What does it mean to be benched?
Benched employees are employees that do not work on either internal or commercial projects - they simply have no assigned responsibilities for a given time period. Still, they remain the company's employees and they receive their wages and salaries. In other words, they generate costs while not contributing to the direct profits.
What is not an employee bench?
While the employee bench should universally be avoided, it should not be mistaken for other occurrences and mechanisms that are neutral or even beneficial for the company. Here are a few of such false friends.
Free capacity may not be a bench
Let’s make it clear - not every free capacity means that the employee is benched.
Senior employees and managers often spend the majority of their time on organizational processes - and there’s nothing wrong with that! Their responsibilities simply include meetings, workshops, consultations, and other non-commercial activities. Therefore, their non-billable work will be profitable in the long run.
However, for junior and mid employees, a large percentage of free capacity should be worrying. That’s because these people work almost exclusively on commercial projects. Therefore, their booked capacity should be around 90% (with the 10% being organizational meetings and breaks).
Internal responsibilities are not a bench
Speaking of internal affairs, should they also be considered a bench?
The answer to this question is no. Internal work, such as meetings, organizational processes and internal projects is not a bench, as it is the work that brings (or, at least, it should) generate some profits.
However, in terms of costs, internal work could be considered a bench. That is because its hours generate costs without generating immediate profits, resulting in growing company overheads.
What is the cause of expanding the employee bench?
Employee bench usually does not appear out of nowhere. In general, it is caused by the problems with resource management, such as:
- lack of resource workload forecasting process causing bad decisions about h(f)iring,
- unexpected changes in project schedule causing the operation to be finished or abandoned before the planned date,
- problems with acquiring new projects - either in general, or for employees with specific skills,
- hiring too many specialists, or hiring specialists with insufficient skills that cannot be applied in commercial projects,
- lack of capacity planning that assigns full-time employees less hours than they have to spent working,
- a simple mistake in planning that causes some people not to be assigned to the project.
Why should your company avoid bench time?
It’s simple: because it generates more costs and no profits at all while wasting your people’s time. However, it can get even worse when the company simply does not know where it is losing money - and sometimes the employee bench is not even the primary suspect in the case!
How can an employee bench affect profitability?
Here’s a real life example of such an influence.
A medium-sized IT company failed to implement sufficient tools as it was growing. As a result, when its managers noticed that the company had become unprofitable, they weren’t sure what was the underlying cause for that. They instinctively felt that some employees had to be let go - but which ones were the least profitable? And which ones did not generate any income at all?
To solve that problem, you need to answer a few critical questions on employee’s utilization and the costs of the hours they spend on non-commercial projects. And, most importantly, it is best to establish such information sooner rather than later - otherwise, just like in the case of this company, the lacking processes may cause the company to go downhill.
How much does the bench really cost?
The answer to this question is, of course, it depends. But do not worry - we won’t leave you with such an enigmatic answer.
Costs of bench for an employee with no allocations
First, let’s analyze the simplest example - an employee that has no allocation at all, and 100% of their capacity is available. We will assume that the specialist in question is a full-time employee, working 160 hours per month.
If the person is not a contractor, their monthly salary remains unchanged regardless of the number of hours worked. Therefore, if the specialist’s salary is $5000, the cost of benching this person for 160 hours will be $5000.
However, if the employee in question is a contractor, you should calculate their wage based on an hourly rate stated in their contract. For example, if the person’s rate is $55 dollars, then, in a month consisting of 160 working hours, benching this specialist will cost you $8800.
Costs of bench for an employee with a part-time allocations
Of course, the employee bench applies not only to specialists that are assigned to no tasks at all. Some of them may have no responsibilities for just a fraction of their time - but that also means that their working hours are being wasted!
For example, imagine that you have an employee assigned to a project for 80 hours per month - or 50% of his maximum capacity. Half of the money spent on his wages (or hourly rates, if he is a contractor) contributes to no profits at all. Therefore, the costs of him being benched for half of his time is:
- $2500, if he is a regular employee with the same salary as in the previous example,
- $4400, if he has the same hourly rate as in the previous example.
Of course, that is still a lot of money - but things become even worse when we take a look at the cost of the bench in the entire company.
Total cost of a bench in the entire company
For the sake of this example, let’s assume that the company in question is a medium-sized business. After analyzing its project schedules, it turned out that in a given month:
- there are two regular employees that have no projects assigned to them. Their salaries are $5000 and $4500.
- there is one regular employee that has 50% of his capacity available. His monthly wage is $6000, so $3000 from that amount is spent on no billable projects.
- there are two regular employees that will only spend 25% of their time on projects. Both of them earn $4000 monthly, so $3000 of their salaries goes to waste.
- there is one contractor that will have no project to work on. He earns $40 per hour, so in a month with 160 working hours he should earn $6400.
