Do You Really Need that Bus?

Steve Murphy
Insurance Experts' Forum, October 11, 2011

Most rational people would not buy a 40-passenger bus as the primary mode of transportation for a family of four. Most would buy a vehicle with a capacity that more closely matches their average daily transportation needs; in this case, four people. The bus might be nice to have for a school field trip or birthday party, but it wouldn’t make sense to purchase and maintain such a large vehicle for day-to-day use. However, many organizations do not apply this simple logic to their staffing decisions.

One of the most difficult parts of a manager’s job is balancing resources against the volume of work that needs to be completed. A proper ratio of resources to work volume allows management to maintain an acceptable level of performance without developing backlogs or increasing costs by paying for resources that are not required. Knowing the right level of, and verifying the need for, resources is a primary function of management.

However, it is not uncommon to find organizations that have no objective staffing methodology—instead, hiring decisions are driven by seasonal spikes, backlog levels, approved and budgeted positions, or emotional pleas. This often leads to overstaffing (buying the bus) and lowering de facto performance expectations during non-peak periods due to excess capacity.

What’s missing here is an objective analysis of actual need. Denying a valid request for help may cause customer service problems, backlogs, low morale and overtime expenses. Hiring employees who are not needed will increase expenses and reduce productivity because there will not be enough work to keep everyone busy.

A capacity management methodology will reduce the uncertainty. Adding a capacity model to the traditional staffing model helps provide both the requestor and the decision-maker with the data necessary to make enlightened decisions. It is a continuous process that identifies the optimal staffing level and supports proactive resource utilization in order to meet customers’ needs and expectations.

The staffing model forms the foundation of the process. A staffing model is a tool that combines the effect of volumes, processing times, resource availability, and allowances to create a graphic illustration of an operation and identifies the optimal staffing level. Therefore, a staffing model looks at an operation and determines how many resources are needed based on average volumes.

A capacity model uses many of the same inputs, but it allows managers to take a more granular, forward-focused look at the operation. This allows the leadership to change the equation from how many resources are needed to how much work the resources on hand can complete. With this data, managers can create relevant inventory and production plans that are resource-driven, not volume-driven.

For me, this is the essential benefit of capacity management. When faced with volume spikes and backlogs, the tendency is to focus on the inventory. That typically leads to morale-killing statements such as, “We had a bad day,” “Inventory went up 2%,” and “You guys need to work harder.”

While inventory is important, employees have little control over daily receipts. What is critical in this scenario is how effectively the resources available (employee capacity) were used. This changes the dialogue to include statements such as, “We had capacity to complete 2,300 claims and we processed 2,500—we had a good day.” The focus is on what we had control over (productivity), not on what was beyond our control (receipts).

Using capacity planning in conjunction with staffing and capacity models, managers can:

• Identify proper staffing levels

• Make objective staffing decisions (“I know” not “I think”) • Allocate resources more effectively by:

• Creating backlog elimination plans

• Planning overtime expenditures

• Scheduling training opportunities during slow periods • Determine the impact of process or policy changes

• Identify productivity problems

Capacity management is all about minimizing surprises. Take a good, hard look at your business, analyze the historical data, understand the current state of your business and its capabilities, and let me know if you need to sell a used bus.

STEVE MURPHY is a Senior Consultant for the Robert E. Nolan Company, a management consulting firm specializing in the insurance industry.

For 38 years, the Nolan Company has helped insurance companies achieve measurable improvements in service, quality, productivity and costs through process innovation and effective use of technology.

The opinions posted in this blog do not necessarily reflect those of Insurance Networking News or SourceMedia.

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