Reducing Labor Variances

Learning Outcomes

  • Discuss strategies to limit and reduce labor variances

So Hupana had some ups and downs with the transition to hiring Jake and getting their systems back in place. There are many things that can contribute to labor variances, and figuring out first the “why” and then the “how do we fix this?” can have multiple components. Mary works hard to keep her staff happy and well-trained. But when a long-time employee leaves, it can ripple throughout the company. Let’s look at some ways Mary, and the rest of the management staff at Hupana, can work to keep labor variances to a minimum.

How can Mary limit and reduce labor variances? Mary has done a pretty good job with her staff. Let’s look at some of the ways she has helped to keep her labor costs on track:

  1. Proper training of all staff, but particularly new staff to make sure they are efficient at their jobs!
  2. Keep up morale of her staff to ensure they feel happy and valued within the company!
  3. Ensure that equipment is maintained and working at peak efficiency (Mary may need to work with Ray on this one. Remember Ray?)
  4. Make sure the raw materials the employees are working with are of good quality. This falls back to the purchasing department to ensure quality materials!
  5. Proper supervision
  6. Inaccurate or unattainable standards. Unfortunately, if the production department did not have some control over the preparation of the direct labor budget, the goals that were set up may not even be feasible.  Getting the people who do the work involved in the budgeting process, which we discussed earlier, is a great way to help your staff feel part of the team!

Another situation that may lead to an unfavorable labor variance in the short run, is a lack of market for a company’s products. What if suddenly, the market for Hupana shoes dropped by 20%? What if we also thought this would be a temporary drop? Would it be wise to let go of employees, or might it be favorable in the long run to keep employees busy on other tasks, to keep up company morale? This can be a tough question, and one that companies need to address. Another way to keep employees busy during this type of slump in sales may be to build up inventory.

There are a myriad of ways to limit or reduce labor variances. Can you think of any others?

Practice Questions