As both my loyal readers know, in the backdrop of my day job I am continuing to research a white paper study on the lifetime cost of supplemental pay rules. Not the cost of the pay itself but the overhead in tracking and delivering it. (See: Kronos Supplemental Pay; A sea story ) In the back drop of that I am building a new office space at the house. As I have been tearing down walls, adding electrical, network, and speaker wiring (okay it might be part man-cave) I’ve been constantly reminded of the wisdom of a home builder I once met. He said “You pay for extra space you don’t need four times—First to build it, then to furnish it, then to heat it and then to cool it.” Even the ‘build it’ part has its own micro escalation.
Take for example adding an electrical outlet. Pretty easy to just daisy chain one on to the nearest string when its just framed 2x4s. And who doesn’t like POWER when and where they want it? Think you might want to put a black light and poster over there someday? An outlet and box is just five bucks and wire just 60 cents a foot. Drill some holes to the other outlet and wire it up! 20 minutes flat is my record.
Of course the next step is the drywall. But what used to be a clear expanse of wall awaiting a generic 4x8 sheet of drywall now needs several precisely cut square holes to accommodate all those outlets and switches I just added. (I’m not sure now even where my black light is anymore… who put all these darn outlets in anyway?!?). Now I suppose if I were a real drywaller I could make all the holes line up perfectly with the boxes and have the sheet somewhere near the studs and adjacent panels—but I’m not. The secret to this problem is BIG HOLES! (I considered using a shotgun by the end of the build). The problem with big holes around all the boxes is it makes a lot more work for the tape and texture people.
So yesterday I was taping and texturing joint compound making square openings around all those ‘cheap’ outlet boxes (Jeez—what did that drywall guy use, a shotgun or something?!?) and I was seriously rethinking my ‘cost estimate’ process for office features. Keep in mind we are still only in the ‘build’ level of the four levels of cost.
Thankfully I have my little research project to come back to when I’m exhausted from doing real work. But all that construction work (and some actual research) has led me to ask, “How many times does one pay for complex pay rules?” How does this escalate and can we put a TOC number on them in the same way we could add up the extra cost of drywalling labor back to our ‘Five-dollar outlet’ and see it is really SEVEN (plus 30 cents a year in electricity for the black light).
With complex pay codes we are finding the additional cost is not always exposed in the next step of the ‘build’ like making holes in drywall the day after the outlets go in. In fact, most of the time we are seeing that the additional cost of maintaining and modifying complex pay environments comes from what appeared to be inconsequential decisions made years ago. For example, a Kronos client was paying huge amounts of double time because of a shift/day divide setting. When we went to change the setting to reset at midnight (so the emp would go back to earning straight pay) we ran afoul of the late shift people who still needed to be paid overtime. We had to make even more rules.
What our research models and data show us thus far is that a bottom up approach to this analysis will get complicated and become difficult to associate follow on costs back to each individual pay rule or structure. While we may be able to trend these costs into type we are looking now at a step costing model with one of our clients who is, let’s say – more creative –when it comes to pay policies. This model will be what I call a ‘cost avoidance’ approach. We will look at the money that would not have been spent (but was) if the pay complexity remained at a certain level then associate those actual costs back to the complexity added. Allocation, like texturing drywall, is a little bit of an art in how you spread it around but the preliminary data shows we are likely to get some practical associations—at least at the first step. Later steps are harder to estimate because the additional complexity was added and with it often more resources like people or modules. These generally bring more capacity than immediately needed with their cost which increases contribution margin for follow on costs. (Can you tell I’ve enlisted some serious finance guys to help me work the numbers?). Put more simply, while it costs more to buy that nifty drywall hole saw because of all the outlets you wanted to put in, once you buy it it then lowers the cost of putting in future outlets. So you can’t always add the additional costs without also seeing the benefit of reduced cost down the road in some cases.
Although my electrical outlet costing experience will probably not provide direct insight into our Kronos pay policy cost analysis it has reminded me to stay ‘grounded’ so to speak in basic, real world things rather than spin a bunch of numbers around coming up with an allocation. The plural of anecdote is not data as one of our readers reminded me. Of course he also had a story about a group of electricians whose pay rate increased the higher they went up the pole so who knows what shocking things this outlet may lead to… Okay, maybe it’s time to stop writing and start painting.