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Labour costs and productivity

In any industry in which labour is a significant cost, its
monitoring and control is vital. This is certainly the
case in the hospitality industry. However, labour costs
in themselves do not give a full picture. A labour percentage
or cost does not indicate whether an employer
employs a few people at high rates of pay or a large
number of people at low rates of pay. It is important
therefore for a well-managed enterprise to monitor
both its labour costs and its productivity.
In some industries it is reasonably simple to state with
some degree of confidence what labour costs should be
as a percentage of total costs, of revenue or of some other
clear standard. However, hospitality enterprises often
offer a service to other industries, apart from creating an
end product in their own right, so no such simple yardstick
exists; for example, labour costs in a modern, efficiently
designed and well-managed public house may be
as low as 10%, whereas in many sectors of institutional
and industrial catering labour may cost 60–70% of revenue.
In some clubs labour costs can approach 90% of
trade done. In this case the apparently high labour cost is
often caused by the very high level of subscription
income not accounted for in trade revenue, and by the
low level of price charged for goods and services.
Factors influencing labour costs
The factors that influence labour costs are numerous but
probably what determines labour cost more than anything
else is the precise nature of the enterprise, and the
employer’s particular policy; for example, if the business
provides a subsidized service, with low selling prices to
employees, then labour costs as a percentage of revenue
will be high. If, at the other extreme, it wants to maximize profit in the short term, by
providing a product involving minimum service from capital-intensive plant, using
unskilled staff, as in many fast food operations, then the labour costs will be low.
Figure 18.1 illustrates some factors influencing labour costs and productivity.

Figure 18.1 A simple ‘input–output’ productivity model
Another major factor is efficiency of design. Modern, carefully designed hotels can
now expect room attendants to service around 17 bedrooms per section, in contrast
to older hotels, where sections often have to be much smaller.



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