How To Set Work Standards
Mar 05, 2015
Many years ago, I was an industrial engineer working in a manufacturing plant that had a very detailed cost system with work measurement incentives built into the pay structure for the union employees. Basically, all the jobs in the plant had labor standards associated with those assignments. Then to the extent that the hourly employees could produce at a rate above the standard, they were paid an incentive bonus. The bonus depended on how much above the standard they were. The incentive bonuses were not huge, but in an era where pay rates were low, any incentive like this was appreciated and worth working for.
As you can imagine there was a continuous need for updating and maintaining the standards that were used in the incentive pay program. It was an absolute necessity that as jobs changed or components of the job were added or taken away that the work standard be modified accordingly.
The continuous maintenance and updating was the job of the industrial engineering department for which there were approximately a dozen members. I was part of that team for several years with the primary responsibility for maintaining work standards in several of the production departments. Through that time period and in my experience working with other manufacturers, I soon learned that there were a number of different ways to set work standards. Of course, the way I practiced most back then was the time and motion study. An engineer would actually go out with a clipboard and stopwatches to observe the assignments as they were being completed. They timed each step of the process so that they were able to develop a composite standard for each step of the manufacturing process controlled by each job, and therefore were able to set standards based on the engineering studies.
In most cases, there were multiple observations of multiple people because every individual employee had their own unique work habits which affected the standard. The goal in multiple observations was to seek the highest theoretical standard and use that as the starting point for work standards for that assignment. That method in effect represented the ideal standard for a given job in that it included engineering based specific observations of different employees performing the same assignment with the goal of determining what was the fastest way that that assignment could be completed.
However, there were also other methods that were employed periodically in the same operation. One of those methods was what I would call a practical standard. In this case, after months of observing work that was produced, it was measured against the ideal standard. It then could be concluded that the ideal standard was occasionally attainable or in some cases never attainable. In that case, the industrial engineering department would modify the standard downward to be closer to what actual results were demonstrated on the job. Although there were judgment factors associated with each of these modifications, the goal was to keep the standard attainable but achievable with concentrated efforts to improve. In my view, that represented a practical standard based on the ideal standard modified for current results.
The last method that was used in this operation had to do with standards based strictly on historical operations. Several of the work standards were based on machine productivity with less influence from manual labor and more associated with the actual engineering capacity of the machine.
At that time, each of the machines had production counters on them that produced paper tapes with production history. Those paper tapes were provided to the industrial engineering department every day. The engineers were then able to develop a significant history by the kinds of production rates that could be expected based on historical operations. One of my jobs was to periodically review those tapes compared to the actual standards that were developed for each of the jobs and make modifications to those standards as was indicated by the paper tape historical results. Some standards went up, some standards went down, but all was based primarily on the historical results of operations.
Each of these methods has positive and negative attributes, but all can be used to set production standards that are useful in a properly functioning standard cost system. The key to all of these though was having good reliable data that was reviewed frequently.
Categories: Cost Accounting