18 August, 2014

Administrative overhead vs employee morale and actual ROI

Assume $100 per hour for technical staff. (this is the figure we used for SWAGs at Booz; consider that it is somewhere between the "actual cost to Booz" and "what Booz would lose in revenue if this employee was on the toilet instead of working." It seems pretty reasonable, for the projects I worked on and employees I managed, whose salary and billing rates I was privy to)

Assume all technical staff spend 4 hours per week on admin overhead.

If we assume then that $400 is spent per employee, we need to ask:

How much do we spend per square foot per employee per week to have them not actually do these overhead tasks?

If we add in the cost of implementing these systems, and the additional overhead staff that exist solely to tend to the care and feeding of these systems, I am skeptical that there is in fact any savings at all.

Instead what we are doing is shuffling the cost of doing business around. Employees are less productive but paid the same wage. The real estate cost is reduced, while headcount is increased, and yearly e.g., licensing costs are increased, and employee morale is reduced.

It looks like a very high estimate for commercial real estate in DC is $50 per square foot. That gives us a three-foot by three-foot space, give or take, at the very pinnacle of the market (DC, 2013).

If we use a more realistic estimate like $25 per square foot, and we consider that places like Herndon, Virginia have much lower costs per square foot than Washington, DC, it seems clear to me that there is no cost savings at all from hot-desking and "hoteling" arrangements, and instead that they lead to higher attrition rates, which means higher labor costs for e.g., recruiting/interviewing/onboarding, lower productivity for extant staff, and constitutes simply shuffling the cost of business around to a different bucket; furthermore it seems that if one uses realistic estimates for office costs, it doesn't even make sense without morale and productivity hits to switch from static offices to this sort of arrangement.

The dollars being "saved" are still going "somewhere," and new costs are added which negate any plausible savings provided by reducing amount of office space used.

Really, though, the real problem here is that only a fascist would do something that has a negligible net ROI that also harms their employees' well-being. Well, maybe not a fascist. More like "somebody who gets to keep their office and who profits from this idiotic sort of cost-shuffling-around."