Productivity Improvement

Introduction

Investing in productivity improvement is crucial for any company since it is important in achieving its set objectives. Productivity improvement is a vital component of increasing the standard of the firm. The company can achieve this by assessing the net savings resulting from the improvements in production given by the Human Resource module under two situations. As a result of this, the organization must invest in development as long it achieves the objective of having net savings, which will compensate for the rise in the cost of training and hiring its employees. In the first case of the company, a fast estimation of the net savings is performed by considering only the total labor expenditure highlighted in the company’s income statement. Moreover, the second case puts into consideration the effect of the improvement in the market.

Prepare a policy position that addresses the issue, “Does it make sense to invest in the productivity improvements offered by the HR module?”

The firm should come up with a policy concerning the employee’s payment after work overtime. Taking this strategy will assist in improving the workers’ morale, which in turn will enhance efficient and effective performance. Due to this policy, human resource management will benefit from an increase in the company’s productivity (Cabral, 2000).

Another policy to consider is training the workers to enhance their good code of conduct and ethical issues in the company. Every worker who is subjected to employment in this sector must first be recruited and trained. As a result, this will assist in guaranteeing that competence is obtained and maintaining good performance.

Investing in the productivity improvements offered by the HR module – Assumption 1 (Sheet 1 in Excel spreadsheet)

The estimated cost savings for the first five years will be $5,536,174 as shown below:

Savings=∑▒〖Labor expenditure(1-1/Payoff) 〗
Savings= $14,612,000*(1-1/1.02)+ $14,612,000 *(1-1/1.05)+ $14,612,000 *(1-1/1.08)+ $14,612,000 *(1-1/1.12)+ $14,612,000 *(1-1/1.15)= $14,612,000 *(5-1/1.02-1/1.05-1/1.08-1/1.12-1/1.15)=$5,536,174

The cost savings in the sixth year for the first scenario will be $2,228,949, as shown below:

Savings= $14,612,000 *(1-1/1.18)=$2,228,949

The total cost savings during the six years will then be $7,765,123:

Total savings=Savings (five first years)+Savings(6th year)=5,536,174+2,228,949=$7,765,123

As observed in the figures of table 1, the estimated total savings of $7,765,123 are considerably higher than the expected costs of recruiting and training the employees over time. From this point of view, the investment in the productivity improvements offered by the HR module would be worth it.

RECAP
SAVINGS (Rows 21-26)			$ 7,765,123
COSTS
RECRUITING COST (Rows 32-37)			$ 1,460,000
TRAINING COSTS (Rows 42-47)			$ 467,200
WORKFORCE COMPLEMENT TO COVER TRAINING COSTS (Rows 52-57)			$ 3,356,089
TOTAL COSTS			$ 5,283,289
NET SAVINGS			$ 2,481,835

Investing in the productivity improvements offered by the HR module – Assumption 2 (Sheet 2 in Excel spreadsheet)

The estimated cost savings for the first five years will be $16,276,750 as shown below:

Savings=∑▒〖Labor expenditure(1-1/Payoff) 〗
Savings= $42,960,330*(1-1/1.02)+ $42,960,3300 *(1-1/1.05)+ $42,960,330 *(1-1/1.08)+ $42,960,330 *(1-1/1.12)+ $42,960,330 *(1-1/1.15)= $42,960,330 *(5-1/1.02-1/1.05-1/1.08-1/1.12-1/1.15)=$16,276,750

The cost savings in the sixth year for the first scenario will be $2,228,949 as shown below:

Savings=$42,960,330 *(1-1/1.18)= $6,553,271

The total cost savings during the six years will then be of $22,830,021:

Total savings=Savings (five first years)+Savings(6th year)=$6,553,271 +$16,276,750=$22,830,021

As observed in the figures of table 1, the estimated total savings of are considerably higher than the expected costs of recruiting and training the employees over time. From this point of view, the investment in the productivity improvements offered by the HR module would be worth it.

RECAP
SAVINGS			$ 22,830,021
COSTS
RECRUITING COST			$ 1,815,000
TRAINING COSTS			$ 580,800
WORKFORCE COMPLEMENT TO COVER TRAINING COSTS			$ 8,338,046
TOTAL COSTS			$ 10,733,846
NET SAVINGS			$ 12,096,175

Would this justify the necessary expenditures in recruiting and training made over time? Assume a turnover of 10% and no increase in workforce size. Since you are sending workers to training for 80 hours or two weeks each year, you also need to expand the workforce enough to cover the workers that are in training. We are looking for a ballpark answer, not a precise answer so that you can decide whether or not a payoff in HR productivity justifies the expense.

