Capacity Minutes and Industry Norms

Capacity Minutes and Industry Norms

Productivity levels in minutes - productive time
Work days are about 480 minutes (8 x 60). Where could I find what the industry norms are? Are there examples that show the average for the industry to be for example 60% capacity (288 minutes) or other and what is the norm?

Welcome to the Activity Based Costing best practices of 12manage.

Here we exchange knowledge and experiences in the field of Activity Based Costing.

❗Sign up now to gain access to 12manage. Completely free.

Continue for free

Please sign up and login to continue reading.

Here we exchange knowledge and experiences in the field of Activity Based Costing.

❗Sign up now to gain access to 12manage. Completely free.

Comments by date▼

Comments by rating

Rating

Hariom Agrawal
Director, India

Capacity and Industry Norms

Capacity in any industry is the outcome of the process and resources used. There can not be any standard norms as generalized norm. The capacity and norm of the machine is defined by the machine manufacturer, whereas the capacity of a human resource depends upon the nature of the task / activity and environmental conditions around.
The objective is to benchmark to minimize the gap between the cost estimation and actual cost in any industry.

Rajendra Patil, India

Capacity in ABC

When I perform ABC modeling I use the following method which is generally accepted by the clients:
# of days - calendar days - weekly off - average paid leaves
# of hours - 8 - lunch break - natural breaks
Efficiency - 80%
The values of these calculations give the # of minutes per day per person.
Now we have to convert the 'headcount' into the full time equivalent (FTE)'. For this all the persons who perform the day-to-day activities taken in the ABC model are taken as 1 FTE. For the supervisors it depends on the % of their time devoted to the daily activities.
In all of this, the employees on roll as well as those on contract are considered.

Hariom Agrawal
Director, India

Rate Calculation

ABC is a model where calculations need to be made close to actual process / reality. This helps in reducing more and more indirect cost.
In my opinion instead of FTE, the Concept of per HR Equivalent Cost of Performing Activity will be more appropriate. The efficiency element must NOT be included in its calculation. In general efficiency is the ratio between actual to expected standard. By giving room to efficiency we are accommodating indirect cost component knowingly.
The contribution of supervisor or others have to be accounted on actuals to reduce indirect cost components in the process. Only then the summarized information will help in driving strategy.

Rajendra Patil, India

Capacity in ABC

Your first statement is very true. But in practical situations we try to go as near as possible. It is not possible to get the most accurate data. If we wait for the same then we may not be able to start the project. Also the use of the ABC is for taking business decisions, and sometimes even 85% accuracy is good enough. This does not mean that we should not try for 100% accuracy, but at the same time we should also not wait for it.
Could you please explain the concept of ‘HR Equivalent Cost of Performing Activity’? I guess it could be similar to the calculation of FTE.
The efficiency taken here is actually the practical time for the employee works within the given time. It is not how well she performs the activity. It is seen for the time taken to perform the activity. Here the calculation is for the ‘total time available’ that is the capacity of the cost center. Out of this based on the activities, the time taken to perform them and their volume will decide how much time utilized and rest will be ‘capacity available to use’ (aka idle time). The supervisor’s time taken in the capacity calculation is limited to her contribution to various activities performed that are related to the product, customer or channel (depending upon the definition of the cost object). Actually we do not consider the time taken by various reports or meetings etc.
The total cost of the cost center is divided by the total time available to calculate the ‘cost per minute’ of the cost center. If there are more supervisors in the department then their cost per minute may go up. Actually sometimes it better to compare the cost per minute rather than the total cost of the cost centers.