How to work out the cost of internal time – in four steps

How to work out the cost of internal time – in four steps

by Diana Railton

Originally published: 28 January 2013

ostrich_head_in_sandIt surprises me how few managers in marketing and communications departments factor in the cost of their employees’ time.

‘We only keep a record of our external costs and travel expenses,’ they say.

‘Do you know how much your own time costs?’ I ask. ‘No idea!’ they usually reply.

You can only assess the true value of a communication project, and its return on investment, if you monitor the time of everyone who works on it. Not just your contractors. Otherwise you’re kidding yourselves and your organisation.

Employees’ time should be built into every layer of strategic planning. No marketing strategy, communication strategy, digital strategy, content strategy or internal comms strategy is complete without it.

Why we pass the buck?

While we have to keep to strict external budgets, internal time is usually already accounted for. Often finance departments prefer us to keep out of it. And most of us are far too busy anyway.

The cost of internal time can be hard to work out quickly and accurately without compromising accountancy details. You will most likely have to approximate and, if you’re not careful, this can be misleading.

But even a rough idea has to be better than no idea. Many types of calculations are based on approximations.

If you can attempt to show how much a communication process or change is worth to your organisation, including employee time, everyone will take it much more seriously.

Boards, directors and senior managers need numbers. Not always hard numbers – but numbers that quickly help them recognise value and make decisions.

A simple four-step process

Here is a simple four-step process for working out the approximate cost of internal time. We’ll also look at some of the variables you need to be aware of. Then I’ll sum up the full formula in four short lines.

Step 1: Ask your finance or HR department for an uplift figure

An uplift figure shows how much employees cost in overheads on top of their salaries. Uplift tends to range from 1.25 to 4 times a salary, depending on the organisation. For example, an uplift figure of 3 on a salary of £50,000 is £150,000.

If an uplift figure isn’t available, see if you can agree on an approximation.

When the UK Government started working out the cost of all their websites, if department figures were unavailable they used a standard uplift figure of 42% or 2.84. For an annual salary of £50,000, this comes to £142,000 – which some people find surprisingly high.

In the recent figures Cabinet Minister Francis Maude released on the cost of government transactions, I noticed a lower uplift figure of 23%, or 2.46. This still brings a salary of £50,000 to £123,000.

Step 2: Find out about salaries, but tread carefully

If you are a team manager, you will know about your own employees’ salaries. Otherwise you may have to resort to salary bands for job levels.

Often you can get an indication of whether people are on an upper or lower band, depending on their experience – but it’s important to limit any guess work and be consistent.

Multiply the salaries by the uplift figure and you will have an approximate annual cost for your team, both individually and collectively. This will probably surprise you too.

Step 3: Establish how many days you work a year

To work out a daily and hourly rate from an annual salary + uplift figure, you need to deduct the days you don’t work, such as:

  • weekends (usually 104 days)
  • paid public holidays (say 10 days)
  • paid annual leave (say 25 days)

Some people have more annual leave than others, depending on length of service – so you need to agree a safe number with your finance or HR department.

Then there’s sick leave. A few days off sick or for compassionate reasons usually only means lost time and no extra costs. In contrast, extended sick leave probably demands temporary cover – and that will come under the uplift figure.

Often an average of ten days’ sick leave is referred to, which may seem high. If we include this in this calculation, we have to deduct 149 days from the 365-day year, leaving a total of 216 days. Again you will need a steer on this.

Step 4: Agree on the number of hours you should work

This is an especially thorny issue! How many hours are you meant to work? How many do you actually work? And how much of this time do you waste?

We’re not robots so some time wastage can only be expected. I’ve heard organisations estimate productivity as 90%, 80% and even 70% of paid-for time.

From a company perspective, wasted time includes things like: arriving late, leaving early, sorting out mistakes, taking breaks, over-socialising with colleagues, project gaps, computer problems, personal use of the internet and social media, poorly run meetings, ‘spacing out’, and so on.

Of course some people more than make up for low-productivity time and work horrendously long hours. Few people work a simple 35-hour week, especially as they go up the ladder. But work/life balance is important and arguably they should do.

So, as usual, we need to compromise and it’s best to keep this simple. I suggest you work on a conventional seven-hour day – but, again, you must decide within your organisation.

The full formula

Annual salary x agreed uplift figure = yearly cost
Divided by agreed average number of working days per year = daily cost
Divided by agreed average number of hours per day = hourly cost
Divided down more if necessary

Example:

Salary of £50,000 x 2.84 uplift figure = £142,000 a year
Divided by 216 = £657 a day
Divided by 7 = £94 an hour
Divided by 60 = £1.60 a minute

How to apply the results

Approximate calculations like this help us focus on everything we do.

Think of that last meeting that went round in circles. Say it was attended by four people on salaries of £25,000, £50,000, £75,000 and £100,000. It lasted two hours and cost your organisation nearly £1,000.

Of course we’re not going to start counting every minute. But we can at least predict that project A will cost roughly x amount of employee B, C and D’s time.

You can also use the formula to estimate internal time savings. These can be astounding and quickly run into seven figures. You need to be careful how you present them though, as James Robertson forcefully argues for intranets.

Content strategy brings about huge time savings. The ‘create once publish everywhere’ approach to content strategy for mobile is one of numerous examples.

Content governance processes should save time while increasing efficiency. Say you have 500 content providers in your organisation on a variety of levels and salaries, and each currently puts in about 100 hours a year. If a new process saves them just 10% of this time, based on an average salary of £50,000 this is worth £470,000 a year.

To quote the European Communication Monitor, ‘return on investment is the ratio of financial profit resulting from a communication activity against its actual cost’.

When it comes to internal time, actual cost might be approximate cost. But it is still an essential cost.

 

Look out for:

Russell-Oliver Brooklands, author of the popular ebook The Uncommon Sense of Internal Communication, has been working for many years on a detailed financial auditor to measure internal communication time costs. He is currently offering free trials for a limited period.
Melissa Rach, co-author with Kristina Halvorson of Content Strategy for the Web, has an interesting presentation on Content and Cash. Hear her direct at Confab London 2013.
Rahel Bailie and Noz Urbina have just published a new book: Content Strategy: Connecting the dots between business, brands and benefits. This looks at return on investment on content projects.
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