An idle time is a time for which the business has paid to generate some value but the time remains ineffective/unproductive even after consumption of the resources. An idle time acts as a parasite because it consumes the resources of the business and provides nothing in return.
An idle can be controllable and uncontrollable depending on the situation. Further, it can also be classified as normal idle time or abnormal idle time depending on the reasons that give rise to it. To ensure profit maximization and effective business operations the business needs to minimize idle time with appropriate planning and forecasting. The control of idle time adds to the profitability of the business and ignorance may lead to severe compromise on the operational efficiency and profit of the business. Further, adverse impacts of idle time are not limited to loss of sales and profits but impairment in the goodwill as prolonged hustles in the production might lead to dissatisfaction of the customers.
Let’s discuss a different aspect of idle time to understand its impact and how the business can actually control it.
Sometimes an idle time can be controllable and only requires some adequate planning to be removed or minimized. In this type of idle time, the reasons causing idle time can be influenced by the choice of the business or at least some steps can be taken to control it. This type of idle time is mostly expected. For instance, consider a production facility where machines are operated for twenty-four hours as they have increased demand for the product. However, the machines require maintenance and production has to be shut down for eight hours a month.
An idle of eight hours is controllable for the business as this time is expected to be a normal procedure for an effective operation of the business. Further, a business can control this time by choosing the time of maintenance and manage operator and other labour hours in such a way that they do not have to be paid.
On the contrary, if there is some sudden problem in the machinery like some nut and bolts are cracked and machinery has stopped production. This is something the business has no control but what it can do is just arrange repair as soon as possible. This idle time is a burden on profit not only for the repair cost the business has to pay but the cost of operator, an opportunity cost of production, the cost of going overstock, and even the cost of customer loss if a delay is prolonged.
There are several reasons for the idle that include but are not limited to the following.
- The fault of the machinery and the business can no longer continue production.
- strike from the labor union and the production is cut.
- The production department is out of raw material as the product is short in the market.
- The business does not have orders from the customers.
- The business is shifting production facility and it takes a longer time.
- The business has to face certain natural disasters like lockdown due to COVID-19.
- Some key employees may be sick and production may not be continued.
- There may be some procedural activities like inventory count at the end of the month and movement of the material may have to be stopped. So, it may affect the production and result in idle time.
It is important to note that if idle time is expected, it’s usually a normal idle time. On the contrary, if idle time is sudden it’s usually abnormal idle time.
The controllable idle time is treated as overhead cost and absorbed in the cost of production. It’s considered to be a normal process for the cost of making a product. On the contrary, uncontrollable idle time is expensed in the income statement and can be presented as a separate line item for management review.
Idle time and fixed cost
The profitability of some businesses is severely affected by idle time than others. It is because fixed costs for the different business is different. The business model of some businesses is fixed cost oriented while some businesses contain more portion of the variable cost.
If the business model is based on a fixed cost, the effect of idle time is higher on profitability and vice versa. It’s because when the business function is frozen due to idle time the count down of fixed cost does not stop. Hence, if fixed cost is more idle time more harmful to the profitability than the business with lower intensity of fixed cost.
How to calculate idle time
The calculation formula for idle time is simply to deduct actual production hours with the available production hours. The difference in the hours can be classified as idle time.
Further, different data need to be collected for the calculation of different idle time, Fo instance, there can be idle time if the labour hours and machines hours. The labour related idle time is calculated by comparing standard hours of labour with actual hours of labour used. The variance can be said to arise as a result of idle time in the work of labour.
How to control idle time
Mostly, the business has the capability to influences over controllable idle time. An effective planning, close coordination, logical flow of production, effective risk management, and effective internal controls play a crucial role in the planning and management of business activities.
If business activities are planned, controlled, and monitored effectively, it enables the business to minimize the idle time and minimum effect on the business profitability. The most important factor to minimize the adverse effects of idle time is the appropriate management of the operations in such a way that waiting time is minimized and idle time is reached to a minimum level. In addition to this, effective internal controls can be an excellent source to control idle time by ensuring a frictionless flow of the production activities.