Based on the obtained achievements, the firm is vindicated to give training to the employees because, after the assembly, the employees give the impression of having improved the forces of labor, and the level of productivity rises high. Although, if there is no labor force after employees’ training, then it means that they are not bringing anything, and there is no change in the level of productivity. Therefore the firm will find no advantage in engaging workforces in training (Kusek & Rist, 2004).

When the turnover is at 10%

Then (10/100)* $2,481,835

=$248,183.5

So far we have assumed our workforce, and labor contracts are constant. In practice, the market is growing at about 14%, and your labor contract has a 5% wage escalator. How does this affect the numbers? At what level, if any, would you recommend that your company invest in recruiting and training? Are there any factors beyond the simple numbers that should be considered?

The wage increment is inversely proportional to the expected employees. This means that when the wage increment increases, the number of anticipated employees to be employed decreases. In a situation where the market rises by 14% each round, the firm will experience a decrease in profits. For example, if there are 112% payoffs, it indicates that the company has improved its income. The workforce level will not be as much compared to when the wage escalator increased when there was a constant labor contract (Bossaerts & Ødegaard, 2006). This will affect an employee’s level by decreasing the number of employees hired after each round. The recommendation I bring forth to the firm is recruiting employees for one week each year to decrease costs. Moreover, decrease the number of employees to a controllable size.

Additionally, the company can have close supervision to make sure employees do efficient work after training and observing implementation. The company can also adapt to reducing the number of working hours or give the workers a flexible work schedule to boost the productivity of the employees who are in training.

Conclusion

In conclusion, we can see that the company should consider many factors to succeed. The first factor is taking into account the time value of money. Another factor the company should pay attention to is the significant rise in non-tangible assets. This entails paying attention to employee knowledge’s effect on the company. The company should protect itself from employee withdrawal by ensuring that they remain part of the company after recruitment.

References

Bossaerts, P. L., & Ødegaard, B. A. (2006). Lectures on corporate finance. New Jersey: World Scientific.

Cabral, L. M. (2000). Introduction to industrial organization. Cambridge, Mass.: London : MIT Press.

Kusek, J. Z., & Rist, R. C. (2004). Ten steps to a results-based monitoring and evaluation system: a handbook for development practitioners. Washington, DC: World Bank,

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Question

Week 3 – Assignment 2: Calculate Investing in Productivity Improvements (HR)

Assignment

Prepare a policy position that addresses the issue, “Does it make sense to invest in the productivity improvements offered by the HR module?”

Suppose that you apply the maximums to recruiting and training. Here are the costs:

Productivity Improvement

Recruiting costs per new worker are $5000.
Each employee trains 80 hours per year at $20 per training hour
Workforce complement increases by 4.2% to cover the 80 hours people are in training.

For this exercise you need a spreadsheet and both the Capstone Courier and Annual Report. Use the Round 2 reports for the analysis. Human Resources statistics like workforce complement and turnover are on Courier page 12. Use Annual Report Income Statement’s total Labor cost to estimate payroll costs.

Assume the following productivity payoffs:

Round 1 – 102%
Round 2 – 105%
Round 3 – 108%
Round 4 – 112%
Round 5 – 115%
Round 6 – 118%

Therefore, in Round 6 each worker would be 1.18 times as effective as the beginning worker, and your workforce complement would fall to 1/1.18 or 85% of its current level.

For a quick evaluation, assume your total labor expenditure from the Annual Report Income Statement will stay flat for the next six years.

How much of a cost savings might you expect in the sixth year? For example, if the total labor costs on the Income Statement says $29M, and costs stay the same for six years, then in the last year your costs would fall to $29/1.18 M. Apply the same approach to years one through five to get a total savings over time.

Would this justify the necessary expenditures in recruiting and training made over time? Assume a turnover of 10% and no increase in workforce size. Since you are sending workers to be training for 80 hours or two weeks each year, you also need to expand the workforce enough to cover the workers that are in training. We are looking for a ballpark answer, not a precise answer, so that you can decide whether or not a payoff in HR productivity justifies the expense.

So far, we have assumed our workforce and labor contracts are constant. In practice the market is growing at about 14%, and your labor contract has a 5% wage escalator. How does this affect the numbers? At what level, if any, would you recommend that your company invest in recruiting and training? Are there any factors beyond the simple numbers that should be considered?

Length: 1 – 2 pages of analysis not including title page and references as well as all of the calculations that you generated to come up with your solution.

Your response should demonstrate thoughtful consideration of the ideas and concepts presented in the course and provide new thoughts and insights relating directly to this topic. Your response should reflect scholarly writing and current APA standards. Please use at minimum of three outside scholarly sources for support.