- there is one more contractor booked for only 50% of his time. His hourly rate is $30 per hour, so his lack of work will cost the company $3400.
Then what’s the cost of the bench in this company?
Cost of the bench in the company - formula
To determine the cost of the bench in the company, we simply need to add the cost of all the hours that are not assigned to either billable or non-billable projects. Therefore, for this example, the formula will be:
$5000 + $4500 + $3000 + $3000 + $3000 + $6400 + $3400 = $28 300.
For a medium-sized company, that amount of money would certainly make a difference!
As you can see in this example, even with just a few people on the bench, the overall costs of the idle employees went through the roof when the value of their free time was calculated.
How does the bench affect the profitability of a company and its projects?
While this company may not see the $28 300 dollars as a significant amount compared to the revenues, the sum can take a toll on the profitability of your projects. For example, let’s assume that the company has 5 projects, with a combined revenue of $200 000. In this case, the bench eats up nearly 15% of the sum!
Still, things may get even worse when we take a look at the impact of this sum on the profitability of the projects. Imagine that the company has 5 projects:
- one $60 000 project with 20% profit margin, generating $12 000 in profits,
- two $40 000 project with 10% profit margin, generating $8 000 in profits in total,
- two $30 000 projects with 25% profit margin, generating $15 000 in profits in total.
To sum up, the company generates $35 000 dollar profit, and loses over $28 000 of it on bench, making the majority of the projects unprofitable - and that does not include other organizational overheads!
Are there some tools that can simplify the process?
Yes, of course!
For example, Primetric gathers the information on wages or hourly rates on a daily basis. Then, based on the allocations (or lack thereof), the system calculates the cost of work in both active projects (both commercial and internal), as well as the costs of being benched. Then, the information is converted into intuitive reports showing you exactly how much the lack of project costs you.
If necessary, Primetric can also calculate the costs of benches for individual employees, as well as their profitability. Using the information, you can manage your resources better and react to any worrying changes.
How to solve the problems with a growing bench?
Of course, just calculating the cost of the employee bench is not enough to solve the problem altogether. To do so, you need to take some serious measures. We recommend you to:
- forecast your resources. Plan ahead and find gaps in your allocations before they turn into benches!
- focus on finding new projects for the benched employees. Letting people go is a last resort in the IT industry, as good specialists will definitely find a new place to work within minutes. Therefore, use the data from resource forecasting to predict the demand and find new projects for those who are in danger of being idle.
- monitor your resources. In some cases, it may turn out that some employees simply have no place for themselves in the company as its profile changes with time. Consider reducing the number of such employees to increase profits.
Should I keep the bench or let my employees go?
But what if the size - and costs - of the bench really become unbearable for the company?
Let’s imagine a very common situation in the IT industry. There is a company that has lost a project that was just about to start, leaving 3 experienced employees on the bench. However, the next projects matching their skills can start in 3 months - and the company only has 50% of chances to acquire the project in general. Should the company keep these employees, or should they be let go?
The answer to this question is not simple. First of all, we need to analyze a few things such as:
- can we somehow improve the odds of acquiring new projects?
- can we find any other projects for the employees to work on? What are the chances of doing so?
- what costs do the benched employees generate? What percentage of the company's cost do they make?
- how will the profitability of the company be affected by the costs?
If the costs are high, and there are no chances of improving the situation in any way - and that will be the case for most of the companies - the answer is simple, yet sad: the employees have to be let go.
With the uncertainty of the new projects and no prospects for the current ones, the situation is simply too risky and too costly. In other words, it can take a toll on the entire company in just these 3 months.
But what if hiring new employees is even more expensive?
There is one more factor that you should take into consideration before deciding to part ways with some of your most precious employees: the cost of finding their replacement, should they be needed in the future.
Sometimes, especially in the case of experienced employees with multiple specializations, hiring new employees or training them generates enormous costs - much bigger than the cost of a bench would ever be. For this reason, senior specialists are rarely made redundant.
Things to consider before dismissing valuable employees
Still, you cannot place them on the bench just based on your gut feeling - you need solid data to support your decision in the matter. To determine that, you should prepare:
- a list of potential or planned future operations that you could assign the employee to in the future,
- an estimated profit from an operation the benched specialist could potentially
- a cost of either hiring or training a new employee to a similar level of skills.
If the costs outweigh the risks, the decision is simple, yet unfortunate: an employee has to be let go.
The problems with resource management do not end here!
Fortunately, we have helped our customers solve all of them - and now we can show you how to solve them.
Visit our blog to read more about the best practices for resource management, such as:
- calculating team utilization,
- avoiding schedule conflicts,
- billable and non-billable hours,
- employee development,
- workforce optimization,
Or, if your mind is already set on finding a tool that can help you find a way to get rid of the employee bench, you should definitely book a demo with our advisors or start a trial with Primetric right now!