How to Calculate Man-Hours and Lost Productivity

Productivity is a company's output per unit of labor input. Man-hours measure labor input. It is the number of employees multiplied by the number of hours worked. Businesses may lose productivity due to several reasons, including equipment downtime and malfunction, information technology failures and employee sick days. Lost productivity leads to higher costs and lower profits. Calculate the cost of lost productivity to understand how and where to improve operating efficiencies.

1. Tabulate the average monthly man-hours of lost productivity by job classification. Keep a record of the number of hours lost on a monthly or even a daily basis due to scheduled maintenance downtime, recovery of IT failures or loss of data, and other reasons. Track the number of hours lost due to employee sick days.

Add these losses up over six to 12 months and divide by the number of months to get a monthly average of lost productivity for each job classification. For example, if the total productivity loss was 48 man-hours for each customer service representative over the last 12 months, then the average monthly man-hours of lost productivity is four hours---48 divided by 12.

2. Compute the average hourly labor cost, which usually includes salary and benefits. The costs will vary by job classification. For example, the labor costs of an assembly line worker and a shift supervisor will be different. According to the employment cost index report for March 2011---issued by the U.S. Bureau of Labor Statistics---benefits make up about 30 percent of civilian labor compensation costs.

Continuing with the example, if your customer service representatives make $4,000 per month and benefit costs are 30 percent of salaries, or $1,200 ($4,000 x 0.30), then the total monthly labor cost is $5,200 ($4,000 + $1,200). If a customer service representative works 40 hours per week, or about 173 hours per month (40 x 52 / 12), then the hourly labor cost is about $30 ($5,200 / 173).

3. Calculate the cost of lost productivity. First, calculate the lost productivity for each job classification. Continuing with the example, if you employ 10 customer service representatives, the annual cost for 48 man-hours of lost productivity is $14,400 (10 x 48 x $30) and the average monthly cost is about $1,200 ($14,400 / 12).

Second, calculate the lost productivity costs for all other job classifications, such as administrative support staff and product managers.

Finally, add all these costs to get the total lost productivity costs, by month or by year.