FlexWork – New Ways of Working in Remote Regions

Evaluating the Costs and Benefits of Flexible Working

FlexWork - flexible working

Like any business project a flexible working scheme should deliver benefits that exceed its costs. Unfortunately it is often harder to be specific about the benefits than it is to be about the costs. The FlexWork website www.flexwork.eu.com offers you an on-line tool for analysing the costs and benefits of a flexible working scheme, which covers not only factors that can be directly expressed in monetary terms but less tangible factors such as productivity improvement and absenteeism.

Before introducing a flexible working scheme you would like to be confident that, like any other business project, it will produce benefits that exceed its costs. Large companies will conduct a detailed cost benefit analysis of any proposed scheme and its alternatives before going ahead. However many of the benefits of flexible working are qualitative or only achieve payback in the medium term, so traditional approaches to cost-benefit analysis tend to offer a rather pessimistic view of the potential of flexible work. Expert consultants may be needed to help establish a true picture of what a scheme will deliver.

Small and medium sized companies will not be able to afford such help so the IST [1] project FlexWork has developed a self-drive tool, which you can use to analyse the economic efficiency of a flexible working project. You can use it to evaluate the profitability of a flexible working scheme, either beforehand (using estimates) or afterwards (with real figures). More importantly it offers you a way of associating numbers with the less tangible aspects of the scheme.

Model - Economic efficiency of a flexible working projectIt divides the costs and benefits into three types:

Type 1 - red sectorType 1: Criteria that can be directly expressed in monetary terms and which immediately influence the bottom line. Examples are the cost of new equipment or software and savings on office space.

Type2 - orange sectorType 2: Criteria that cannot easily be expressed in monetary terms but can be turned into numbers with the help of some specific assumptions and auxiliary variables. Examples include productivity effects, office rents and changes in absenteeism. Best and Worst Case-Scenarios should be calculated to take account of the uncertainty of these assumptions.

Type 3 - yellow sectorType 3: Criteria that can not be expressed in monetary terms. Examples include corporate image, employee motivation and quality of service. Such criteria cannot be turned into numbers and are not considered by the Cost Benefit Tool.

Obviously, the boundaries are not rigid as this picture suggests but, the further you get from the centre of the target, the more uncertain the numbers become. The tool analyses the Type 1 and Type 2 criteria separately and the results are presented in such a way that it is clear which benefits are directly measurable and which depend on value judgements to convert them into numbers.

Using the tool is simple. It presents you with a series of web screens asking questions about your proposed scheme. Where appropriate, the questions are accompanied by advice in italics about how to answer them. If you are not sure what numbers to enter, the tool offers a set of default values derived from many practical examples of organisations that have implemented flexible, decentralised work. These can be particularly helpful in the early stages of planning a flexible working project, when you will find it difficult to come up with ‘hard’ numbers.

The first screen asks you for specific information on your flexible working project, e.g.:

  • the number of people who will work remotely
  • the size of the teams in which they work the amount of time they will spend out of the main office
  • the number of desks retained in the main office per remote worker

A second screen explores the costs of any additional telecommunications connections needed to support the flexible workers.

The next three screens capture general information about your company, namely its:

  • Office and Personnel Costs
  • Staff turnover
  • Depreciation periods and other accounting measures

Two screens then help you to explore the costs specifically associated with your flexible working project. They prompt you to consider the costs of the additional infrastructure needed to support the flexible workers in considerable detail. The questions not only cover relatively obvious costs, such as extra computers and telephone lines for flexible workers, but also less obvious costs, such as encryption of commercially sensitive information or the provision of office furniture for home workers. They also explore what compensation you should pay to teleworkers (e.g. for using part of their home as an office) and what additional insurance your company might need to cover the new working practices. In the early stages of planning a flexible working project, the default values offered by the tool may be particularly useful.

The tool then explores the ‘mirror image’ of these costs, namely the savings that you can make on the infrastructure in the central office and on employee benefits (such as meal and clothing allowances) that you do not need to pay to teleworkers. It also asks about any extensions to the infrastructure (e.g. extra capacity in the PBX), which will be needed to support your flexible working scheme.

Two screens then take you through the costs of implementing the flexible working scheme. These include the effort needed to develop the concept and manage its implementation. They also consider the training costs not only for employees directly involved in the scheme but also for their managers and co-workers.

The final screen asks you about the impact of the scheme on productivity and absenteeism.

Once data entry is complete the tool processes the information and presents you with the results of its analysis as both tables and diagrams. It distinguishes between the between Type 1 (directly monetarisable) and Type 2 – criteria (indirectly monetarisable) as well as one-off, annual and monthly running costs. One-off costs for technological infrastructure are transformed into running costs by means of the amortisation (depreciation) periods normally used by accountants. Expenditure for organisation and management remain as one-off costs, which occur and are accounted for in the first year.

The tool calculates the following values, which will help you to evaluate the viability of the project.

  • Capital Value or Net Present Value: i.e. the balance of the income (or cost savings) resulting from the scheme and the expenditure on it, discounted into today’s money.
  • Amortisation Period or Payback Period: i.e. how long will it take to recover the capital put into the scheme in the form of increased income or reduced costs.
  • Internal Rate of Return: i.e. the rate of compound interest the investment in the scheme would have to earn, if it was a bank deposit, to generate the income stream expected from the scheme.

The tables allow you to explore in detail the actual costs and benefits of the proposed scheme. The graphical versions offer a high level picture of the results of the analysis, which may be useful for briefing senior managers.

When planning a flexible working scheme, the tool makes it easy for you to explore ‘what if’ questions and analyse the sensitivity of the scheme to particular costs. By running several possible scenarios through the tool you can ask questions such as:

  • How easily will the scheme scale from 10% of a department to the full department?
  • Does it matter whether flexible workers are provided with notebook or desktop computers?
  • How critical is the amount of central office space saved?

Once your scheme has been implemented and actual figures are available for the various costs and benefits, you can use the tool again to evaluate how well the scheme has worked. You may find that some of your estimated costs and benefits were optimistic or pessimistic and this should provoke questions about how you could fine tune the scheme or manage extensions to it more effectively. For example:

  • Would additional training result in greater or more rapid productivity improvements?
  • Would ISDN or ADSL connections to remote workers be cost effective?
  • Has the scheme increased or reduced staff turnover?

Apart from your time, it costs nothing to use the tool. You can find it on the FlexWork website www.flexwork.eu.com  and you are welcome to use it as many times as you want.

Example of Data Entry Screen

Example of Data Entry screen

Example of Graphical Output

Example of Graphical Output

[1] IST (Information Society Technologies) is a programme funded by the European Union to promote the development of a user-friendly Information Society. FlexWork is part of this programme and its task is to support the introduction of flexible working by small businesses in remote regions.

1 2 3 4 5

Leave a Reply

Your email address will not be published. Required fields are marked *


You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>