Lecture Food and beverage cost control (5th Edition): Chapter 7 - Dopson, Hayes, Miller

Chapter 7 - Managing the cost of labor. This chapter presents the following content: Labor expense in the hospitality industry, evaluating labor productivity, maintaining a productive workforce, measuring current labor productivity, managing payroll costs, reducing labor-related costs, technology tools.

Chapter 7 Managing the Costs  of Labor © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Main Ideas        Labor Expense in the Hospitality Industry Assessing Labor Productivity Maintaining a Productive Workforce Measuring Current Labor Productivity Managing Payroll Costs Reducing Labor­Related Costs Technology Tools © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Labor Expense in the Hospitality Industry  In today’s market, labor is so expensive.  Methods  must be used to accomplish necessary tasks and stay  within the allotted labor budget  In some foodservice establishments, the cost of  labor actually exceeds the cost of food and beverage  products © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Labor Expense in the Hospitality Industry  Labor Expense includes salaries and wages, but it  consists of other labor­related costs as well  FICA taxes, unemployment taxes, worker’s  compensation, group life insurance, health insurance,  pension plan payments, employee meals, employee  training, employee transportation, employee  uniforms, employee housing, vacation/sick leave,  tuition reimbursement programs, and employee  incentives and bonuses © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Labor Expense in the Hospitality Industry  Payroll refers to the gross pay received by an  employee in exchange for his or her work  A salaried employee receives the same income per  week or month regardless of the number of hours  worked  Payroll is one part of labor expense © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Labor Expense in the Hospitality Industry  Minimum staff is used to designate the least  number of employees, or payroll dollars, needed to  operate a facility or department within the facility  Fixed Payroll refers to the amount an operation  pays in salaries  Variable Payroll consists of those dollars paid to  hourly employees  Do not confuse minimum staff with fixed and  variable payroll © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Labor Expense in the Hospitality Industry  Management has little control over fixed labor  expense, but nearly 100% control over variable  labor expense  Labor expense refers to the total of all costs  associated with maintaining a foodservice  workforce  Total labor expense will always exceed that of  payroll © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Labor Expense in the Hospitality Industry  Payroll is considered a “controllable” labor expense,  unlike FICA taxes and insurance premiums  But, in reality, managers may even be able to  influence some of the noncontrollable labor  expenses, such as providing a training program to  reduce injuries and insurance premiums © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Assessing Labor Productivity  Productivity is the amount of work performed by  an employee in a fixed period of time  There are many ways to assess labor productivity.   In general, productivity is measured in terms of the  productivity ratio as follows: Output Input © 2011 John Wiley & Sons =Productivity Ratio  Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Maintaining a Productive Workforce 10 Key Factors Affecting Employee Productivity  Employee Selection  Training   Supervision  Scheduling  Breaks  Morale  Menu  Convenience vs. Scratch Preparation  Equipment/Tools  Service Level Desired © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Figure 7.23 Weekly Labor Hour Budget for Geier Hall Day Total Forecasted Number of Guests Served 3,000 2,900 2,900 2,850 3,000 2,700 2,650 20,000 Guests Served per Labor Hour Standard 30 guests/hour 30 guests/hour 30 guests/hour 30 guests/hour 30 guests/hour 30 guests/hour 30 guests/hour 30 guests/hour Labor Hour Budget 100.0 96.7 96.7 95.0 100.0 90.0 88.3 666.7   Figure 7.24 Recap of Percentage of Total Usage by Category Geier Hall Labor Category Production Service Management Total % of Total 60% 30 10 100   © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Figure 7.25 Recap of Guests Served per Labor Hour Geier Hall Labor Category Production Service Management Total © 2011 John Wiley & Sons Forecasted Number of Guests Served 3,000 3,000 3,000 3,000 Labor Hour Standard 60 30 10 100 Budgeted Guests Served per Labor Hour 50 100 300 30 Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Managing Payroll Costs  Because employee schedules are based upon the  number of hours to be worked or dollars spent, an  employee schedule recap form can be an effective  tool in a daily analysis of labor productivity  Since labor is purchased on a daily basis, labor costs  should be monitored on a daily basis © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Figure 7.26 Employee Schedule Unit Name: Geier Hall Labor Category: Production Employee Name Sally S * Tom T * Steve J * Abhijit S * Janice J Susie T Peggy H Marian D Larry M * Ahmed D * Shift: A.M & P.M Schedule 6:00 a.m - 2:30 p.m 6:30 a.m - 3:00 p.m 8:00 a.m - 4:30 p.m 10:00 a.m - 6:30 p.m 7:00 a.m - 11:00 a.m 6:30 a.m - 10:30 a.m 10:30 a.m - 1:30 p.m 2:00 p.m - 5:00 p.m 11:00 a.m - 7:30 p.m 1:00 p.m - 7:30 p.m Total *Includes 30-minute meal break © 2011 John Wiley & Sons Date: Monday 1/1 Labor Budget: 60 hours Hours Scheduled 8 8 4 3 60 Rate N/A Total Cost N/A N/A N/A Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Managing Payroll Costs  Some foodservice managers practice an on­call system  whereby employees who are off duty are assigned to on­call  status  Other managers practice a call­in system.  