LABOR ANALYSIS

#Week2 Estimasi Biaya (EM12CE13)

Engineering Management UISI
HASIL PRE TEST
(1)
HASIL PRE TEST (2)
HASIL PRE TEST (3)
 Overview

Labor and Labor Costs Time Study Work Sampling Wages and Fringe Benefits
Determining Costs Incentive Pay
Labor Hour
Labor

• Direct Labor (exp. Operators, assembly workers)

• “Touches” the Product
• Involved with the changes – Adds Value to the Product
• Indirect Labor (clerk-typist, production control, IE)
• Supports Direct Labor Efforts, charged as “overhead”
• Direct Labor Accounts for About 15% of the Product Cost
• The reality of finding the lower cost of labor means that there are no national boundaries, and
productivity of labor is a deciding factor as to domestic or international manufacturing
• Outsource product manufacturing and sometimes development and engineering (where labor is
cheap)
Costs of a Product
• Two major costs:
• Material
• Time utilized in the facilities:
• On the equipment
• By labor
• Worker’s Pay:
• Wages (hours that they work)
• Fringe Benefits (other compensations)
• Equipment Costs:
• Capital Cost
• Operating Costs (including maintenance)
• Consumables
• Therefore, it is necessary to have an idea the amount of
time an operation should take in order to monitor and
control the productivity of the work centre
Determining Costs

• Products in Production
• Historical Cost Records (from accounting or shop records)
• Measurement of Time to perform the operation
• Clock Time vs. Productive Time
• Proposed Products
• Need an Estimate
• The historical and accepted method for determining job times is to perform some
type of work measurement (time study and work sampling)
• Labor Cost = Time x Wage
 Labor Hour
• Defined as One Worker Working for One Hour
• Labor Year:
52 Weeks x 40 Hours = 2080 Hours
• Labor Month
2080/12 = 173.3 Hours
• Should Be:
Time Working NOT Time at Work
• Cautions:
• Confuse effort or hours at work with progress leading to the assumption that labor and clock hours are
interchangeable
• Example: 20 labor hours are 1 labor with 20 hours or 2 labors with 10 hours each. Not always valid in
practice
• Linkage between consecutive tasks in manufacturing: wrong assumption that the sum of individual
labor estimate is equal to the total without any idle, slippage or wasted time.
• There are interface dependencies, in many cases we assume that labor hours are independent
 • Until 20th century, EM philosophy was that worker
productivity could be improved by financial work
incentives
• Incentive Pay
• More Production = More Pay
Motivation • Requires “Fair” Standards

for a
• Leads to Other Problems: Management vs
worker standard
• Non-Incentive (worker were not solely motivated
Standard by money)
• Still Need to Know How Much Time a Job
Should Take (Standard Time)
• Standards Are Needed for Estimates
Ergonomics
• Ergonomics is the study of interrelationships of humans, in both physical and psychological
aspects, and the equipment and tools needed to perform some operation
• Divided among Medical, Psychological & Engineering
• Closely involved with safety and health (OSHA)
• Human / Machine / Operation Interface
• Repetitive Motion Injury
• Legal and Moral Issue
• Financial Issue
Injury Prevention Costs Less than Injuries
• 2 methods of measuring work:
• Time study
• Work sampling
 Founder and Pioneers

• Frederick W. Taylor
• Frank & Lillian Gilbreth

Composed of 2 Parts

• Analyze and Optimize the Operation:

Time Study eliminate unnecessary elements and
determine better and faster method of
performing the operation
• standardize methods, equipment &
condition
• Measure the Time and Compute the
Standard
• number of standard hours required for an
average worker (equipment) to do the job
Advantages of Time Study
• System for Estimating Costs
• Justification for Methods Improvement
• Reduction of Operation Costs
• Improvement of Engineering Design
• Information for Managing Productivity
Basic time study process measures the time of industrial
operation.
 1. Methods Analysis and Improvement
2. Record Info. About the Operation
3. Separate Operation into Elements

Procedure 4.
5.
Record Time for Elements
Rate Performance
for Time 6.
7.
Convert to Normal Time
Determine Allowances
Study 8. Calculate Standard Time
9. Express Standard Time in Appropriate Terms
Methods Analysis
• Is the Job Ready for Timing?
• Is the Physical Set-up Correct?
• Is the Layout Efficient?
• Are the Proper Tools & Equip. Used?
• Is the Product Produced Correctly?
• Is the Motion Pattern Optimized?
Recording of Information
• Sketch Process Layout
• List Elements
• Short as Possible (but Time-able)
• Have Identifiable Start & End Points
• Separate Operator & Machine Elements
• Separate Constant & Variable Elements
Example of Layout Sketch
Taking the “Time Study”
• Stopwatch
• Continuous vs. “Snap-Back” Methods
• The observer judges the effort of the operator in performing the
elements and operation
• Performance Rating
• Trained Observer
• Subjective Comparison
• Observed Operator to Typical Operator Working at Normal Circumstances
• Operator’s effort is reflected in the rating factor (include health,
interest in work, skill and speed):
• Excess normal (100%), rating factor > 1
• Less than normal, rating factor < 1
 Allowances
• Personal: allowances for personal and functional body needs (4 to
5% in the US)
• Fatigue: physiological body wear reducing the ability to do the
work.
• Is not the same as tiredness
• Hot, heavy and dirty works such as forging has a higher allowance than
in an air-conditioned office
• Ranging from 0 to 25%
• Delay: interruption beyond the operator’s control (ranging from 2 to
8%)
• Together PF&D (in Percent, ranging 8 to 35%, av. 15%)
• Convert to Factor

