Understanding exactly how many hours of work your staff is  capable of is important if you have any hope of efficiently staffing your  organization. The hours of capacity in a service organization are usually  completely misunderstood. Once you  understand the real hours of work in an  organization, you can create a realistic hourly cost/charge, and you will be
able to easily spot some of the little tricks in outsourcing.  Let’s start with…

The length of a day:
What is a “normal” workday?  We still use the term “9 to 5”, but is that really your workday?  If you work in London, there are still a lot of jobs that are indeed 9 to 5. In New York, the standard workday  is mixed but is leaning more to a 9 hour day… often 8:30 to 9:30. In a lot of other locations in the US, especially hot outsourcing locations, a 9 hour day is common. Offshore it can be very confusing. For example, in India the day tends to be 9 hours, but the employer can skip lunch hours and overtime doesn’t start until after the 47^th hour has been worked. That extra work time can be a benefit (free extra work!) or a bad idea (do errors go up and quality goes down after the 45^th hour?). Or did the outsourcer tell you about this extra time… and is your offshore staff using the extra hours for work that you don’t know about (internal admin or work for other clients)?

Paid vs. Work hours:
So we start with a day that is either 8 or 9 hours. A very simplistic model
might say, “OK… let’s multiply by 5 days a week and 52 weeks a year (260 days).
That’s 2,340 hours for a 9 hour day and 2,080 hours for an 8 hour day. Simple,
no?” No! It’s not simple. First, you need to deduct lunch, which is usually an
hour a day. Then you have to take away another 30 minutes a day for, coffee and
bathroom breaks. But, you think, “I never made any rule that people get
this half hour.” Well, you may be required by labor law (check your state)
but whether you have a rule or not, people use the water cooler and the bathroom
and go out to have a smoke… you’re lucky if it’s just 30 minutes. Some firms
say that lunch is paid and some say it’s not, but that’s just semantics. At the
end of the day your work hours just drop by 1.5 hours, between 6.5 and 7.5 work
hours per day.

Work Weeks: There are 52 weeks in the year. How many of these do you work? After all, when you’re on vacation how many hours do you work every day?  (YOU IN THE BACK, STOP LAUGHING! I meant hourly workers, not managers.) A new worker probably gets at least two weeks of vacation time, two weeks of holiday time, and probably takes off a week of sick time. That’s more than 10% of the year. Our work hours are now between  1,762 and 1,527. And remember, as your staff gains seniority they gain vacation time, further reducing work hours.

Work hours vs. Production hours: “Work hours” tell you how many hours a worker is available, but your work rules or environment always reduce this amount. Some
of you may be thinking, “I’m not doing anything to stop my workers from working!” Do your workers use a computer? Do they log on and off on work time, or do they arrive 5 minutes early and leave 5 minutes late to take care of this? Do you have multiple shifts? When one shift hands over work to the next shift, this is another loss of work time. They are doing work but it’s not client work. Not something you could bill. And therefore, not something that you can use in your unit cost. Likewise, do managers talk to their staff? Do they have weekly or monthly management meetings? Do they have one-on-one performance reviews? Does staff ever get trained? Let’s be very conservative and assume that logging in and all of these other items total slightly more than 10 minutes a day, or an hour a week. We’re now down to 1,715 to 1,480 work hours annually.

A sidebar on downtime:  Some of you may be saying, “But I do all of these activities when we’re not working! This is free time, so it shouldn’t be counted.” OK. What happens when you are busy and there isn’t any free time?” This is why service groups fall apart when they reach 80% capacity for any sustained period. They are really at 100% or more
capacity.  People are skipping lunch or necessary administrative functions are not performed, quality falls, and then the client complaints begin. By hiding these overhead numbers and creating a false capacity number, it ultimately makes your organization look very inefficient. You may raise questions about WHY you 30% of your service’s time is for administration, but that easier to deal with than explaining why services malfunction at 50% capacity.

Available work: Regardless of how many hours your staff can work, the ultimate limit on work actually performed is if work is available. If you run a programming group where work is queued up and the next client in the queue waits weeks or months until a resource
is available, this will rarely be an issue.  However, if you have multiple shifts or if you deal with services in real time (a library, copy center, document center, a conference center, etc.) there are times when the phone doesn’t ring or no one comes to your center (slow days, very late hours, before and after holidays, etc.).  Depending on your operation, this
can strip away hundreds of hours from each worker every year. When you deduct this number you have real production hours. If we remove a modest 20% of hours to allow for these dead times (your mileage may vary) you are left with 1,372 hours for a 9 hour day and 1,185 for an 8 hour day.

I’ll try to use the same naming conventions from blog to blog, just for consistency. Some management books get hung up on the terms, but you each have different operations that use (or don’t) different aspects of these calculations. The point is that most of you probably don’t account for all the time segments above. For some of you it’s legitimate to exclude different segments.  For others you may be doing yourself a disservice by leaving too much undefined.

It is a bit of a shock the first time you go through this to find out how little real work time, and even less billable time, is really available, but if you don’t first start with these calculations, you end up with a billing rate that won’t recover your costs or an outsourcing vendor that isn’t managing your team’s time the way you expected.  And that’s my Niccolls worth for today.