Denver Applies Lean Principles to Payroll

By Cynthia Manuel, citywide payroll manager, City and County of Denver &
Christine Carmichael, director, public sector practice group, Kronos

Working smarter and more efficiently can pay big dividends for state and local governments during the economic crisis. To accomplish this, many are turning to a process improvement technique that originated in manufacturing. It’s called Lean and it is a collection of principles, methods and tools that improve the speed and efficiency of any process by eliminating waste.

According to Lean doctrine, only five percent of activities add value for the consumer, making 95 percent either unnecessary non-value adding activities or waste. By clearly defining value for a specific service or product from the customer’s perspective, non-value added activities and waste can be targeted for removal. Eliminating waste is the greatest potential source of improvement in process performance and customer service. Once waste has been identified, processes are redesigned to allow services, information, or products to flow through the new process without interruption.

Lean methods apply to all areas of service delivery to employees and citizens. In his book, Lean Six Sigma for Service, Michael L. George indicates that Lean methods and tools can be applied to any process where an employee:

• Chases information in order to complete a task
• Must jump through multiple decision loops
• Is constantly interrupted when trying to complete a task
• Is engaged in expediting (of reports, purchases, materials, etc.)
• Does work in batches
• Finds work lost in the “white space” between organizational silos
• Doesn't know what they don't know

Payroll: A Great Place to Start
When applying Lean in order to increase operational effectiveness, there are several reasons why governments should examine their payroll processes first. Payroll is highly repetitive, the processes and requirements involved in delivering paychecks are the same, and payroll’s redundant steps are supported by a lot of paper. There are also many feedback loops and check-off points to identify and correct payroll errors. To illustrate payroll’s arduous processes, let’s examine a real-life example from the City and County of Denver and see what happened to a simple time-off request before and after their Lean workforce management implementation.

With a manual, paper-based payroll system, accurately processing payroll for employees at Denver’s 51 agencies was a major headache. Employees completed paper timesheets and three-part leave slips that often took weeks to reach the agency’s timekeeper, who manually entered data into PeopleSoft. The payroll department had no access to source documents for verification and was unsure if pay rules were applied consistently and accurately. Without timely workforce information, employees and their supervisors did not have accurate leave balances, making it difficult for supervisors to know if an employee had available time off. Note the list below of the 21 steps it took for an employee to request time off under the old system.

Time-off Request for Vacation Before Lean Implementation
1.    Employee calls agency payroll department to see how much time off they have available.
2.    Employee fills out a three-part carbonless leave slip to request time off.
3.    Employee gives this form to supervisor for signature.
4.    Supervisor signs the form.
5.    Supervisor gives a copy of the form to the employee for their records.
6.    Supervisor keeps a copy of the form for their records.
7.    Supervisor sends the form to the payroll(PR)/HR technician.
8.    PR/HR technician holds on to the leave slip until payroll processing time.
9.    On payroll cut-off, the agency PR/HR technician alphabetizes the forms they’ve received for the pay period.
10.    The PR/HR technician manually keys the information into PeopleSoft Time and Labor.
11.    City payroll department runs the Time Admin process to process all time entered in Time and Labor.
12.    The agency PR/HR technician audits what they have entered against the Time Admin report.
13.    If there are errors, the PR/HR technician contacts the employee, the supervisor, or the city payroll department.
14.    If errors are not corrected by the time city payroll is ready to process, the entries will be deleted.
15.    After payroll is processed employees receive their paychecks.
16.    If there are errors in the employee’s paycheck they call their agency PR/HR technician.
17.    The agency PR/HR technician calls the city payroll department.
18.    The city payroll department researches the issue and calls or emails the technician.
19.    The technician calls the employee and lets them know what happened and how the error will be corrected.
20.    If the employee understands, the process is completed.
21.    If the employee does not understand, they contact the city payroll department for help and the cycle begins again.

After implementing an automated workforce management solution, Denver was able to reduce the number of steps by more than 52 percent. Today the vacation request process looks like this:

Time-off Request for Vacation After Lean Implementation
1.    Employee enters vacation request in Kronos using time clock or terminal.
2.    Kronos validates the rules and verifies that the employee has time available.
3.    If employee’s request is valid, an email is sent to employee’s supervisor for approval.
4.    Supervisor receives notification and either approves or declines employee’s request.
5.    Employee receives notification that time-off request has been approved or declined.
6.    Employee approves timecard at the end of the pay period.
7.    Supervisor approves employee’s timecard at the end of the pay period.
8.    City payroll department signs off on all timecards.
9.    City payroll department audits all data in Kronos and makes any necessary adjustments.
10.    All time-off requests for the time period are sent to PeopleSoft Time and Labor via an interface.

Lean Payroll Pays Off for Denver
For Denver, the automated time and attendance solution brought new efficiencies to payroll processing. Payroll staff was reduced by 56 percent, with impacted employees moving to higher value, unfilled positions. This and other savings resulted in $1.5 million in yearly, sustainable cost savings. In addition to the labor resource cost savings, the city was able to increase productivity and efficiency, and improve compliance with accurate and consistent application of pay rules and policies that they estimate will save them another $4,200,000 across the next five years and $900,000 in sustainable savings.

In recognition of its efforts, Denver was named the 2009 recipient of the Ventana Research Workforce Leadership award, which recognizes organizations that have most effectively delivered business success by improving processes with information and technology best practices. Denver also received the 2009 American Payroll Association Prism Award for excellence, an honor that is rarely granted to a public-sector organization.