FTE stands for Full Time equivalent is used to measure the productivity level of staff for any business unit. FTE analysis reveals if the manpower is used at optimum level and to ascertain productivity levels.
FTE is a very popular & accurate analysis, used by all Business heads but often confused with Actual Head counts.
Actual Head Count or popularly known as 'HC' can be explained as actual number of staff in any business unit and changes in HC can only with any new recruitment or resignation of staff.
On the other hand, Full time equivalent of FTE are the count of actual numbers of hours of active staff used in business. FTE changes frequently with business level being fluid in nature and thus easy to change based on business requirement. These changes can be achieved by following certain measures such as by sending staff on leaves or change in working days/hours of staff based on business requirement.
If any business operates on Part-time staff (PT) or Casual staff (CS) then it is easy to inflate or reduce the number of staff working on business unit and thus analysis of FTE's in business become more useful. The payroll cost is managed by adjusting FTE's in any business unit.
The productivity level can be accurately measured in term of FTE not by HC.
We need to ascertain 'standard working hours' for staff, which is the base measure of entire exercise
To calculate FTE, we need to divide actual working hours(of staff) by standard working hours. Thus, once actually working hours of any business unit staff increased because of overtime or extra hours spend during the shift inflates the FTE numbers. This is a control point for Managers, where the productivity level of each outlet can be controlled on a weekly basis and to manage payroll expense.
Productivity Measurement: To explain how FTE's are used to ascertain productivity of a business unit, we will take example of an outlet of hotel. The productivity level of outlet is calculated by dividing F&B covers with FTE/days.
Let's say, outlet had 9,000 covers during last month(30 days) and the FTE was 100 then productivity level for last month = 3.0 (9,000 covers/100 FTE/30days). Next month, outlet managed to serve only 7,900 covers and FTE's reduced to 96 but then productivity level down to 2.74. which is lower than last month and thus this signifies that outlet productivity level has reduced although Managers able to reduce FTE based on business. Business unit head need to rework for coming month FTE numbers by taking projected or estimated covers. Estimating accurate covers are difficult and thus the best option is to use a mix of FT, PT and casual staff.
The challenge for any business unit is if the manning is based on FT (Full time permanent staff) then it will be difficult to reduce the actual working hours
The best option is that business unit manning to be based on mixture of FT, PT(part time) and CS(casual staff) where during low period most of FT to be used and avoid using PT and CS whereas increase use of PT and CS during busy period. By doing this, we can reduce the actual working hours. Also, FT staff to be encouraged to take leaves during low business season or period, and Manager should avoid any over-time or working on off-days to maintain actual working hours at minimal level.
Having a unique mix of FT and PT assist in managing payroll expenses where the part-timers number of staff can be reduced or increased based on business volume.
My suggestion is that Manager to assess requirement by calculating FTE based on business on books or weekly trend to control the working days or hours of staff. many statistical measures such as F&B cover per FTE, Revenue per FTE, Profit per FTE can be used too assess the requirement. We can create a process where all activities to be linked with FTE not HC.
Good Luck to you all.... try this concept aggressively in their business units to control the payroll cost at certain level.
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