Benefit to compensation ratio calculations

As an essential building block of the compensation formula, benefits ratios will differ among Engineering, supervisors/staff and hourly wage earners such as production personnel. The basic formula for all three is: (Averaged benefits + perks + bonuses) divided by (Averaged hourly wages for one year) Use the "BR" benefit ratio in Line 16 for worksheets computing absenteeism, employee turnover and productivity costs. Hypothetical numbers were used to demonstrate this worksheet. Left-click on the white cells in the far-right column and enter your own numbers to find your organization's compensation/ benefits costs. The peach-colored results cells will automatically calculate and display the ratios. Line 1 ES Average engineer's salary, annual $ 43,000.00 2 Insurance costs: Life, medical, dental, disability per year $ 7,400.00 3 Bonuses, stock options, other incentives value per year $ 2,800.00 4 Retirement plan: maintenance and contributions costs per year $ 3,200.00 5 EB Engineer benefits ratio 31% 6 7 8 9 10 11 12 13 14 15 16 SS Average staff/supervisor salary, per year Insurance costs: Life, medical, dental, disability per year Bonuses, stock options, other incentives value per year Retirement plan: maintenance and contributions costs SB Staff/supervisor benefits ratio PS Average production personnel wage, per hour Insurance costs: Life, medical, dental, disability per year Bonuses, stock options, other incentives value per year Retirement plan: maintenance and contributions costs PB Production personnel benefits ratio BR Benefit ratio, averaged organization-wide $ $ $ $ #DIV/0! $ $ $ $ #DIV/0! #DIV/0! -

Compensation cost calculations

Salaries, wages, benefits ratios and compensation costs per hour have been automatically entered into lines 17-25 and calculated to hourly figures, using figures entered into lines 1-16. Use the compensation costs EC, SC and PC (automatically calculated and shown in the yellow cells) when calculating the cost of poor quality and its effects on profits in Worksheet 2. 17 ES Average engineer's salary, hourly $ 20.67 18 EB Engineer's benefits ratio, from line 5 31% 19 EC Engineering staff compensation cost per hour, averaged $ 27.12 20 21 22 23 24 25 SS Average supervisor salary, hourly SB Supervisor benefits ratio, from line 10 SC Supervisor compensation cost per hour, averaged PS Average production personnel wage, per hour PB Production personnel benefits ratio, from line 15 PC Production personnel compensation cost per hour, averaged $ #DIV/0! #DIV/0! $ #DIV/0! #DIV/0! -

Charting effects of change in quality

This series of tables tracks time costs as they were defined in Worksheet 1, and adds them to the cost of Engineering Review, rework, replacing items on warranty and scrap costs. At least one set of measurements is taken before any efforts to change a process or policy are made. After a change is made to a process or policy, the subsequent measurements are compared against the baseline. Keeping in mind that trends--gradual change--are more valuable as they accurately represent changes, a series of at least five or six measurements should be taken for assessment. If you want to track the cost savings of one recurring problem, you can use the totals to assess Return on Investment (ROI). Keep your methods for recording numbers of rework, scrap etcetera consistent! This helps ensure the results convincingly represents the effects of strategic change.

Worksheet 2. Step 1
Line 1 2 3 4 5

Personnel time
Engineering compensation per hour Engineering hours lost per event Supervisor compensation per hour Supervisor hours lost per event Personnel compensation per hour

Code EC E SC S EC

Value

Instructions for using this worksheet

$ 27.12 Only enter data in the pastel colored cells (not the dark red title cells)! The white cells automatically 0.25 calculate data as you enter it, and send the calculated data to tables for automatically generating charts and $ 15.25 graphs. Follow the instructions in this yellow block to enter, line by line, the data needed to assess results.
0.50

Line 1: Enter the figure from the blue cell EC on Line 19 $ 10.10 in Worksheet 1. Line 2: Enter the average amount of time, in decimals Value (.25 equals 15 minutes) for each Engineering Review (assessment of failed product).
$ 15,950 $ 2,350

Monthly/cycle sales-to-profit ratio

6 7

Sales, per month or cycle Profit, per month or cycle

Line 3: Enter the figure from the blue cell SC on Line 22 in Worksheet 1.

Material rework costs

8 9 10 11 12

Scrap costs Warranty item replacement costs Shipping warranty product costs Concessions costs to customers Waste: materials used to correct defects

$ $ $ $ $

Value Line 4: Enter the average amount of time, in decimals, (.5 equals 30 minutes) for providing guidance and oversight in rework to production personnel.
60 20 1 5

Line 5: Enter the figure from the blue cell PC on Line 25 in Worksheet 1. Line 6: Enter your organization's sales for the month or cycle. Line 7: Enter your organization's profit for the month or cycle. Line 8: Enter the cost for scrapped items where defects were found in-facility. Line 9: Enter costs of items replaced for customers through warranty claims.

Line 6: Enter your organization's sales for the month or cycle. Line 7: Enter your organization's profit for the month or cycle. 13 14 15 16

Other Other Other

$ $ $ $

1 1

Line 8: Enter the cost for scrapped items where defects were found in-facility.

Line 9: Enter costs of items replaced for customers 1 through warranty claims.
89.00

Total material costs

Time costs for poor quality
Hours

Line 10: Enter costs of shipping for items replaced through warranty claims. Line 11: Enter costs of concessions to customers to resolve quality issues. Line 12: Enter the amount of waste: materials used to rework products.

