What is Understaffing Really Costing Your Company?
Over the past decade, many businesses have mastered the art of doing more with less. Quality improvement, reengineering, and right-sizing initiatives have resulted in unparalleled gains for American business. But the long-standing mantra of running “lean and mean” is resulting in costs that few anticipated. In many instances, understaffing has become a real threat to future prosperity.
Is the key to success really making due with less or are the hidden costs and lost opportunities a potential threat to your business?
Consider the following example of a mid-sized commercial printer.
Case Study: Smith Print and Graphics
Owned and operated by Richard Smith, the company lost two experienced graphic designers at the end of June. Rather than replace them, Mr. Smith reasoned that he could juggle schedules and pay a little overtime to get the work done with his remaining staff. He calculated that he would save thousands of dollars.
We’ll Never Use You Again
Acme Trucking, Inc. contracted Smith to format and print its annual report, due to shareholders by July 15th. Preparing the report was a complex job, and because they were short-staffed, Smith employees worked a total of 120 overtime hours on the Acme project. While the reports were delivered on time, Acme became extremely upset because their logo was printed in the wrong shade of blue and one of the bar graphs contained erroneous information. Smith printed 5,000 correction inserts at a cost of $250 and refunded Acme half the $4,000 fee for the reports, but Acme vowed it would never use Fairfield’s services again.
During July, First Community Bank, an existing customer, requested that Smith redesign and print an updated mortgage form. Likewise, Anne’s Fine Dining wanted a series of new coupon flyers produced. A potential new customer, Sky Hi Tech, was interested in having an employee handbook printed. Because Smith’s staff was already at maximum capacity, the company had to turn down the work – a revenue loss of $5,200. Whether any of these organizations will use Smith in the future is uncertain. Not only was Smith forced to turn down work, it also had to pass on a strategic business opportunity. Ideas On-Line, creator of Smith’s Web site, finally had the time to design a new on-line ordering page. However, no one at Smith had time to work with Ideas On-Line, so Mr. Smith had to postpone the project.
Fairfield’s creative director and office supervisor, Katie, always did more than her share. However, the added stress she felt during July proved too much. Katie accepted a position with another company that offered her a comparable salary and a less demanding working environment. Mr. Smith estimated that it would take one highly-experienced full-time designer and one part-time administrative assistant to replace Katie.
Adding It Up At the end of July, Mr. Stafford added up the “savings” that resulted from understaffing and compared them to the cost of hiring two new employees (See the table below entitled, “Fairfield Cost Comparison for July.”) The decision to limp along short-staffed during July cost Fairfield $2,360 more than hiring two new employees. Over the course of a year, the company stood to lose almost $30,000. As disturbing, it took only one month to lose a valuable team member, several customers, and an opportunity to acquire e-commerce capability. In fact, all Fairfield gained from the decision was an office full of over-worked and over-stressed employees. Realizing his mistake, Mr. Stafford reconsidered and decided to hire three graphic designers (one to replace Cathy) and a part-time administrative assistant
At the end of July, Mr. Smith added up the “savings” that resulted from understaffing and compared them to the cost of hiring two new employees (See the table below entitled, “Smith Cost Comparison for July.”) The decision to limp along short-staffed during July cost Smith $2,360 more than hiring two new employees. Over the course of a year, the company stood to lose almost $30,000. As disturbing, it took only one month to lose a valuable team member, several customers, and an opportunity to acquire e-commerce capability. In fact, all Smith gained from the decision was an office full of over-worked and over-stressed employees. Realizing his mistake, Mr. Smith reconsidered and decided to hire three graphic designers (one to replace Cathy) and a part-time administrative assistant.
|Cost of Understaffing||Cost of Hiring|
|Acme insert correction||$250||Monthly salaries of two graphic designers (173 hrs x $18/hr x2)||$6,228|
|Overtime (60 hrs x $15/hr x 2)||$1,800|
|Lost revenue from turning down work||$5,200||Monthly benefits costs of two graphic designers ($850 x 2)||$1,700|
|Monthly salary of an extra part time administrator
(86.5 hrs x $12/hr)
|Total cost of understaffing||$10,288||Total cost to hire||$7,928|
Risks of Understaffing
Smith’s story may be fictitious, but the costs of understaffing are real. While sometimes a boon to short-term profitability, understaffing may expose your organization to unforeseen and unacceptable risks, including the following:
|Scrap and Re-work||When organizations attempt to force more work through already constrained production processes, attention to detail tends to suffer. As a result, error rates typically rise.|
|Late Deliveries and Failure to Complete Projects On Time||Staff shortages affect production capabilities, which impairs your ability to meet production and project schedules.|
|Increased Stress||As employees are stretched to meet job requirements, their stress levels rise and they become incapable of maximizing their performance.|
|Customer Dissatisfaction||Delivery and quality problems invariably result in decreased customer satisfaction, which may be compounded by poor service from over-worked and over-stressed staff.|
|Increased Personnel Costs||Stress increases expense. As tension in the workplace rises, so does absenteeism, workers’ compensation claims, and the need for more management.|
|Increased Turnover||Burned-out employees don’t stay complacent. Even the best compensation packages may not make up for the decreased quality of life. Dissatisfied employees aren’t likely to stay around for long.|
|Inability to Capture New Opportunities||A company hard-pressed to meet its current commitments cannot hope to undertake new endeavors successfully.|
|Competitive Disadvantage||Without the capacity to ensure exceptional quality and service and to explore new business opportunities, organizations place themselves at a significant long-term disadvantage, compared to competitors that do not operate understaffed.|
Penny Wise, Pound Foolish
Don’t be fooled into believing that running lean always saves you money. The costs associated with lost business, reduced productivity, and increased workplace stress are often far greater than the cost of hiring. A well-staffed business allows your employees to do their best work, which gives you the best chance of remaining successful in today’s competitive marketplace.
Performance Staffing Solutions Can Help
It’s important to maintain adequate staff levels, but for most organizations hiring is not a core competency. If you’re spending your time finding and screening job candidates, your attention to critical business responsibilities becomes diverted. PSS can help you determine your personnel needs and suggest a number of alternatives to satisfy those requirements. Options we can offer you include the following: Temporary Personnel Services – Qualified temporary personnel to work on assignment at your company during peak work periods. Direct Hire Services – We can assume responsibility for finding qualified candidates for your direct staff openings. Temporary-to-Direct Hire Services – You can initially “try out” a promising candidate by placing him or her on assignment. If you are satisfied with the temporary employee’s performance, you can then offer that person a direct position.