Time is money: employee time data and cost estimates
3. Cost estimation for a customer service department
ABC Corp. operates a call center, which employs 50 call staff members. Each member works 12-hour shift with 1 hour unpaid lunch break and a paid 5 minute break for each hour worked. The call center provides customer support services 365 days per year. The call center’s total cost is $7,620,000.
The practical capacity of the call center is:
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50 call staff members x 365 days per year x 11 hours per day x 55 minutes per hour = 11,041,250 minutes (or 184,020.8 hours) |
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Cost per minute = $7,620,000 ÷ 11,041,250 minutes = $0.69 |
For example, if an employee spends 10 minutes to assist a customer, the cost of the call is $6.90.
If the call center spends 11,000,000 minutes during the year on assisting customers, the cost of the idle capacity is $28,462.50 (41,250 hours x $0.69).
4. Cost estimation for a warehouse
ABC Corp. operates a warehouse near Atlanta, GA. It employs 30 employees who support the order fulfillment process (e.g., receiving and processing the order, sorting, picking, scanning, packing, labeling, inspecting, sealing). The employees on average work 50 weeks per year, 6 days per week, 9 hours per day. The employees receive paid 10-minute break for every 4 hours worked. The employees take 1-hour unpaid lunch break. The total cost of operating the warehouse is $2,980,800.
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Practical capacity = 30 employees x 50 weeks per year x 6 days per week x 460 minutes per day = 4,140,000 minutes (or 69,000 hours) |
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Cost per minute = $2,980,800 ÷ 4,140,000 minutes = $0.72 |
For example, if it takes an employee 15 minutes to process an order, pick, scan, pack, inspect, label, and seal, the cost of the order fulfillment is $10.80 ($0.72 per minute x 15 minutes).
If during the year employees spend 3,800,000 minutes on order fulfillment activities, the cost of the idle capacity is $244,800 (340,000 minutes x $0.72).
Note, in the examples above the cost per minute includes not only the payroll costs but also other relevant costs (e.g., utilities, supplies, equipment). In practice, however, companies may use only payroll costs when estimating a cost of a task. Such an approach, however, might underestimate the cost of a specific activity (task) as many activities consume not only direct labor resources but other resources.
For example, if a company pays $13.50 per hour to its warehouse staff members, and the employees spends 15 minutes to pick, scan, pack, label, and seal a package, the cost of the order fulfillment would be estimated at $3.38 (15 minutes ÷ 60 minutes per hour x $13.50 per hour). However, this estimate does not include other relevant costs (e.g., warehouse maintenance, warehouse utilities, warehouse supervision, warehouse security).
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