Choosing a Labor Management System
By Kenneth Heymann
Imagine that each time you check into a luxury hotel a single associate is assigned to take care of all your needs 24/7. The associate checks you in, takes your bags to your room, then waits outside your door to fulfill any request you might have. How about checking into a select service hotel and having a valet parker, doorman, bellman, concierge, and front desk agent (not all the same person) there to greet you?
Any hotel is capable of increasing service beyond the level that a guest typically expects. But the reality is that all hotels have a “limit” to the level of service that is provided. Whether a guest stays at a five star hotel or a one star hotel, the organization can only reasonably afford to deliver quality service which meets the guests’ expectations. It is far more difficult, and less likely, that the organization will be able to provide service which dramatically exceeds what the property can afford, no matter how appealing those services may be to the guest. The guest satisfaction for both experiences described above would likely top the charts on surveys, but the owner’s satisfaction with profitability would probably hit an all-time low.
Ultimately, the level of service has to be dictated by the needs and expectations of the guest as well as the cost associated with delivering the service. There’s nothing new in this observation. There’s nothing new in asking how the smart operator balances guest satisfaction and profitability. This is the age old challenge. What is new is that evolving technology makes it easier to address these challenges in a more objective and sustainable fashion.
The largest controllable cost in hotels is labor. Hoteliers have known this for decades and have incorporated many different processes, systems, and procedures to help manage these costs. In recent years, Labor Management Systems (LMS) have become more widespread in the industry as more organizations adopt some form of LMS. The opportunity available to service companies today is to choose an effective LMS and utilize all its features.
Research at hotels shows that LMS approaches range from no formal approach to sophisticated systems that incorporate forecasting, scheduling, time data management, labor reporting and evaluation, and budgeting. Many companies are somewhere in the middle using Excel-based spreadsheets or basic time and attendance systems. However, as there has been a proliferation of Workforce Management systems that incorporate components of HRIS tools with Time & Attendance systems and payroll systems, there has been some blurring as to the core components of an LMS.
Another way to approach LMS selection is to also understand what it is not. A time and attendance system is not an LMS system. And an LMS system is not only a set of tools to force feed payroll cost reductions across the board, even though LMS systems can be instrumental in creating cost reduction action plans. An effective LMS program has certain key features.
Let’s start by defining the essential features and attributes of labor management for the hospitality industry. In doing so, we can then elaborate on the core functions associated with the major components. Labor Management can be viewed as a six step process which must be completed on a weekly basis.
The Labor Management Process
FORECASTING
At its most basic level, short-term forecasting involves predicting weekly business volumes for the property. Most managers have basic information about how much business is expected next week (it will be busy, average, or slow). Some have precise predictions based on records they have kept and spreadsheets they have used to calculate projections. Virtually all hotels forecast rooms and many forecast food covers (though not all do so by meal period).
A well-developed forecast is an essential step because it allows the manager to better plan and schedule the resources that will be needed for the upcoming week. Not having an effective forecast can lead to either too much labor or not enough labor to provide the expected level of service to the guests. The two key components of the process from a system perspective are:
- The ability to forecast all key business volumes that impact staffing
- The ability to review forecast accuracy
Forecasting Key Business Volumes
Most hotels forecast occupied rooms. Occupied rooms are the key driver of labor for many hotel positions. Beyond occupied rooms, it is important to forecast other key business volumes. The following are the minimum that should be available in the forecast component of the LMS system:
- Occupied rooms
- Arrivals/departures
- Breakfast/lunch/dinner/overnight covers for all food outlets
- Revenue for bar operations
- Banquet covers
- Available guests
If a business has any other key drivers for labor, the system should allow those to be forecasted. For example, a hotel that provides valet parking would want to forecast parked cars for the labor management of valet attendants and cashiers. Likewise, resorts that offer golf will want to forecast golf rounds for their impact on pro shop and course personnel.
Forecasting Functionality
Key attributes:
1. The ability to forecast occupied rooms based on an assessment of pick up (reservations vs. occupied rooms) by market segment. Essentially, a rooms forecast system should allow for distinguishing among the Transient, Group and Contract (if in use) segments. Group room forecasts should come from the Sales department and the Transient rooms forecast should be based on Transient pick up. If the property has a Yield management system in place, then it is reasonable to use the forecast from that system for providing the rooms forecast. Those values should be interfaced with the LMS.
2. F&B Forecasting:
- Banquet Cover Forecasts, like Group Rooms, should come from Catering and Convention Services.
- Outlet Forecasts should address the following concerns:
- The ability to forecast covers by day, by meal period.
- The ability to utilize an Available Guest Count to forecast outlet covers.
