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The value of rude health

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Executive summary: The report demonstrates that health and wellbeing policies at Royal Mail Group have had a number of significant and material effects:  Royal Mail Group has successfully tackled the issue of absenteeism (CHAPTER ONE): Royal Mail achieved significant reductions in absence – from 7% to 5% – between January 2004 and May 2007, equivalent to an extra 3,600 employees in work Parcelforce Worldwide reduced absence from 7% to 4.5% between January 2004 and May 2007 equivalent to an extra 104 employees in work There is a strong link between both organisations’ range of health and wellbeing and absence policies and reductions in absence (based on available data and interviews) Reducing absence has enabled both Royal Mail Group and its Parcelforce Worldwide business unit to make significant cost savings (CHAPTER TWO): LSE estimates of the annual staff cost of 1% short-term absence across Royal Mail would be on an annual basis: £34.8 millioniv excluding the cost of replacement labour such as overtime and agency staff / £75.9 million including such costs LSE’s estimates suggest that reducing absence by 2% between 2004 and 2007 would have contributed to a total saving across Royal Mail Group over the three years of as much as £227 millionv in terms of direct costs These estimates are based on the accounting cost of a day’s absence in terms of pay and benefit costs, and use of replacement labour either through agency staff or overtime Reducing absence will have saved at least £1.79 millionvi in direct costs annually for each percentage point reduction in absence in Parcelforce Worldwide Since being introduced in 2004, it is estimated that the policies which led to this 2.5% reduction in absence could have contributed to a total saving over the three years of as much as £6.7vii million in direct costs for Parcelforce Worldwide Controlling absence specifically enables managers at Parcelforce Worldwide to hit their targets more easily (CHAPTER THREE): It removes unpredictability in meeting profitability targets that managers are set, enabling them to keep unit costs down as well as hit targets for items delivered per day and grow depot net income more easily Across, all depots, reducing absence by 1% is worth £1,317,000 to Parcelforce Worldwide annually in terms of meeting net income targetsviii Reducing absence by 1% takes an average depot £2,300 closer to its daily net income target Tackling absenteeism reduces dependency on replacement labour, including agency staff. The evidence from Parcelforce Worldwide suggests that doing so safeguards performance indicators such as Quality of Service (QoS) and improves net income through bringing costs down (CHAPTER FOUR): The experience across Parcelforce Worldwide shows that reducing dependence on replacement labour such as agency staff prevents key performance indicators from slipping and strengthens a depot’s bottom line. Reducing absence by 1% adds more than £319,000ix annually to net income through reduced dependence on replacement labour This is primarily as a result of: i. Cost savings (replacement labour is expensive) ii. Improved efficiency – analysis suggests agency staff are half as efficient. This is supported by evidence drawn from interviews with managers LSE estimates that that the 2.5% reduction in absence achieved by Parcelforce Worldwide between January 2004 and May 2007 would have contributed at least £1.2 millionx to improved net income across the group Reducing absence has a positive effect on Quality of Service (QoS) – a key performance indicator both for Parcelforce Worldwide and for Royal Mail – by around a factor of 12 to one. 7 Improvements in QoS enable Parcelforce Worldwide to capture additional business and improve net income (roughly equivalent to profitability) (CHAPTER FIVE):  Reducing absence by 2.5% between January 2004 and May 2007 would have contributed to a 0.2% point increase in QoS all things being equal. i. This figure is derived from estimates relating to the individual depots. It is difficult to draw concrete conclusions about the aggregate movement in QoS across all depots Improvements in QoS enable depots to bring in more business through building a reputation for reliability with customers A 2.5% reduction in absence contributes to an improvement in net income of £448,000 annually through improvements in QoS This improvement in net income reflects: i. Greater cost savings through reduced absence ii. Greater efficiency Analysis by LSE suggests that between Jan 2004 and May 2007, improvements in QoS would have contributed at least £672,000 to Parcelforce Worldwide’s annual net income LSE has extrapolated from the example of Royal Mail Group to illustrate the wider benefits to the economy of tackling the issue of health and wellbeing (CHAPTER SIX) Royal Mail’s success in addressing the health and wellbeing of its employees provides an effective blueprint on tackling absence for the 13 worst performing sectors in the UK in terms of absence rates By concentrating on raising attendance in the poorest performing sites and depots and moving them towards average rates of absence, Royal Mail Group has demonstrated a highly effective method for improving the group-wide average absence rate Following the example of Royal Mail Group in addressing the ‘long tail’ of absence and investing in such policies among the 13 sectors in the economy with the highest absence rates would be worth £1.45 billion to the UK economy.

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