Uncertainty is the Only Certainty – Managing Your Labor Budget

by | Dec 1, 2022

For many organizations, the labor budgeting process feels disjointed, time consuming, and stressful. Too often, Finance and Operations aren’t aligned, resulting in a series of compromises that satisfy no-one. I know—this isn’t news. Recently, though, budgeting has become all but impossible.

We’d only just seen off the pandemic when the labor squeeze hit. Now, of course, we’re experiencing a cost-of-living crisis. All this means labor models and their underlying budget assumptions are being constantly challenged and undermined. The one certainty is that there is going to be a lot of uncertainty over the coming months.

At Axsium, we’ve developed a retail labor budgeting solution that aligns Finance and Operations teams, letting each see the other’s work. This improves collaboration and accountability, which in turn accelerates the labor budgeting process. Ultimately, you’ll generate a robust labor budget able to weather our changing economy. We call this solution Planara.

There are many ways Planara can help your labor planning process, including:

  •    Improved budgetary compliance
  •    Reduced error rates
  •    Better reporting and analytics

As you read, I’d like you to keep one number in mind: 1.2%. By the time I’m finished, you’ll see just how much 1.2% can do for you.

Labor Budget Compliance

Labor budgeting is by nature a siloed and transactional process. Your Finance and Operations teams produce draft upon draft of proposed budgets. Negotiations cut each side down until you eventually reach an uneasy compromise.

My colleagues at Axsium have talked about this before, but there’s another downside to this process we haven’t mentioned. Yes, neither side may be happy with the final budget. But it’s also hard to maintain compliance with a budget produced this way.

Usually, non-compliance occurs in the lowest performing stores. But it has the knock-on effect of negating the performance of your best sites as well. Ultimately, this leads to sub-optimal spending, which in turn leads to replanning and the cycle continues without end.

But Planara can help end this cycle. It opens the labor budgeting process to multiple stakeholders simultaneously. This means your Finance and Operations teams can both see what the other is doing. That makes the negotiation more of a collaboration. Suddenly, both teams can understand the other’s underlying assumptions. And that results in a budget that makes compliance far easier to achieve.

Planara allows you to view your colleague's labor budgets

And it doesn’t take much. Improving compliance for your bottom 15% performing stores can pay dividends. Let’s say you manage a labor budget of $200 million. In that case, the bottom 15% accounts for $30 million. If you can improve performance by even 3%, you would see a $702k bump.

Reducing Your Labor Budget Error Rate

First, I’d like to level set about error rates. When processing labor budgets in Excel or other heavily customizable tools, error rates are generally around 1%. That’s a low number, but stay with me, I’m going to tell you why it matters.

Most budgeting processes need a high degree of manual intervention. Whether your budgeting team is merging spreadsheets or keying in data, there is plenty of opportunity for human error. It’s not really anyone’s fault, it’s inevitable.

Most budgeting processes need a high degree of manual intervention. Whether your budgeting team is merging spreadsheets or keying in data, there is plenty of opportunity for human error. It’s not really anyone’s fault, it’s inevitable.

But human error can have a much larger impact than you’d expect. Importantly, it can undermine the accuracy and validity of your budget. And that’s where that 1% error rate comes in. Yes, it’s a low number. But labor is your largest controllable expense. And that means even seemingly small error rates can mean big money.

Let’s go back to that $200 million labor budget. That 1% error rate that seems so small could suddenly be costing you up to $2 million. And that’s why I think this such an important benefit.

Planara eliminates a significant portion of this human error by automatically importing data from your labor model and other systems. And it generates bottom-up and top-down methodologies out of the box. This means your configurable calculations and business rules are fully transparent and flexible, so you don’t need to customize the solution as your business changes over the years.

Even if Planara only reduces that 1% error rate to 0.5%, that means saving $1 million that would otherwise be lost from that $200 million labor budget.

Improved Labor Budget Reporting and Analytics

Planara changes that. By providing a wealth of embedded reporting and analytics, every area of your organization can access useful and relevant data. This is true from CFO to operations analyst. And that brings labor budgeting to everyone.

Planara gives you deep and intuitive labor budget reporting and analysis

If improved analytics and the associated improved decision-making can provide even a 0.25% payroll improvement, that can mean, for instance, $500k on that $200 million labor budget.

What Next?

I want to go back to that number I mentioned at the start: 1.2%. By now, I hope it’s clear that it’s the combined potential benefits of each of the three areas I’ve outlined:

  • •   45% (up to 3% improvement of the bottom performing 15% of stores)
  • •   5% (improvement on the 1% budgeting error rate)
  •    0.25% (from improved analytics and decision-making)

Coming back once again to our $200 million labor budget, that 1.2% represents up to $2.4 million. For many organizations this year, that could be the difference between success and just getting by.

Planara aligns your Finance and Operations teams, accelerating your labor budgeting process. I’ve covered some of the more tangible benefits of Planara. If you’d like to discuss how it can help your labor planning process, get in touch.

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