FTE

“Full-time equivalent”, or “FTE” is a way to normalize staffing decisions. In the modern workforce, particularly in administrative environments, employees perform multiple functions or don’t work standard 9-to-5 schedules.

Using FTE to determine the size of the workforce assigned to a process makes accurate productivity and cost measures possible. A full-time equivalent person is simply 40 hours of working time. This could be a single person working in one role, or four people each working 10 hours on a particular job.

FTE is most applicable as a concept when you have multiple part timers contributing to the same process. You generally don’t hear the term applied to, for example, the number of people on an assembly line. The presumption there is that the people will be 100% assigned to production work.

But when there is part time assignment, metrics get trickier. Let’s assume 4 people all contribute equally to the same job part time and get 40 pieces of work done per week. If you simply divided those 40 pieces by the 4 people working on them, productivity would be 10 per person per week. When using the FTE method, it is 40 units per FTE per week.

While this sounds obvious in this example, the math behind the concept is often overlooked. This is especially true when there are many small additional responsibilities that pull people away from a primary job. You might have 3 people who all process loan applications in addition to other duties. One might work 30 hours per week on it, the second might work 20 hours, and the last person adds in 10 hours. With sixty total hours applied, you have assigned 1.5 FTE to the job, not 3 people.

It is difficult to accurately estimate FTE when people multi-task profusely or when staffing is static and demand is dynamic. It can be hard to apply hours to a specific job, or it can be hard to track what a person is working on when they bounce between responsibilities throughout the day. Imagine if the person processing loan applications also handled employee expense reports and had to help with month end accounting. The few minutes here and there spent doing those other tasks might not be accounted for in productivity calculations. The other issue you may have noticed is that the examples I have been giving are been based on the supply of people, not on the demand of the work. There is no guarantee that the levels you have assigned match the required levels. Make sure you are clear in what you mean when you say “1.5 FTE”. Is it the number of people assigned, or the average demand of the work?

Staffing complexity is further compounded because people adjust their work pace when demand fluctuates, making it hard to determine true FTE requirements. In truth, static staffing is nearly always wrong. It is either too high or too low for the momentary demand. Often this is masked by working from a backlog.

If people see that they have a days’ worth of work piled up, they work at a steady pace. But that adds lead time to the process, which hurts customer satisfaction. In practice, the staff must be flexible to be both efficient and responsive.

In a Lean environment, daily management requires knowing precisely how long tasks take, and how much time is available to complete those tasks. Calculating staffing in terms of FTE allows leaders to be much more flexible in matching their teams to the size of the workload.

So, to use the concept of FTE effectively, think of it like a balance sheet. All the jobs and the FTE requirements on one side should match the actual number of people assigned on the other side. Common problems include not accounting for all the work that is being done, double counting people, and not factoring in breaks, projects, and meetings.