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  • Writer's pictureRatnesh Mittal

The WFH Economics

Are you for WFH or BTO (Back to Office)?

I ended my WFH 2 months ago. Personal preferences aside, what is the economic argument in favour of WFH?

Let’s start with counting the benefits, literally.

The most obvious benefit is savings in running a physical office. It costs an approx Rs.20,000 per employee per month to run an office in an average commercial hub of one of our top 6 cities.

Add transportation cost, whether borne by the employee or the employer, say Rs.2000.

Plus commute time saved. At an average of 90 mins in a 10 hour Indian work day, that is 15% efficiency improvement. At an average salary of 4 lacs p.a across corporate India (source: Payscale/Salaryexplorer), this is a potential efficiency saving of Rs.5K pm.

When you are willing to employ people on a WFH policy, it brings into your catchment people who are not otherwise available for a mandatory office going job in large cities.

Many of these people bring great skills at lower costs. Let’s say, this gives another 10% average efficiency. i.e. Rs.3.5K pm.

Some claim productivity gains in WFH, but I think the jury is out on that. So, we will ignore it & take that as a bonus, if at all.

So, we’ve got a total saving of Rs.30,500 per employee per month if we did away with all offices. That would be Rs.3.66 lacs per year per employee if we could keep him/her from coming to office forever.

However, that’s obviously impractical. The reality is hybrid.

So, let’s say if we could manage with 50% WFH workforce or all the people coming to office 50% of the time such that the employer gets just 50% of the savings. That is still Rs.1.83 lacs p.a. on an average.

What about the costs of WFH?

Many employees may not have the necessary amenities to work from home. That would require a one-time investment in a laptop, a good quality speaker set, a table and an ergonomic chair and maybe some furnishings (so that your clients don’t get exposed to his/her personal taste in curtains & wall posters).

Let’s put all of this at Rs.75K in capex per employee.

Then there will be some opex costs. You will need to provide a dedicated, secure & managed VPN connectivity at say, Rs.5K pm. And some recreation budget, because our offices are also places of wholesome entertainment ;-). Let’s say, another Rs.2.5K for an office party every month! That is, an annual recurring cost of Rs.90K.

So, our payback for the capex on a 50% WFH implementation works out to under 10 months. If the average tenure of a corporate employee is 3 years, this is an IRR of 20% pa!!

Which CFO or CHRO wouldn’t want such returns on a project?

But what about shared values and culture? How will we achieve team work and collaboration? How do we set visible examples of desired behavior? How will we train & build succession pipeline? And what about motivating people who just can’t work from home?

A 50% hybrid WFH should take care of these questions if done smartly.

The elephant in the room which I think many of us refuse to acknowledge is that corporates have shied away from measuring office work. Time sheets are seen as invasive. We have a gut feel level understanding of white-collar employee productivity.

The big risks of failure with WFH are over staffing, unproductive activities, chaos & ad-hocism. In the office, line managers rely on physical oversight, ad hoc reviews and grapevine signals to know their performers from laggards. Have we been able to replace these with more effective tools for WFH?

To gain from the WFH opportunity, companies need to embrace productivity boosting programs.

This calls for a new data driven people management. Technology can help & enable but the key, as always, is leadership.

I’d love to know what you think. Pls comment.

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