For many years employers of labor have struggled with the balance of maintaining efficiency and productivity with the ever changing project demands versus capacity of labor. Changes in volume of work can range from needing 50% more available labor to finding work for 50% of your already employed work force.
In order to maintain the balance of employed labor and contracted labor the employer must have a basic understanding of their current capacity and productivity. Real capacity can only be established by understanding their current productivity.
Capacity = Total available hours employees work
Productivity = Worked Hours (time on the project clock) versus Earned Hours (hours that change the configuration of a product in a way that your customer is willing to pay for or has already paid for, Gross Profit)
Once an employer truly understands their productivity, then and only then should they make decisions of employing labor to complete projects at an efficient rate of return for the company.
Once the decision has been made that the work load over loads or under loads the current available labor, the employer must choose the most efficient and productive method to maintain productivity and in turn keep their profit margin at a point that they can maintain a healthy business. The balance of full time employees versus contract labor plays a key role in this decision. As an employer analyzes the deviation from capacity, using capacity and productivity, they must understand the long term goals of the company by answering the following questions:
- Is the new work demand part of the growth path the company has chosen?
- Is the new work demand just a high spot and not part of the long term plans of the company?
A good decision making point for bringing in contract labor is a 10% overload. If a project or projects are going to overload an already 90% productive work force for a short period of time, overtime and extra effort from existing employees is the most economical method. If a project or projects are going to overload a currently 90% productive work force for an extended period of time, then bringing in contract labor is necessary to keep productivity and profit at the appropriate level.