Every form of business, from manufacturing and construction to software development and massage therapy, relies on using the minimum inputs to deliver the maximum output. For labor, man-hours measures the inputs of a company's workers, while productivity signifies the outputs that labor produces. When productivity declines for any reason, it can lead to lower revenues and increased labor expenses.
Business owners, managers and department directors can calculate the man-hours involved in a project by finding the number of employees and the number of hours each employee works on the project. For example, Generic Software has three departments: software development, administration, and sales and marketing. If each department has 50 employees working 2,000 hours per year, then the company generates 50 x 3 x 2,000, or 300,000 man-hours.
Since all employees are not available all the time, the company will not often reach the maximum amount of man-hours available from those employees. Employees may become ill, injured, or leave the company. The company must then replace these employees, which requires time, money and effort that could be spent toward productivity. For instance, if three developers and two salespeople leave Generic Software, those losses could result in as much as 10,000 man-hours (5 employees x 2,000 hours) in lost productivity in a year.
One simple method that can measure the costs of lost productivity involves finding the employee's annual salary and dividing it by the amount of time lost. For instance, a sales manager at Generic Software makes $60,000 in annual salary. The employee is involved in an accident that leaves her unable to work for a month. The loss in productivity for this single employee is $60,000/12, or $5,000. For hourly employees, managers can take the number of hours the employee is unavailable and multiply that number by his hourly wage. In this example, a programmer earns $30 per hour, but stays home sick for two days. The lost productivity would be $30/hour x 8 hours/day x 2 days, or $480.
Managers can examine how their work environment affects the productivity of their employees. Some employers might need to examine their worker safety programs, especially in such industries as construction, food service and health care.
Employers that encourage healthier behavior from their employees, such as healthy eating, smoking cessation and exercise programs, can see increases in productivity and declines in health-related downtime.