Professional Documents
Culture Documents
As an essential building block of the compensation formula, benefits ratios will differ among Engineering,
supervisors/staff and hourly wage earners such as production personnel. The basic formula for all three is:
(Averaged benefits + “perks” + bonuses) divided by (Averaged hourly wages for one year)
Use the "BR" benefit ratio in Line 16 for worksheets computing absenteeism, employee turnover and
productivity costs. Hypothetical numbers were used to demonstrate this worksheet. Left-click on the white
cells in the far-right column and enter your own numbers to find your organization's compensation/ benefits
costs. The peach-colored results cells will automatically calculate and display the ratios.
Line
1 ES Average engineer's salary, annual $43,000.00
2 Insurance costs: Life, medical, dental, disability per year $7,400.00
3 Bonuses, stock options, other incentives value per year $2,800.00
4 Retirement plan: maintenance and contributions costs per year $3,200.00
5 EB Engineer benefits ratio 31%
Use the compensation costs EC, SC and PC (automatically calculated and shown in the yellow cells) when
calculating the cost of poor quality and its effects on profits in Worksheet 2.
17 ES Average engineer's salary, hourly $20.67
18 EB Engineer's benefits ratio, from line 5 31%
19 EC Engineering staff compensation cost per hour, averaged $27.12
This series of tables tracks time costs as they were defined in Worksheet 1, and adds them to the cost of
Engineering Review, rework, replacing items on warranty and scrap costs.
At least one set of measurements is taken before any efforts to change a process or policy are made. After a
change is made to a process or policy, the subsequent measurements are compared against the baseline. Keeping
in mind that trends--gradual change--are more valuable as they accurately represent changes, a series of at least
five or six measurements should be taken for assessment.
If you want to track the cost savings of one recurring problem, you can use the totals to assess Return on
Investment (ROI).
Keep your methods for recording numbers of rework, scrap etcetera consistent! This helps ensure the results
convincingly represents the effects of strategic change.
Worksheet 2. Step 1
Line Personnel time Code Value
5 Personnel compensation per hour EC $10.10 Instructions for using this worksheet
Only enter data in the pastel colored cells (not the
Monthly/cycle sales-to-profit ratio Value dark red title cells)! The white cells automatically
calculate data as you enter it, and send the calculated
6 Sales, per month or cycle $15,950
data to tables for automatically generating charts and
graphs. Follow the instructions in this yellow block to
enter, line by line, the data needed to assess results.
7 Profit, per month or cycle $2,350
Line 1: Enter the figure from the blue cell EC on Line
Material rework costs 19 in Worksheet 1.
Value
Line 2: Enter the average amount of time, in decimals
8 Scrap costs $60 (.25 equals 15 minutes) for each Engineering Review
(assessment of failed product).
9 Warranty item replacement costs $20
Line 3: Enter the figure from the blue cell SC on Line
22 in Worksheet 1.
10 Shipping warranty product costs $1
Line 4: Enter the average amount of time, in decimals,
11 Concessions costs to customers $- (.5 equals 30 minutes) for providing guidance and
oversight in rework to production personnel.
16 Total material costs $89.00 Line 8: Enter the cost for scrapped items where
defects were found in-facility.
Time costs for poor quality Hours Value Line 9: Enter costs of items replaced for customers
through warranty claims.
17 Number of production hours for rework 7 $71
Line 10: Enter costs of shipping for items replaced
through warranty claims.
18 Number of rework events 2
Line 11: Enter costs of concessions to customers
19 Engineering time 0 $14 to resolve quality issues.
20 Supervisor time 1 $15 Line 12: Enter the amount of waste: materials
used to rework products.
21 Total time costs $100 Lines 13 to 15: Enter the name, and values of other
identified material costs of poor quality.
Line
Line 17: Enter the number of hours production
personnel spent reworking and reshipping products.
Computing Return on Investment (ROI)
Line 18: Enter the number of rework events,
either singly, or in groups or production runs.
Time spent on correcting causes Hours Value
Line 22: Enter the number of hours engineers used
22 Engineering 0 $- to resolve production rework problems, including
preparing, delivering and assessing results of training.
23 Supervisors 0 $-
Line 23: Enter the number of hours supervisors
used to resolve production rework problems,
24 Production personnel 0.06 $1 including time preparing for and delivering training,
and for assessments.
25 Total $1
Line 24: Enter the number of hours that production
personnel used to resolve production rework
Other costs of correcting causes Value problems, including time in training, and for
assessments.
26 Equipment $1
Line 26: Enter the amount spent on equipment:
new, used, or for repairs, to resolve production rework
27 Materials $1 problems.
Worksheet 2. Step 2
Enter data in the colored cells within this table at the end of each month or cycle. Begin by naming the month or
cycle in the top row. Then enter the totals from the corresponding lines from the worksheet above: the left column
lines numbers match. Graphs and charts will automatically express the data as it is being entered.
Line
25 Time spent on correcting causes $190 $125 $25 $25 $10 $1 $63
30 Other costs of correcting causes $585 $150 $85 $50 $- $1 $145
Total costs to correct quality problems $775 $275 $110 $75 $10 $2 $208
Do not enter data in these cells! They automatically calculate, and send to the chart below, data
that has been entered in the table above.
Month/cycle Quality costs Sales Profit Profit ratio
Mo/cycle 1 $1,868 $12,500.00 $1,250 10%
Mo/cycle 2 $1,681 $12,875.00 $1,488 10%
Mo/cycle 3 $1,472 $13,858.00 $1,650 11%
Mo/cycle 4 $1,237 $14,050.00 $1,850 12%
Mo/cycle 5 $786 $14,750.00 $2,350 13%
Mo/cycle 6 $189 $15,950.00 $2,350 15%
Month/cycle Quality costs Sales Profit Profit ratio
Mo/cycle 1 15% $12,500.00 $1,250 10%
Mo/cycle 2 13% $12,875.00 $1,257 10%
Mo/cycle 3 11% $13,858.00 $1,488 11%
Mo/cycle 4 9% $14,050.00 $1,650 12%
Mo/cycle 5 5% $14,750.00 $1,850 13%
Mo/cycle 6 1% $15,950.00 $2,350 15%
$1,750 $2,250
$2,000
$1,500
$1,750
$1,250 $1,500
Profit
$1,000 $1,250
Quality costs
$750 $1,000
$750
$500
$500
$250 $250
$- $-
Mo/cycle 1 Mo/cycle 2 Mo/cycle 3 Mo/cycle 4 Mo/cycle 5 Mo/cycle 6
14% 14%
12% 12%
Percent of sales
10% 10%
Profit ratio
8% 8%
Quality costs
6% 6%
4% 4%
2% 2%
0% 0%
Mo/cycle 1 Mo/cycle 2 Mo/cycle 3 Mo/cycle 4 Mo/cycle 5 Mo/cycle 6
$200
$175 Concessions
Waste
Itemized material costs of poor quality
$325
$300
$275
Scrap
$250
$225
Warranty
Shipping
Actual costs
$200
$175 Concessions
$150 Waste
$125 Other
$100 Other
$75 Other
$50
$25
$-
Mo/cycle 1 Mo/cycle 2 Mo/cycle 3 Mo/cycle 4 Mo/cycle 5 Mo/cycle 6
$700
$600
Production time
$500
Engineering time
$400 Supervisor time
$300
$200
$100
$-
Mo/cycle 1 Mo/cycle 2 Mo/cycle 3 Mo/cycle 4 Mo/cycle 5 Mo/cycle 6