Across the Middle East, we saw unprecedented flux from 2008 onwards as a result of the ripple effect of the Global economic crisis. Arguably, it is only now that we can say the market is “back”, and many will say this is a bad thing due to escalating costs in all aspects of life across the Gulf Region.
Very broadly, staff costs equate to circa 80% of corporate expenditure, and this is likely to be heightened further with constant media coverage of increasing salaries. Arabian
Business printed an article in September 2013 which predicted salary increases in the UAE alone of 5.5%. It would be no surprise if this had not been exceeded already.
Whilst the focus on reducing costs has been evident since the downturn, it is often overlooked when the market is as dynamic and overtly ambitious as in this part of the world. Delivering more for less may be the new modus operandi, but when there are any number of projects with budgets in $billions, does this efficiency get lost?
Perhaps driving staff performance and productivity is a way of offsetting the profligacy of capital expenditure in this region. One approach that has been developed by Deloitte quantified the average number of productive working days for an employee (excluding holidays, sick leave, training/administration) alongside the real cost to the organization for each productive day (salary, insurance, car allowance, housing allowance, gratuity payments and other on-costs such as training / office overheads). In this instance, the number of productive days was determined to be 160 per annum and the real cost of each day was AED 3,620 or about $985.
Taking into account the above working days reduction, this provides us with a figure of 160 genuinely productive working days. Hence a 1% increase in productivity would represent 1.6 additional days per annumwith a ‘value’ attributed to that 1% increase of AED 5,790 or around $1,576. When extrapolated across an organization of say 500 people, the metrics become quite compelling – an additional 800 days of work with a value of AED 2.9M or $780,000 for a given year. Imagine if every organization across the Middle East adopted these metrics, the effect would be startling.
The measurement of the cost of property is arguably more straightforward. Reductions in property costs are linked to the quantum of space (through more efficient space planning) and higher occupational densities (through agile working and desk‐sharing) and further enhanced through the reduction in backlog maintenance and running costs of outdated stock (by consolidating a property portfolio).
Considering the two key metrics we have discussed – people and the built assets they occupy, we can quantify the value created through applying Deloitte’s “Capital Efficiencies” product in the workplace as follows:
Staff Cost (A) x 1% increase in productivity (B) = Efficiency Factor (C), less Spatial and/or Business Process Savings (D) which equates to (E); or
A x B = C – D = the Efficiency Quotient
Think about the above in the context of your organization, it could save you money with less effort than you imagine and may provide you with a competitive advantage over your competitors.
By: Ben Hughes, director, Infrastructure & Capital Projects, Deloitte Middle East