Defining process costs for benchmarking - personnel costs

Note: This is part of an ongoing series on benchmarking process costs.

When benchmarking for process costs, employee expenses are going to be a large portion of the cost for the typical organization.  Consequently, it's critical that companies understand their FTE structure for a given process and what that FTE count actually costs the organization.  One of the challenges in tracking down FTEs is that there is often a shadow organization.  That means there are personnel in the organization, often in far-flung plants or distribution centers, where employees perform finance process related functions but don't necessarily have a finance title.  They may not even officially be counted as part of the finance organization, but if they're involved with in-scope activities, the cost should be included.

In order to count personnel cost properly, it's important to include compensation and fringe benefits for both full-time and part-time employees, either salaried or hourly.  Specifically, compensation should include salaries, wages, overtime pay, bonuses and the cost of all benefits.  Fringe benefits include expenses such as medical, dental and life insurance, pension contributions, 401k matches, and employee stock programs.

A question often comes up if salaries for special projects should be included in the definition of process costs.  If the salaries are part of a permanent position such as Project Manager, and those costs are expected to continue for the foreseeable future, then they should be included.  If the compensation costs are related to a one-time effort, such as the implementation of a new software program, then those expenses should be excluded.

By properly identifying the actual FTE count and including compensation expenses, companies can receive a higher degree of assurance that their calculated costs are accurately represented.