position to understand the organization as a whole, rather than just in silos of departments of operational areas. From this vantage point, HR can be a valuable partner to the leadership of the organization, providing insight and implementing change. To increase the value of this vantage point, consider maximizing coordination between HR, Payroll, and Finance to streamline processes and expedite implementation of changes.
In sum, the employees of your organization are your largest investment. Consider carefully how you manage that investment, as it will greatly impact your ability to control costs. Elevating your HR department to a strategic role will serve you well in this endeavor.