Posted by: davidhayden | June 29, 2010

Why overtime is the opiate of ineffective managers


Why overtime is the opiate of ineffective managers

I was asked to observe a meeting recently and I’m sad to say, my worst suspicions manifested right before my eyes.

The presenting manager, was forthright.  He started with a contrite confession that basically said “we have made some real bone head mistakes in the past and need to correct them and we need your involvement to get it right.”

I was impressed and thought this meeting is off to a good start.  He continued. We used to be number one in our industry, now we are number five.  We have lost one product line to our competition, and corporate is not considering us for future product designs.  We are in trouble  . . .
His tone was somber and there was no doubt in my mind, that his company is in trouble.  But then the  manager took a more positive tone and explained how with proper reorganization, with the shops help, they could get back to number one. This pep talk went on for about 15 minutes.  He explained some  reorganization ideas and introduced the team of manufacturing engineers, quality engineers, and shop folks heading up the project.

As expected in this type of meeting, he asked the shop workers for their input.  It was their response that told me, this company is in worse shape than I had imagined.

The response that explained the rapid decline to fifth place
From a back corner of the crowded room came the response that explained everything.  How an industry leader could devolve to fifth place in a few short years became obvious.

So what was the response?  With passionate indignation, a loud voice from the side of room demanded, I want to know why that department gets more overtime than we do!

It was all I could do to keep quiet. My first thought was to advise the manager to shut down the meeting and start an immediate initiative to outsource EVERYTHING!  I wanted to scream you fools are addicted to overtime and it’s killing the company!

How Overtime becomes and Opiate
It’s not just the employees, the managers too become addicted to overtime.   And like many addictions, it does not happen suddenly, it grows and matures.

Sure it starts simple enough.  A production schedule falls behind or extra work needs to be done.  It would be insane to bring on additional staff when a quick fix is needed.  So overtime is offered.  Often employees are resentful of the overtime, but someone is usually willing to work it.

When, overtime becomes the answer for every missed schedule,  two very bad things happen.

  • The employees get addicted to the better lifestyle purchased with the company’s overtime dollars.
  • The manager learns it is less confrontational to meet schedules with overtime than it is to ask employees to focus energies on task completion.

In a very short time, what was a necessary evil suddenly becomes perceived as an employee “right.”

Overtime is NOT a right of employment
Sure an employee is entitled to the government mandated time-and-a-half wages for working overtime.  But the extra hours are not a guaranteed benefit of employment.

This was not the first shop to get sucked into the overtime black hole and it won’t be the last.  And one thing that never changes is the incredibly high cost of overtime.

The true cost of overtime
Like scrap or rework, the true cost of overtime is in what you don’t see.  For example, suppose a product or service you sell has a 20% gross profit.  Every dollar you spend requires five dollars in gross sales to recover that lost dollar.

When you extend these numbers, things get very dramatic.  Let’s say your shop labor rate averages $20 per hour.  That means overtime is going to cost you $30 per hour + extra  FICA contribution, + additional 401K contribution and so on.  You can easily be looking at $40 per labor-hour.

10 people are asked to work overtime. That is $400 per hour for 8 hours or $3200.  The sales department now has to bring in $16,000 just to cover the overtime costs!

If you are a job shop, chances are you are in a cut-throat market where shops are bidding jobs at near cost or very low margins.  In this environment, you will be lucky to get 10% margins and will be looking at having to come up with $32,000 additional sales.   Not an easy thing to do in a highly competitive market.

It is no different if you make a product like tractor spindles, pencils or copy paper.  You have tough competition and if your cost of doing business rises sharply because of excessive overtime, you WILL lose that competitive edge.

Hold on you say, “production schedules must be met and it is cheaper to buy a little overtime than hire a new employee.”

Yes overtime is a necessary EVIL and ultimately it is self-defeating
Your logic is sound.  A little well planned, budgeted, productive overtime is often necessary to meet delivery schedules or additional load.  Too much of it, however, becomes self-defeating. Here’s why.

When employees get accustomed to living the overtime lifestyle, weekends are like a winning lottery ticket.  So, when they see the work getting done and the weekend slipping away, employees  slow down.

The standard work week for them has become 6 or 7 days and we all know what happens when things get slow; the work fills the time.  If there is not enough work, it will be stretched out to fill the weekend.

But, Reigning in overtime is like taking away someone’s cigarettes.  They will resent it, fight it, whine and  complain loudly.  “It’s not fair.” they’ll cry.  “We can’t afford to live on this lousy salary with out OT.” they will scream.

You know you have to be firm and stop it, but that creates pain for you too.  You have to suffer through the dissatisfaction.  You have to be the bad guy.  The prospect of all this is enough to make anyone say, “hey, do you want to work this weekend?”

That is how overtime becomes the opiate of the ineffective manager.

I wish I could say the meeting ended well, but it didn’t.  Once the cash cow was let out of the barn, so-to-speak, here was no getting it back in.

So heed this word of caution, if you use overtime, use it sparingly.  If you are dependent on overtime, do what it takes to kick the habit and get people productive again.

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Responses

  1. yes but the anser is NOT 1 THAT EVERY ONE LIKES WE MADE ALL ARE PEOPLE SALARY SO EVERY 1 SEAMS TO GET THE WORK DONE ON FRIDAY NOT ILL GET TO IT ON SAT

  2. Its voluntary but you get fired if you dont volunteer …sucks..

  3. i agree overtime doesnt magically convert to work..

  4. OT is also a way for lazy mgrs not to have to interview, screen, train, etc.

    • The company may not have a realistic view of time management in regards to its procedures and processes for each job skill. People are not slaves and the managers are not overseers. But he or she is responsible for making sure that the skill-set of the person matches the job requirements, and that the job requirements are realistic as it relates to the time allotted to complete the task. Many managers are taking their work home because they have the privilege to do so. However, non-exempt employees do not have the same benefit. Some companies are requiring employees and managers to do more work with less help without considering the consumption of time. A great company should take the time to analyze the time involved in completing each task. It must also factor in things that cause variances in time management (poor in-house equipment, outdated computers and programs, and low morale). Overtime may be a reflection of how the company cares about its employees.

  5. Overtime could be the result of a company’s lack of job inventory….in other words the company may or may not have a realistic view of time management per job skill…..either the company needs to hire more people, or the company needs to train its employees to be more efficient….the manager should be the first to demonstrate the time it takes to perform a task so he can be knowledgeable of what the task involves..


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