Value 71

17 18 19 20 21 Line

Number of production hours for rework

7 $ 2 1 $ 1 $
$

Number of rework events Engineering time Supervisor time

Total time costs

14 Lines 13 to 15: Enter the name, and values of other identified material costs of poor quality. 15 Line 17: Enter the number of hours production 100 personnel spent reworking and reshipping products. Line 18: Enter the number of rework events, either singly, or in groups or production runs.

Computing Return on Investment (ROI)

Time spent on correcting causes
22 23 24 25 Hours

Line 22: Enter the number of hours engineers used to resolve production rework problems, including Value preparing, delivering and assessing results of training.
1 1

Engineering Supervisors Production personnel

0 $ 0 $ 0.06 $
$

Line 23: Enter the number of hours supervisors used to resolve production rework problems, including time preparing for and delivering training, and for assessments. Line 24: Enter the number of hours that production personnel used to resolve production rework problems, including time in training, and for assessments.

Total

Other costs of correcting causes

26 27 28 29 30

Value $ $ $ $ $ -

Equipment Materials Other Other

Line 26: Enter the amount spent on equipment: 1 new, used, or for repairs, to resolve production rework problems. 1 Line 27: Enter the amount of materials used for resolving production rework problems, including training materials. Lines 28 and 29: Name and enter other costs for 2 resolving production rework problems.

Total

Worksheet 2. Step 2
Enter data in the colored cells within this table at the end of each month or cycle. Begin by naming the month or cycle in the top row. Then enter the totals from the corresponding lines from the worksheet above: the left column lines numbers match. Graphs and charts will automatically express the data as it is being entered. Line

Factors
6 7

Mo/cycle 1 $ 12,500 $ 1,250

Mo/cycle 2 $ 12,875 $ 1,257

Mo/cycle 3 $ 13,858 $ 1,488

Mo/cycle 4 $ 14,050 $ 1,650

Mo/cycle 5 $ 14,750 $ 1,850

Mo/cycle 6 $ 15,950 $ 2,350

Average $ $ 12% $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 209.33 182.50 11.83 11.17 26.50 7.33 6.50 6.00 461.17 565.67 109.33 69.33 744.33 1,205.50 63 145 208 13,997 1,641

Sales Profit Sales-to-profit ratio Scrap Warranty Shipping Concessions Waste Other Other Other Total material costs Production time Engineering time Supervisor time Total time costs Total cost of poor quality Time spent on correcting causes Other costs of correcting causes

10%
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 325 300 20 25 55 12 12 11 760 858 152 98 1,108 1,868 190 585 775 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

10%
275 275 20 20 40 10 10 11 661 780 150 90 1,020 1,681 125 150 275 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

11%
254 250 15 10 30 10 10 5 584 650 140 98 888 1,472 25 85 110 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

12%
202 175 10 10 25 10 5 5 442 585 120 90 795 1,237 25 50 75 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

13%
140 75 5 2 4 1 1 3 231 450 80 25 555 786 10 10 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

15%
60 20 1 5 1 1 1 89 71 14 15 100 189 1 1 2

8 9 10 11 12 13 14 15 16 17 19 20 21

25 30

Total costs to correct quality problems $

Return on investment

3.19 to 1

Do not enter data in these cells! They automatically calculate, and send to the chart below, data that has been entered in the table above.
Month/cycle Mo/cycle 1 Mo/cycle 2 Mo/cycle 3 Mo/cycle 4 Mo/cycle 5 Mo/cycle 6 Month/cycle Mo/cycle 1 Mo/cycle 2 Mo/cycle 3 Quality costs $ 1,868 $ 1,681 $ 1,472 $ 1,237 $ 786 $ 189 Quality costs 15% 13% 11% $ $ $ $ $ $ $ $ $ Sales 12,500.00 12,875.00 13,858.00 14,050.00 14,750.00 15,950.00 Sales 12,500.00 12,875.00 13,858.00 $ $ $ $ $ $ $ $ $ Profit 1,250 1,488 1,650 1,850 2,350 2,350 Profit 1,250 1,257 1,488 Profit ratio 10% 10% 11% 12% 13% 15% Profit ratio 10% 10% 11%

Mo/cycle 4 Mo/cycle 5 Mo/cycle 6

9% 5% 1%

$ $ $

14,050.00 14,750.00 15,950.00

$ $ $

1,650 1,850 2,350

12% 13% 15%

Quality costs and profit

$2,500 $2,000 $1,500 $1,000 $500 $Mo/cycle 1 Mo/cycle 2 Mo/cycle 3 Mo/cycle 4 Mo/cycle 5 Mo/cycle 6

Quality costs

Profit

Quality costs and profit as percent of sales

16% 14%

Percent of sales

12% 10% 8% 6% 4% 2% 0% Mo/cycle 1 Mo/cycle 2 Mo/cycle 3 Mo/cycle 4 Mo/cycle 5 Mo/cycle 6

Profit ratio Quality costs

Itemized material costs of poor quality

$350

Scrap
$300

Warranty
$250

Actual costs

Shipping Concessions

$200

Actual costs

$200 $150 $100 $50 $Mo/cycle 1 Mo/cycle 2 Mo/cycle 3 Mo/cycle 4 Mo/cycle 5 Mo/cycle 6

Concessions Waste Other Other Other

Costs of poor quality in personnel time

$1,000

Actual compensation costs

$900 $800 $700 $600 $500 $400 $300 $200 $100 $Mo/cycle 1 Mo/cycle 2 Mo/cycle 3 Mo/cycle 4 Mo/cycle 5 Mo/cycle 6

Production time

Engineering time Supervisor time