IT-390
Labor Analysis
Ch 2
1
Introduction
Direct labor 10% of product cost
 Hardest part of an estimate
 Labor costs are sporadic
 Classical methods for estimation of labor
costs

–
–
–
–
1) Time Study (Stop Watch)
2) Standard Data (Man-hour Reports)
3) Predetermined Time Standards and Formulas
2
4) Work Sampling
Labor

Direct Labor
– Directly linked to the manufactured part
– Hands on Labor, or Touch Labor; Physical
"touching" of the part and adding value
3
Labor

Indirect Labor
– Overhead charge
» Engineers, first-line supervisors, managers,
production control, quality control, etc.
» Cost of running equipment, utilities, Inspection,
indirect materials, etc.
4
Measured Time
Frederick (1856-1915)
Frank (1868-1926)
Lillian (1878-1972)
5
Measured Time

Evolve from Production Study to:
–
–
–
–
1) Time Study (Stop Watch)
3) Predetermined Time Standards and Formulas
2) Standard Data (Man-hour Reports)
4) Work Sampling
6
Time Study
Analysis of an operation
 Standardize methods, equipment, and
conditions
 Determine number of standard hours

7
Time Study

The procedure is:
– a) Methods analysis - improve if necessary
– b) Record data - title block, elements of work,
etc
– c) Separate the operation into elements
– d) Record time consumed by each element
– e) Rate the pace or tempo
– f) Determine the allowances
– g) Convert elements to time standards
8
Time Study

The equations are:
– Operator Performance Factor = %Rating Factor
100%
– Std Time = (time)(Operator Performance Factor)(Allowance Factor)
or
– Std Time = (% Working Time)(Total Working Time)(Performance
Factor)(Allowance Factor)
.
Total # pieces produced
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Time Study
Equipment used - clipboard, stopwatch, and
data collection forms
 Training is required
 Several cycles observed - average
 Number of cycles - judgment call.

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Time Study

Allowances
– Personal body needs (around 4-5%),
interruptions (around 2-8%), and fatigue (025%).
These allowances are called PF&D
(Personal, Fatigue, and Delay)
 Typical PF&D allowance is 15%, but can
vary from 8-35%.

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Time Study

PF&D is determined by the equation:
100%
Fa 
100%  PF & D%
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Pre-determined Time Data

MTM (Methods, Time, and Management)
– MTM most widely used method
– Developed five generations of MTM systems
for estimating
– Subdivides operator motions into small
increments / easily measured.
– Drawback - time intensive - training

Very common and powerful method
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Man-hour Reports
Time standards called standard data.
 Standard data - collected by company on its
own operations for similar activities.
 Deal with non-repetitive work
 Reports are generated from job tickets or
Foreman reports.
 Cost codes are assigned
 Cost database

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Problem 2.9 a (pg. 70)
Determine the standard labor hours per drawing.
Man-hrs/Print = 7.0(1) + 19.0(1) + 38.0(2) + 1.5 (¼) + 27.0(½) = 115.875
min.
Adding in the allowance (15%):
100%
Fa 
100%  PF & D%
100%
Fa 
 1.176
100%  15%
115.875 (1.176) = 136.27 min. or 2.27 hrs. (136.27/60)
Standard labor hours per drawing: 2.27 hours
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Problem 2.9 b (pg. 70)
How many aids will be required for 2500 drawings, and with
a $25/hr rate, what will be the budget request?
Standard labor hrs required:136.27 min x 2500 = 340675
min or 5678 hrs (340675/60)
Hours in a year: (52 wk/yr) (40 hrs/wk) = 2080 hrs/yr
5678 / 2080 = 2.73 or 3 aids will be required
Budget needed: 5678 hrs x 25 $/hr = $141,950 or
$142,000
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Work Sampling
Method to count how often certain events
happen
 Statistics - normal distribution form
 Statistics - accuracy of our observations
 Number of observations made

17
Equations 2.10 & 2.11 on page 49
Eq. 2.10
Eq. 2.11
Ni  4Z 2 pi (1  pi )
I2
and: R.A. = I/2pi
Where:
N= sample size
Pi= proportion of time spent on the activity we’re interested in
I= Internal estimate; two values between which we have confidence that the true
value of “p” will lie
Z= a value form a standardized normal distribution table reflecting the confidence
(interval) level
Confidence Level: likelihood that the true value of “p” lies within “I”
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R.A.: Relative Accuracy
Problem 2.13 (pg. 71)
How many observations are necessary?
Given:
Confidence level = 95%Z = 1.96 (from Z values on pg. 38)
Relative Accuracy = +/- 5%
Pi = idle time = 25%
Ni  4Z 2 pi (1  pi )
I2
RA = I/2pi
=
I = 2pi RA
(using Algebra)
I = 2(.25)(.05) = .025
Ni = 4(1.96)² (.25) (1-.25)
(.025)²
Ni = 4610 observations
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Problem 2.14 a (pg. 71)
To get a 0.10 interval on work observed by work sampling that is estimated to
require 70% of the worker’s time, how many random observations will be
required at the 95% confidence level?
95% confidence level  Z = 1.960(from Z values on pg. 38)
I = .10
Pi = .70
Ni  4Z 2 pi (1  pi )
I2
Ni = 4(1.96)² (.7) (1-.7)
(.10)²
=
322.7 or 323
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Problem 2.14 b (pg. 71)
If the average handling activity during a 20-day period is 85% and the number
of daily observation is 45, then what is the interval allowed on each day’s
percent activity? Confidence level is 90%.
Pi = .85 (handling) N = (45 obs/day) (20 days) = 900 obs Z = 1.645 (pg. 38)
.85(1  .85)
I  2(1.645) 

900


1/ 2
=
0.039 or 3.9%
For a confidence level of 99%, just plug in the new “Z” value.
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