# WORKSHEET #29: Measure Economies of Scale by Type of Employee

Step 1:
Determine the types of FTE the Company wishes to measure for Economies of Scale. This should include at least three types: Do, Supervise and Think employees.

Step 2:
Determine the salary grade levels and type salary grade mid-point for each FTE type the Company uses.

Step 3:
Count the number of FTEs by type for the Company as a whole and for each functional cost organizational unit.

Step 4:
Use the same level of detail of analysis to count the FTEs for the Company as a whole and for each functional cost organizational unit at an earlier period, at least three years ago.

Step 5:
Count the number of annual units of Output for today and at the earlier period.

Step 6:
Calculate the rate of growth, in percent per annum, for the numbers of Do, Supervise and Think FTEs and for the numbers of final Output for the Company as a whole. Do the same calculation for each functional cost organization unit.

Step 7:
Review the current Productivity (i.e., FTEs/Output) and rates of Economies of Scale creation (% per annum growth vs. growth in Output) for the Do, Supervise and Think employees for the Company and for each functional cost organization. Identify those organizations producing Diseconomies and Super-economies of Scale. Explain the differences in rates of Economies of Scale creation.

Step 8:
Estimate the target the Company must set for Supervise and Think employees in order to close its remaining gap on its financial performance goals:

• Determine the amount of profit shortfall the Company faces after it considers improvements made in the section Managing Costs: Quantifying Cost Reduction Objectives.

• Determine the limits on the growth of average FTEs across the Company (i.e., the weighted average cost for the FTEs for the Company as a whole) to close the portion of the gap that the Input People must contribute.

• Calculate the number of company-wide weighted average FTEs the Company may add in order to support the financial goals it has set.

• Estimate the number of FTEs of Supervise and Think employees that the Company may add in order to reach this goal.

• Assign these growth of FTE targets to each of the Company’s functional cost organization units.