- The system should be able to forecast covers for a restaurant predominantly dependent on in-house guests by tying a capture ratio to the Available Guest count. A more sophisticated system will use statistical modeling to assess the relationship between covers and Available Guests. The system should use unique calculations for each meal and day as, for example, Monday breakfast business levels will be different from Sunday.
- The system should be able to forecast covers for a restaurant that is predominantly driven by local / community activity. This functionality can involve a rolling average approach or a more sophisticated trending analysis. Again, trends and business levels are different for a Friday from a Wednesday and the analytics that underpin the forecast should make this distinction
Reviewing Forecast Accuracy
Forecasting key business volumes is only helpful if the data is accurate. A business that forecasts on a weekly basis but doesn’t measure the accuracy of that forecast is only implementing half of the forecasting process. As part of the forecasting cycle, a weekly review of forecast accuracy should also be in place.
Reviewing forecast accuracy is simply comparing the forecasted business volumes with the actual business volumes. If 800 occupied rooms were forecasted for last week, were 800 room nights actualized? If the actual number of occupied rooms was 500 or 1,000, the improper forecast can affect guest service and profitability. The system should provide a forecast accuracy review so hotel leaders can better understand how well they are predicting future business volumes. Additionally, forecast accuracy should be reviewed by day as variances may average out over the course of a week, leading to incorrect assumptions about accuracy.
PLANNING
Planning is the heart of Labor Management. Unfortunately, for many, this approach directly contradicts the belief that hospitality is all about spontaneity, reacting to the needs and expectations of the guests. Rather, a successful hotel operation plans its labor requirements to meet its business demands while still having the flexibility to handle the unexpected day-to-day challenges. An effective labor plan is only as good as the labor standards on which it is based. Labor standards define the number of hours required for a specific volume of business needed to support the agreed to service levels. Ultimately, each business must establish labor standards that balance guest satisfaction, employee satisfaction, owner satisfaction, and profitability.
Most hoteliers typically have standards for guest room attendants. For example, a typical guest room attendant can clean a stayover in X minutes and a check-out in Y minutes. On the other hand, an effective LMS requires standards for every position in the hotel.
Developing effective labor standards often involves analyzing the way work gets done through observation or process analysis. Effective labor standards distinguish between fixed and variable work and, where appropriate, incorporate guest demand patterns (arrivals and departures, outlet meals, etc.). Effective labor standards should be as variable and flexible as possible in order to reduce fixed labor. For example, at most hotels only one front desk agent per shift is regarded as fixed. In order to “open the door” for the day, one agent would be required. Any additional front desk agents would be variable based upon the volume of business. Thus, the labor standard would distinguish between the fixed and variable components.
While it is common in the industry to express labor standards on a per shift basis (80 check ins and check outs for the front desk, 40 covers per server), more precise or detailed standards are more effective. And a successful LMS should accommodate this level of precision. Standards should be tied directly to productivity (volumes/hours) so that the most accurate number of required labor hours is determined. For example, if the houseman’s productivity goal is 12 minutes of labor per occupied room the labor standard should be stated as simply as that, or as 5 rooms per hour. Another example that is often overlooked is determining the flow of business volume during a shift. The breakfast shift may project a total of 200 covers but the flow of those covers is not constant throughout the meal period, which means the number of server hours scheduled at opening would not be the same during the peak of the meal period. Again, an effective LMS will accommodate this operational consideration. Knowing the true number of labor hours needed helps to facilitate planning and staffing that may include shorter shifts or cross-utilization of staff.
Organizations need to understand that standards are a measure of productivity and cannot be expressed as a percentage of labor dollars to revenue. One of the biggest misconceptions on the part of less experienced managers using labor management tools for the first time is that labor should be managed on a percentage of labor dollars to revenue. Using this approach often leads the manager to think that more labor can be used in times of higher revenue. This is not a proper approach to labor management. If a guest room is sold for $200 per night on weekdays but only $120 per night on weekends, it still takes the same amount of labor to clean the room regardless of how much revenue is being generated. The hotel should not be using more labor to clean the room during the week simply because the rate is higher, although guests per room weekday vs. weekend could reasonably impact labor standards.
The essential component of planning with an LMS is relating anticipated business volumes to the required labor hours. This step places the focus on the labor needed to satisfy all the goals of the hotel (customer, employee, owner, and financial). Too often, managers go directly from a forecast to a schedule, leaving out the planning step. An LMS provides the essential planning step. Developing a schedule without regard to when the labor is most needed can create ineffectiveness in service and inefficiencies in labor.
An effective planning system should include the following key features for building standard:
- Has the ability to create standards for each position.
- Accommodates all forecasted volumes that drive labor (including multiple forecast criteria, e.g., Arrivals / Departures, Transactions, etc.) Any forecasted volume should be available for use in developing labor standards.
- Allows for both fixed and variable labor.
