A study by a Swansea University economist shows that the cost of worker absenteeism to British industry could be close to zero – as much as £13 billion less than other surveys suggest.
The study, Pay, technology and the cost of worker absence has been compiled by a team headed by the university’s Professor John Treble from the school of business and economics and published in Economic Inquiry, an internationally respected economics journal published in the USA.
The research provides a new approach to estimating the cost of absenteeism to industry, and shows that the true costs are actually much lower than those estimated by the Confederation of British Industry (CBI) in its annual survey.
Professor Treble said: “There are two main reasons why we believe the cost of absence is lower than generally accepted. Firstly, not all businesses operate in the same way, which means that absenteeism may have more financial impact on some than on others.
“Secondly, the way in which we estimate the cost of absenteeism takes into account factors that the CBI survey does not. In effect, the CBI measure inflates absence costs by ignoring the extra expense that is incurred in reducing absenteeism.”
One of the key findings from the research shows that absences in businesses operating “just-in-time” practices are significantly more costly than in other businesses. Such companies do not hold large quantities of semi-finished product and are therefore more likely to experience disruption to the flow of production caused by worker absences.
Companies that do not operate “just-in-time” techniques are less affected and, consequently, incur fewer costs associated with worker absence.
The report also argues that absences cannot be controlled without cost to the company. Most personnel managers invest a great deal of time and effort to minimise absenteeism, which therefore has a cost implication to business.
Professor Treble argues that the CBI survey does not take this issue into account. “It might be obvious to point out that personnel managers incur costs in trying to reduce worker absence, but the CBI survey does not take this aspect seriously,” he said.
“We believe that any estimate of the cost of absenteeism to industry must take into account how much it would have cost to have prevented the absences in the first place. Our estimates include the cost of prevention as well as the cost of lost production. It turns out that these two figures more or less cancel each other out, implying a net cost close to zero.”
Data suitable for implementing Professor Treble’s technique is not available for Britain, so the team used economic data relating to the French workforce. The results show that absenteeism costs the French economy approximately €23.2 million (£15.6 million) each year. The CBI’s estimate of the cost of absenteeism to British industry was approximately £13 billion in 2005.
“I cannot imagine that French managers are much different from British managers in terms of how they manage absence,” said Professor Treble, “and the net cost of absenteeism in Britain is therefore likely to be significantly lower than even the most conservative of the CBI’s estimates.
“We hope to conduct similar research using British data in the near future, to supplement our findings from the French market.”
3 Responses
Who’s spinning here???
In the interests of a full and open debate, I feel I should clarify a few points. First of all, I did not dismiss Prof. Treble’s work out of hand – I opened by mentioning that I had not yet read it and therefore could not fully comment. The way the report was worded gave me pause for thought, and that’s why I posted a comment.
Second, plenty of organisations, worth their salt or otherwise, find absence difficult to manage. And if their response is to “allow decisions or actions to wait or use additional resources”, well, I was under the impression that additional resources cost money. Strangely, allowing decisions or actions to wait can cost money as well.
A simple example. An organisation I do some work with is a small, but highly successful financial consultancy firm. They have peaks in their workload monthly, quarterly and annually. If one or two of the staff are off sick at the wrong time, they will bill customers a month late (impact on cashflow), or pay somebody overtime to cover the work (impact on costs).
As for my dull and tiresome use of the english language, I apologise. Let me make it crisper. When people are off sick it impacts other people, and this often has a cost associated with it. And the term “Human Capital” is a recent addition to our language, borne out of significant research, most of which is US-based.
Many managers choose to ignore issues around absence rather than seeking to proactively manage and minimise it. It is those managers who, in my humble opinion, need to be more realistic.
As for Prof. Treble’s research, I look forward to tracking down a copy of his article to see exactly what he has said, but I still maintain that from the way it was reported, it appears to focus on manufacturing and process control environments, where significant savings can be made in other areas.
Finally, I still maintain that we in the HR community need to do a lot more work to understand the human capital issues. Most of the costs of people problems and people initiatives are hidden – they are not discrete line items in a budget somewhere. That doesn’t mean we should not try to fully understand and quantify them. If we can do that, we will finally be getting real.
Measuring spin I think!!
“Human capital”, “very small part of a very large picture”, “Organisations are social entities”,”simplistic and mechanistic”. Come guys be realistic, enough of the overuse of this dull and tiresome use of the English language. I actually think that Prof Treble has a valid argument which should be considered rather than dismissed out of hand. He is of course mostly right but the CBI and our HR directors would never admit to it. Of course the cost is close to zero, most companies DO NOT manufacture anything, those days are long gone. Business practice these days focusses on risk and recovery, this applies to employees as well as computers etc. What business worth its salt does not have a plan in place to cover absenteeism, whether the plan is simply to allow decisions or actions to wait or to use additional resources. The cost is minimal and certainly not any where near the £13 billion mark.
What exactly are they measuring?
Without reading the article it is difficult to make any firm judgement, but I am concerned by the wording in the article. Yes, JIT processes will naturally be impacted more heavily in the short term by unexpected absence, but this is only a very small part of a very large picture. Productivity is lost in sales, customer service, finance, and even HR departments when people are absent. It is not just the manufacturing process where absence costs will be felt (what proportion of businesses do not manufacture anything?).
Organisations are social entities, and every sickness absense has a knock-on effect somewhere, be it in work not done, stress incurred, quality reduced, service compromised, or goods not produced.
To focus on the impact of JIT versus non JIT methods appears to me simplistic and mechanistic, and a prime example of why we urgently need to do something practical on the human capital front to make more sense of this issue.