By David Lund
If You Can't Measure It, You Can't Improve It.
Management thinker Peter Drucker is often quoted as saying, "You can't manage what you can't measure." Drucker means that you can't know whether or not you are successful unless success is defined and tracked.
In the hotel business payroll is the number one cost. STR recently reported that labor made up 50 percent of revenues for a sample of over 4,000 hotels of all types and sizes. Having an efficient and reliable way to measure payroll is critical in any business. In hotels, the impact of payroll is amplified considerably and the need to have something you can measure is the key. May I introduce the secret weapon and the star of the show? EFTEs!!!!!
Abbreviations.com defines the acronym EFTE as “Equivalent Full-time Employee.” I know from experience that most hotels do not use EFTEs on their daily reporting and the use of EFTEs on their financial statements is not prevalent. The creation and use of this powerful statistic is not difficult. All the information you need, you already have. It is all at your fingertips. You just need to organize it and let it tell you what is going on inside your hotel. Measuring the dollars of payroll in your hotel is very important but understanding productivity is the most powerful tool you have. Getting to understand and measure productivity leads to the comparison of like data. This is where the EFTE is so powerful. It is like a power tool! Many industries use this statistic, and therefore it is not unique to the hotel world.
Let’s define the use of the EFTE
First, EFTEs measure the number of “equivalent” full-time employees. This is where most people get hung up. In the hotel business we have full-time employees, part-time employees, salaried employees, hourly employees, unionized employees and even contracted labor. What the EFTE calculation lets you see is what is the total of these pieces of the hotel labor by area, department and in total. It also allows you to see the same information for a day, month or year in a comparable way. This is very useful and once you get started with EFTEs you are going to be hooked.
Let’s define the “calculation” of the EFTE
This is the second most common place where people get hung up. If you can manage a little multiplication and division then this is very straight forward. Remember, the first work in the acronym is “equivalent.” To calculate one EFTE we need to start with the annual calculation. Once we understand the annual calculation we can reduce the same calculation for any month in the year, a week and/or a single day. Now, do not go south on me with the following math vomit. Once you run this through your internal bio computer you will get it. I did and I—as one good friend likes to remind me—am not always the sharpest knife in the drawer.
For the basis of calculating an EFTE we use 40 hours as the “equivalent” work week, 5 days * 8 hours per day. In hospitality, we all know most managers and leaders work more than 40 hours so do not let this part confuse you. The second part is the number of weeks in a year. (365/7 = 52.14) Leap year we use (366/7=52.29). We then take our 40 hours and multiply it by our annual 52.14 which equals 2086. Which is simply the number of hours a person working 5 days a week at 8 hours would work in an entire year. Note here we do not factor any holidays or vacation. We just want to know the number of hours one would work in an entire year.
From this magic number of 2086 we can figure out the daily and monthly EFTE values.
- For the daily its 2086/365 = 5.715.
- For a month, it is the number of days in the month times 5.715.
- A month with 31 days is 31 * 5.715 = 177.1
- A month with 30 days is 30 * 5.715 = 171.5
- A month with 28 days is 28 * 5.715 = 160.0
Now we know the basis for calculating the Equivalent Full-time Employee statistic for a day, any month and a year. Let’s put it to work for your hotel.
There are two key areas in the hotel where you will want to see EFTEs in the reporting. The two areas are daily labor/productivity reports and monthly financial statements. For the daily reporting, you only need to get the report from the time clock or, if there is a manual system, the departmental hours worked summary is what you need. Taking the daily hours worked by department and major classification and dividing this number by the daily divisor of 5.715. The second part of the daily EFTE measurement is to divide the month-to-date hours by the month-to-date divisor.
Daily hours worked in housekeeping in this sample is 185/5.715 = 32.4 daily EFTEs.
Month-to-date hours worked in housekeeping as of the 18th of the month 3725/ (18*5.715) = 36.2 month-to-date EFTEs.
This statistic can be used for any payroll calcification, big or small. From the number of EFTEs in the room attendant classification all the way to the total hotel EFTEs it is all the same math. We will also want to apply this same view to the forecast, budget and last year values, especially for the month-to-date results.
With the monthly financial statements, annual budgets and monthly forecasts we also want to incorporate EFTEs. The report writer in your system needs to be messed with here and you will need the right person to go under the hood and write your financial formula. In addition, you will need to incorporate hours reporting on your monthly closing process. Create general ledger accounts to match each payroll classification you report on your financials. Run a monthly report from your time clock or post each pay period’s hours and do not forget to accrue the stub period and reverse last month’s. Once you get into the swing of booking the hours on your financials, it is business as usual and now you have EFTEs on your financial statements.
Imagine how much more insight you can gain on your business with EFTE reporting. With one glance, you can see the total EFTEs for budget 2018 compared to the latest forecast for 2017. Look no further— now you can see the A&G EFTE count, the food preparation EFTE count, the EFTE count for the actual, budget, forecast and last year laid out side by side. Things are now much, much clearer in your financial reporting thanks to the super tool EFTEs.
With hours reporting on daily reports and monthly financials, you can now introduce productivity reporting. If you want a copy of my article on Rooms or F&B Productivity reporting send me an email and I would be happy to send it to you.
EFTE use and reporting is going to change your world. Do not let anyone tell you it is not possible or practical.
Your prosperity depends on good financial information, and organizing what you already have into highly intelligent reporting is just around the corner.
