Modeling, Analytics and Business Intelligence

Modeling Errors – Utah 4 Day week (Working 4)

Posted in Economy by Sanjay Bapna on October 22, 2009

Utah embarked on a 4 Day week starting in Aug 08 in order to save energy costs. The model for the savings was off by almost all measures. There was little energy savings (13% by Aug 09). However, Utah obtained significant savings in overtime pay – the bulk of all savings was actually savings in overtime pay.

Utah, however, achieved only a sixth of the $3 million it expected to trim on energy costs.

The state couldn’t shut down as many state buildings as it planned on Fridays, officials said, and it didn’t save much by closing the smaller buildings.

Also, the state assumed gasoline for state fleet car use and building utility costs would soar, and it would save as much.

“The state envisioned some energy savings, but that overtime number was not anticipated,” she said Wednesday. New calculations show Utah saved $4.1 million in the first year of a government experiment with a four-day workweek.

State employees were eager to leave after the longer workday, and weren’t inclined to work an extra hour or two.

“They’re getting what they need to get done in 10 hours and going home,” said Angie Welling, spokeswoman for Gov. Gary Herbert.

This is one reason why 4 day weeks should be warranted. The setup (fixed) costs in the premises of an employer, for getting ready to start the daily work is actually a lot larger than what people assume it to be. The setup costs may include costs such as the loss in productivity due to arriving  late at work, time spent to drink coffee, visiting the restroom, starting up a computer, and small chit-chat with fellow employees.  Moreover, I suspect that an intraday output  curve may look like a logit function – low output at the beginning, low output at the end, and higher output for the rest of the time.

However, there may be other costs such as the cost of procrastination. Employees who may be procrastinating can still finish the work within the alloted time without having to be paid overtime hours.

Metrics:

…161,000 fewer hours of overtime worked by state employees, a savings of about $4.1 million,

which would work out to be

1) $25.50 per overtime hours worked.

2) $240 per employee per year in overtime wages saved (assuming 17,000 employees)

3) 9.50 overtime hours per year per employee saved (assuming 17,000 employees)

The baseline model accounted for the savings in gasoline for Utah State ($6 million), energy savings ($3 million), a multiplier effect due to saving of  $5 million. These numbers are now suspect. The interim report is published here details that the estimated savings in commute time is 750K gallons of gas (approximately $2 million) .

However, even though the savings in reduction of pollutants (12K tonnes@$40 per tonne Carbon Cap = .5 million), the health benefits of additional recreation time for employees, etc. may be quite small, other benefits may accrue that are difficult to model.  All in all, this is a successful program though with significant modeling errors to justify starting the program. It’s good to look at the Nov 2008  Utah Employee survey too for several factors that could have been modeled.

Only a very long longitudinal study will tell if Working 4 is beneficial in the long run. Other costs may be the cost of increasing delinquency rate and lower standardized scores amongst younger children.

Comments Off on Modeling Errors – Utah 4 Day week (Working 4)