Eq 2.2
Analyzing the Study
• Find Average Time for Each Element:

• Multiply by Performance Rating to Obtain “Normal

Time”

• Multiply by Allowance Factor to Obtain “Standard

Time”
• Ts = standard time
Tn = Normal time
Time Study Example Part 1
Time Study Example Part 2
Time Study Example Part 3
Work Sampling
• Counting and statistical technique:
• Gathering information for large workforce populations
• To measure labor and efficiency, equipment and utilisation,
and their costs
• Used for General Purposes:
• Estimating Costs and improving cost performance
• Scheduling
• Labor Requirements
• Monitoring and Managing Performance
• Improve cost performance
Work Sampling
• Advantages over Work study:
• Multiple Workers/Machines
• Study Large Area
• Can Handle Long Cycle Times
• Less Study Time Required (Lower Cost)
• Less Disruptive of Work
• Reduces Performance Issues
• Disadvantages:
• Inefficient for studying single worker or machine
• Not feasible for breakdown and study of brief operations
About Work Sampling
• Determines Proportion of Time Spent on
Predetermined Activities
• Based on Probability & Statistics
• Random, Discrete Observations
• Sufficient Number of Observations
• Representative of Distribution of Population
• It is like using many photographs of the work to
indicate the total work
• Observation is made about the object of the study, e.g.
“working”, “idle”, or “absent”
• Sampling observations can be made by a remote video
camera
Fundamentals
• Proportion of Time Spent on Activity i
P’i = Ni / N Eq 2.6
• Need to Know (Assume or Specify)
• How Close Does P’i Need to Be to Pi
• How Confident Do We Want to Be That the Sample Interval
Encompasses the Actual Value
• Need to determined a tolerable maximum sampling
error, ”confidence interval” I.
Example: if P’=62% and maximum interval of 4% is
needed, then I=4%, which is P’=62%±2% The relative
accuracy is I/2P’ x 100
• Need to Determine Z for the Desired Confidence from
the Statistics Table
Normal Curve

Fig. 2.4
 
Values for Z
Area Between -Z to +Z Area Outside
Limits (%) Limits (%)

68 1.000 32

90 1.645 10

95 1.960 5

99 2.576 1

When p’ ± 1.645 σp it means that approximately 90% of the

time the true value of p will lie in that interval . In other
 

words, the estimate will fall outside the interval is only

about 10 times of 100
Preliminary Sampling
• Uncovers Potential Problems
• Refines Activity Definitions
• Helps “Sell” the Sampling Study
• Provides an Estimate for P’i
Determining Sample Size

• Obtain Z for Desired Confidence

• Determine Confidence Interval I, a tolerable maximum sampling
error
• Estimate Sample Proportion P’i
• Compute Ni for Each Activity
• Select the Largest Ni as N for the Complete Study
Calculating Ni

Eq 2.9
Conducting the Full Sampling
• Spread the N Observations Evenly Over the Study Days
• Distribute Each Day’s Observations Randomly through
the Day
• Determine Rating and PF&D Factors (as in the work
study)
• Obtain the Total Units Produced During the Study (Np)
• Calculate the standard time
Standard Time