In this  arrangement, employees who are off duty are required to  check in with management on a daily basis to see if the  predicted sales volume is such that they may be needed  Schedule modifications should be done hourly, if necessary  It is critical to match labor usage with projected volume © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Managing Payroll Costs Analyze results  To complete the job of managing labor­related  expense, you should analyze your results by  comparing actual labor cost to budgeted labor cost   Actual Amount Budgeted Amount  = % of Budget  © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Managing Payroll Costs  Standard cost, that is the labor cost needed to meet  established productivity standards, rather than  “budgeted cost.”  In the case of labor, we may still be within  reasonable budget, though we may vary greatly from  the standard  For this reason, the authors prefer the term  budgeted labor rather than standard labor.  Labor  standards will always vary a bit unless guest counts  can be predicted perfectly which, of course, is rarely  the case © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Figure 7.27 Labor Recap for Lillie's Actual versus Budgeted Labor Cost Sales Budgeted Actual % of Budget $6,550 6,850 6,000 8,100 27,500 $6,400 7,000 6,000 7,600 27,000 98% 102 100 94 98 Week Total Labor Cost Labor Cost % Budgeted Actual % of Budget Budgeted Actual $1,965 2,055 1,800 2,430 8,250 $1,867 2,158 1,980 2,430 8,435 95% 105 110 100 102 30% 30 30 30 30 29% 31 33 32 31   © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Reducing Labor­Related Costs  If management finds that labor costs are too high, problem  areas must be identified and corrective action must be taken  Ways to reduce fixed labor costs include; improve  productivity, increase sales volume, combine jobs to  eliminate fixed positions, and reduce wages paid to the fixed  payroll employees  Ways to reduce variable labor costs include; improve  productivity, schedule appropriately to adjust to changes in  sales volume, combine jobs to eliminate variable positions,  and reduce wages paid to the variable employees © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Reducing Labor­Related Costs  One way to increase productivity and reduce labor­related  expense is through employee empowerment, involving  employees in the decision­making process  Today, employees have come to realize there is more to life  than work.  Management, unable to always offer more  money, has been forced to come up with new incentives  Employees are seeking job satisfaction in addition to salaries  or wages © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Reducing Labor­Related Costs  Consumers are increasingly aware that when they  support businesses committed to sustainability, their  dollars impact social and environmental concerns  On average, they are willing to spend 20% more  than the typical guest for products that meet their  values and lifestyle  In a similar manner, environmentally conscious  workers are increasingly becoming aware that a  company’s care for the environment most often is  also reflected in care for its employees © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Figure 7.28: Ten-Point Labor Schedule Checklist   10 Monitor historical operational data (or alternative data if historical data are not available) Identify productivity standards Forecast sales volume Determine budgeted labor dollars or hours Divide monthly budget into weekly budgets Divide weekly budget into daily budgets Segment daily budget into meal period budgets Build schedule based on the budget Analyze service levels during schedule period Reassess and adjust productivity standards as needed Figure 7.29 Reducing Labor-Related Expenses Labor Category Fixed Variable 4 © 2011 John Wiley & Sons Actions Improve worker productivity Increase sales volume Combine jobs to eliminate fixed positions Reduce wages paid to the fixed-payroll employees Improve worker productivity Schedule appropriately to adjust to changes in sales volume Combine jobs to eliminate variable positions Reduce wages paid to the variable employees Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Technology Tools  Current software programs can help you manage  and control labor costs including the following  tasks: Maintain employment records Conduct and record the results of on­line or computer­ based training programs Compute voluntary and involuntary employee turnover  rates by department Track employees lost days due to injury/accident Maintain employee availability records (requested days off, vacation, etc) © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Technology Tools Develop employee schedules and interface employee  schedules with time clock systems Monitor overtime costs Maintain job descriptions and specifications Develop and maintain daily, weekly, and monthly  productivity reports 10 Interface employee scheduling component with  forecasted sales volume software © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller Summary        Labor Expense in the Hospitality Industry Assessing Labor Productivity Maintaining a Productive Workforce Measuring Current Labor Productivity Managing Payroll Costs Reducing Labor­Related Costs Technology Tools © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th  Edition Dopson, Hayes, & Miller ... Cost of Labor $ 7, 100 8,050 7, 258 6,922 29,330 Guests Served 920 1, 075 955 1,240 4,190 Labor Dollars per Guest Served $ 7. 72 7. 49 7. 60 5.58 7. 00   © 2011 John Wiley & Sons Food? ?and? ?Beverage? ?Cost? ?Control,  5th ... © 2011 John Wiley & Sons Food? ?and? ?Beverage? ?Cost? ?Control,  5th  Edition Dopson, Hayes,? ?& Miller Figure 7. 8 Week Total Roderick's 4-Week Revised Labor Cost % Report Cost of Labor $ 7, 100 8,050 7, 258 6,922 29,330... six­column form with? ?cost? ?of labor, sales,? ?and? ?labor  cost? ?% © 2011 John Wiley & Sons Food? ?and? ?Beverage? ?Cost? ?Control,  5th  Edition Dopson, Hayes,? ?& Miller Figure 7. 15 Six-Column Labor Cost % Unit Name: