Forecasting Labour Costs for Shift Based Employees

A new way to budget and forecast for shift based employees

Over the last few years we have been working with a number of Aged/Disability care organisations to improve their budgeting and forecasting processes specifically around staff costs which is many cases accounts for 70-80% of total expenses.

There are many roster tools available in the market however they are mainly focussed on coverage rather than cost and having the ability to compare costs with funding and make adjustments to suit is vital.   

The importance of having an efficient and effective budget process and the ability to quickly run ‘what-if’ analysis and test multiple scenarios, has been brought into sharp focus for many businesses as a result of the uncertainty that exists as a fallout of the pandemic. This is especially important for businesses with shift based employees.

The majority of businesses that approach us about improving their budget and forecast process had been running their budgets in spreadsheets, and were finding the process very slow and time consuming. 

One of the most common issues with spreadsheet based budget and forecast models is that they are all individual spreadsheets which are commonly sent out to the relevant business managers for completion. These spreadsheets are very rarely linked back to any form of master or global input.

The more uncertainty there is, the more flexibility and speed you need

In the normal annual budget and quarterly (or more frequent) re-forecast, this de-centralisation of the global inputs doesn’t pose much of an issue. The budget administrator can take the time to ensure the global inputs are correct, wait for the completed budget to be returned, and then consolidate and report. 

In times of significant uncertainty, however, where conditions are changing dramatically between re-forecast cycles, more and more businesses are finding the lack of flexibility and speed in an Excel budget process cumbersome and inefficient, which can cost a business financially in the long run.

We’ve noticed particular interest for a faster and more flexible alternative from industries with a large number of shift-based employees (including community services, aged care and NDIS providers). These types of organisations are diverse and specialised in the services they provide, their employee mix, and in the way their employees are remunerated. On top of this, they often have reliance on government plans and fundings, which change regularly. 

For businesses where the major cost is staff, the spreadsheet approach is often not appropriate. The greater the percentage of total costs attributed to labour costs, the more importance should be placed on them. When the majority of labour costs are attributable to shift employees, managers can find themselves in a difficult spot if they’re relying on a spreadsheet model.

The complexities of shift based employees

Shift based employees often have more than 4 different effective rates of pay once shift loadings are taken into account. On top of that, there are often different allowances applicable and different coverages required for annual leave and public holidays.  Couple this with the fact that employees in these industries are often on Government awards, SCHADS or EBAs which have different levels and pay grades that may increment on an annual basis, and you have a complex labour cost calculation.

Staffing requirements, coverage and availability in these industries can change quickly in ‘normal’ times, so the ability to re-forecast these changes quickly and easily is now more important than ever. The ability to quickly adjust budgets and forecasts to reflect the latest shift and roster changes, to fill the gaps in staff shortages with agency staff who have different cost rates and allowances, is of paramount importance.

Many organisations, both for-profit and not-for-profit/for-purpose, currently rely on spreadsheet calculations. Spreadsheets, while easy to change for individual budgets and employees, have limitations when it comes to shift cost calculations. Often, organisations have to budget with ‘worst case’ costs as they are unable to calculate an accurate cost, and are unable to change global assumptions/rates/loadings and have these quickly applied to the underlying calculations.

So what’s the solution for better budgeting labour costs for shift based employees?

At bi5 Solutions, we’ve worked with organisations to provide a more efficient and robust budget process, with incorporated shift calculators providing faster and more accurate budget calculations and updates. Unlike spreadsheets, our solutions are able to easily calculate shift/labour costs by individual employees, or positions, by calendar day, allowing for more accurate weekend and public holiday loading application and cost calculation. The manager can easily adjust weekly or fortnightly shifts by individual employee or position, and have these costs instantly fed back into the consolidated budgets. They are now able to use employees’ exact cost rates, and apply annual pay grade/level increments accurately. This removes the need for the ‘worst case’ labour cost budgets that are often used due to the difficulty and complexity in doing a more accurate calculation in Excel.

In the current environment of uncertainty, planning and re-calculating to respond to staff absentees can happen much more quickly, allowing organisations to budget for agency staff with higher rates. For industries that are impacted by changes in government funding, or need to generate a budget/estimate quickly and accurately, these solutions allow organisations to lessen the risk of making the wrong calculation and wrong decision. 

Build a custom budgeting and forecasting solution on your chosen platform

Utilising our preferred EPM platforms (BOARD, Jedox) we can deliver a Budgeting and Forecasting solution that can integrate with your existing systems (ERP, Roster tools, payroll, HR, PowerBI…etc) to bring through data such as employee details, pay rates, shift details and actual financials, to further simplify the budget process. We work closely with managers and admin to ensure that it’s built in the way they need for their particular requirements. We can usually get budgeting and forecasting solutions up and running in the order of 1-2 months.  

Overall, with a budgeting and forecasting solution the ability to adjust/reforecast budgets more regularly and effectively is significantly improved, providing for faster planning and better financial management.