- Allows for labor on a per unit basis (minutes/unit, hour/unit, units/hour, etc.).
- Can be specified for different days of the week (e.g., a different room cleaning standard on weekdays with single guest occupancy vs. weekends with multiple guests per room).
- Accommodates minimum coverage needs at low volume.
- Accommodates minimum shift times so that the calculated labor requirement reflects realistic scheduling needs.
SCHEDULING
Once a manager knows how busy the operation will be (forecasting) and has the proper standards (planning) that drive the use of labor, it is time to move on to the third step, scheduling. Scheduling involves a comprehensive effort to align guest demand, financial goals, and employee skills and preferences.
It is critical to start the week with an accurate schedule. Many labor management challenges occur when a schedule does not meet business demands. Over-scheduling essentially wastes payroll dollars while under-scheduling does not provide the proper level of guest service. The schedule must match employee work times with peak business volumes. The scheduling of employees must take this into consideration. While it is essential to consider employee preferences in scheduling decisions, these preferences must be integrated in a way that incorporates guest service needs.
An effective scheduling system allows managers to:
- Know when employees can and can’t work.
- Determine and utilize the skill levels of employees at each job.
- Define all the positions in which an employee can work.
- Create a draft schedule based upon the forecast and labor standards.
- Assign employees to specific stations or areas.
- Manually edit schedules as needed.
EXECUTING
Executing is the first step of the labor management process that is outside the “set-up” stage. The three steps which lead to executing all occur prior to the start of the work week, making sure everything is prepared for a successful week. This step begins the minute that the work week begins. This is where the manager ensures that the staffing levels meet the projected business volume.
Execution is a day by day process. Executing according to the labor management plan takes a daily focus by the manager. Areas to focus on include:
- Monitoring whether the actual business volume is in-line with the forecasted volume.
- Reviewing whether changes to the schedule need to be made in order to handle volume changes or employee situations.
- Managing work schedules to eliminate unnecessary hours worked or overtime.
TIME & ATTENDANCE
Integration with the organization’s Time & Attendance system allows for effective daily reporting, which is essential. However, any integration must accommodate multiple lookbacks to allow for punch edits and adjustments. Hours as reported today will change over the coming days as many managers only review and correct punches on a weekly basis. At the same time, managers should be encouraged to review and correct punches on a daily basis so that reporting is as accurate as possible.
REPORTING & EVALUATION
Labor reporting is an essential component of a labor management system. Effective Labor reports allow managers to answer the question, “How did we do?” Labor reports should be used by all levels of the organization.
- Junior/mid-level managers should be reviewing reports daily to identify successes and opportunities for improvement.
- Senior level managers should be looking at the overall labor management effectiveness of the business.
- Corporate/regional managers should be reviewing labor management reports across businesses, looking for labor management trends and patterns.
For many organizations, labor reporting simply involves senior management poring over data in order to find the failures of middle management. This approach can be ineffective and demotivating to the individuals that can drive profits.
In essence, a strong labor management reporting program provides a management information system. This system helps an organization move from a top-down critique where only senior managers know what’s happening to a bottom up critique in which junior/middle managers tell senior managers what has happened and what can be done about it. Also, labor management system reports can provide information for middle managers in dealing with needed additions to staff. Reports can be instrumental in pointing out where there are staffing shortages that can be satisfied in the short term through cross-deployment. The same system, however, must also be able to support the decision to add positions to staff as part of a longer term strategy.
The key items to be provided in labor management reports are:
- Actual hours worked (from the Time & Attendance system)
- Overtime hours
- Labor standard hours
- Productivity (hours vs. units)
- Forecast accuracy
Reports give you information. Evaluation is the process of turning information into actionable knowledge. Reporting tells a manager what, and evaluation tells a manager why (or leads one to ask why). An effective labor management process contributes to the evaluation process by presenting variances for review with exceptions highlighted.
Many organizations focus on benchmark comparisons within the industry. The danger this presents is that you are susceptible to managing costs relative to these average ratios.
An effective evaluation tool puts the focus on monitoring hours used. Managers can manage hours; they can’t manage percents or ratios. In other words, if a manager is consistently using (hypothetically) 50 more hours a week than needed, they can look at how to allocate labor to make up the 50 hours. Telling a manager that they are at .206 and need to be at .195 (hypothetically) does not help that manager figure out what to do to achieve the target.
Conclusion
For some, labor management is what managers get paid to do, and there is no need for technology. But as technology has caught up with the concepts, more and more organizations are looking to add automation and discipline to the labor management process. While LMS programs are certainly not as widely used as other technology solutions, they are increasingly desired and will become increasingly common. Properly selected and used, they make everyone in the organization smarter about managing labor and every organization will benefit from a more prepared and better informed management team.