• Compute the Standard Time

• Do Not Include Idle Activities

Eq 2.10

Ni = number of event I observations

H = total man hour work during the study
R = rating factor
PF&D = allowance
Np = work unit accomplished during the study
Considerations for Sampling
• Explain and Sell Prior to Starting
• Appropriately Isolate Studies
• Use as Large a Sample Size as Practical
• Observe at Random Times
• Conduct the Study Over a Long Period
Other Methods to Determine Time
• Time study and work sampling are not good for:
• Jobs that are performed infrequently
• Long task durations,
• Crew work
• Professional jobs
• Indirect labor
• Labor Hour Reports/Time Cards/Job Tickets
• Objective: Time Job SHOULD Take
• Span Time Records Only
• Requires “Adjustment”
• Collected into Labor-Hour Summary
Other Methods to Determine Time
• Similar Products
• Use Actual Data
• Decompose Times by Components Reassemble Times for
New Product
• Can be calculated using the Ratio Actual Times by Ratio of
Product Complexities
• Experience and judgment are necessary for these instances.
• Estimating tools
• Need knowledge about the design and the process,
experience and training
Other Methods to Determine Time
• Engineering Performance Data
• Micro-Motion Systems (e.g. MTM=methods- time-measurement).
Exp. A work element ‘load part into die” is broken down into 20
very small or so-called micromotions with detailed measurements
of distances and description of motions
• Some Capable of Producing Standards
• In-House Systems
• Experience and Judgment
• Guesstimating
• Useful when rough order of magnitude of not to exceed is all that
required
• Standards (industry, professional profession, government, etc
 Wages
• Wage –
• Money Paid for work by the hour, day or week and hence becomes a wage
rate
• Usually for Direct Labor
• Sometimes for Indirect Labor
• Salary –
• Money Paid for a Given Period of Time (week, month, or year)
• May not be precisely dependant on the hours worked
• Payroll:
• Management and general administrative support employees (management,
engineers, programmers, foremen, inspectors, or office personnel) who may
or may not be on a salary basis
• Hourly labor (could be direct and indirect labor)
Fringe Benefits
• Additional Costs to Company such as paid holidays,
vacation days, and insurance benefits
• For Employees
• Required by Law, Contract, Agreement
• May constitute as much as 30% of the actual cost
incurred for labor
• Can Be Included in Hourly Rates
Or
• Covered in Overhead
Determining Wages
• Wage Only
• Gross Hourly Cost
• Wages and Fringe Benefits Costs
• Wage Only Calculation
• Only the wage paid directly to the worker is included in the
labor cost determination, fringes are accounted for in the
overhead and are added later in the process
• Consist of pay for attendance & pay on performance
• Based on Time in Attendance (called day work)
Cdl = Ha x Rh Eq 2.11
Cdl = cost for direct labor
Ha = actual hours
Rh = rate per hour
Incentive Wages
• Worker is interested in large wage while employer is interested in
labor cost reduction. Employer is when the worker’s output
increase
• This is called pay for performance, the worker’s earnings are
related to productive output and are called incentive or piece-rate
plans.
• Pure Incentive
• (e.g. Working on Commission)
Cdl = NpRp Eq 2.12
• Guaranteed Wage Plus Incentive
Cdl = HaRh + Rh(HsNp – Ha) Eq 2.13
• Minimum Cdl = HaRh
Efficiency
• In most cases, the incentive is paid only when the 100%
standard is reached.
• The advantage of this approach is that the standard hour
base is the same for each operation unit, whereas the
actual hours for an operation unit vary with the worker’s
efficiency
• Ratio of Standard Hours Produced to Actual Hours Worked
• Measure of Labor Efficiency or Productivity

Eq 2.14
Gross Hourly Cost
• Wages Plus Fringe Benefits Costs
• Uses the principles of activity based costing
• Calculations Required
• By Engineering
• Or (Preferably) Accounting
• Fringe Costs Include:
• Legally Required Employee Costs such as taxes & worker’s
compensation
• Contractual Costs
• Voluntary Program Costs
• Costs for Time Paid but Not Worked (holidays. Vacations, sick
pay)
• Profit sharing payments, service awards, payment to union
stewards
Legally Required Costs
• Social Security
• Employer’s Contribution
7.65% of First $87,000 (as of 2003)
• Medicare
• Employer’s Contribution
1.45% of All Wages Paid
• Worker’s Compensation
• Income for Worker Who Cannot Work Due to Injury on the Job
• Unemployment Insurance
• Pays Workers Laid Off Through No Fault of Their Own
• Non-Exempt Time-and-a-Half Pay
• Over 8 Hours/Day and/or 40 Hours/Week
Other Fringe Costs
• Supplemental Medical Insurance
• All or a Portion of the Premiums
• Can Be Around $500/Month ($2.89/Hr)
• Life Insurance Premiums
• Disability Insurance Premiums
• Supplemental Pension
• Stock purchase plan
 Pay for Time Not Worked

• Vacation, Holidays, Sick Pay

• Amount of Pay for this Time Is Apportioned Over Total Hours in
the Work Year
• Added to Wage Rate

• Study Table 2.5 on page 63

Joint Labor Costs
• More Than One Product Produced By Common Labor
• Common Production Up to a Split Point
• Common Labor Costs Need to Be Apportioned to the
Different Products
• Joint labor cost exists when there is multiple machine
operation
 (De)Jointing Labor Costs

• Determine a Common Metric

• Find a Proportional Relationship for the Products
• Apply the Same Proportions to the Costs
• Market Effects/Strategy Can Distort
• Some Products Subsidize Others
• Price Is Not Proportional to Cost
• See example on page 65
Learning

• First Units Produced Take Longer

• Familiarization with the Job Reduces Time
• Predictable
• Covered in Chapters 6 & 8
Learning
Summary
• Definitions Relative to Labor Costs
• How to Determine Time for the Job
• Time Study
• Work Sampling
• Other
• Finding the Labor Cost Rate
• Wages, Fringe Benefits, Gross Hourly Cost
Tugas
• Cari obyek amatan di sekitar kalian (proyek/produk)
• Hitung berapa waktu standar nya dengan time study
• Dan berapa standar biaya tenaga kerja untuk pekerjaan amatan di
wilayah tersebut.