Man-hours, or labor hours, are the number of hours it takes for a laborer to complete a unit of production. Man-hours are common measurements in project management and can be used to set a price for projects, create a labor budget or evaluate employee efficiency. To calculate man-hours, a business must use internal and external data to estimate the amount of time needed to complete a product, then multiply that rate by the number of products in the project.
To calculate man-hours for a project, a company first needs to have a firm understanding of how long it takes employees and laborers to complete specific tasks. A business has a few options for estimating man-hours:
- A company can use historical data of how long it takes to complete tasks by requiring employees to log labor hours. For example, an accounting firm may estimate the labor hours needed to complete a corporate tax return by averaging historical data for similar corporate tax returns that employees prepared in the past.
- If a company doesn't have historical data about labor and man-hours, managers can rely on industry standards, industry data and experts in the field to estimate the labor hours needed to create a product.
After gathering information, the business can set a standard man-hour rate for specific tasks, activities, and products. Data should be reviewed periodically to make adjustments to man-hour estimates as necessary.
To calculate man-hours for a project, multiply the number of man-hours necessary by the quantity of units produced. If a project involves different types of goods, identify the number of man-hours needed for each component of a project and sum the totals.
For example, say that a company has a purchase order for two hard drives and one motherboard. If it takes an engineer five hours to construct a hard drive and three hours to create a motherboard, the total man-hours for the project are 10 (five hours multiplied by two hard drives) plus three (three hours multiplied by one motherboard), for a total of 13 man-hours.
Considerations in Estimating Man-hours
When calculating man-hours for a project that spans multiple months, managers need to appreciate that employees never spend 100 percent of their time at work on a project. Breaks, meetings, team-building activities, sick days, vacation time and mandatory training all eat away at total productivity. The portion of an employee's hours that she can actually attribute to a project is called her utilization rate. When using man-hours to price a project, understand that a full-time employee could need a week and a half or two weeks to accomplish 40 man-hours.