ComBank of Dubai: Minimizing Annual Expenses Research Paper

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Abstract

The main aim of this study was to determine the most cost-effective method that the Immigration Branch of Commercial Bank of Dubai would use to minimize their annual expenses. The choice to be made was between overtime and hiring of new employees.

From studies that have been conducted on the topic, it has been concluded that the difference between these two options is insignificant. However, overtime has always been the ultimate option since it is relatively cheaper as compared to hiring of new employees. From the results of the study, it was identified that the bank was understaffed especially on peak hours.

It was also found out that the cost incurred while hiring new employees is higher than the cost incurred on overtime. Due to this fact, it was concluded that the bank should maintain its overtime policy. However, there are some regulations that have to be put in place to improve on operations and reduce overtime costs.

Introduction

The United Arabs Emirates (UAE) is one of the fasted growing regions of the world. From humble beginnings, the region has grown over the last several decades to be one of the strongest financial hubs of the world (Madar Research Group, 2008). The region supports a vast diversity of commercial activities.

These include the oil and gas industry, tourism, infrastructural development, manufacturing industries, IT industries and many other commercial services. It is due to these factors that the GDP of the region has been growing at a tremendous rate especially for the last fifteen years.

To support all these activities, the region has developed a strong banking industry. The financial sector of the UAE is undergoing a massive overhaul. This has come about as a result of the changes in the structure and composition of the population. Initially, the UAE population comprised mainly of old individuals who had a static ideology, illiterate and embraced their traditional morals and values. At the present moment, the population of the region has evolved.

The region is now dominated by young enthusiastic individuals who are highly educated and more demanding. Their requirements, tastes and preferences have made the banking industry of the region to grow by increasing the diversity of its services and products (Hadjimonolis, 2009).

With the help of the government, the banks and other financial institutions of the UAE have developed regulatory mechanisms that have enabled a better monitoring of funds and generally improved the banking service. These are perhaps some of the reasons that have led to the success that these banks are currently enjoying. Due to the availability of favourably conditions, these banks have invested greatly to in order to meet the standards of their international counterparts.

At the present moment, UAE has a mixture of local and foreign banks. All these institutions strive to serve the clientele of this region. Due to the commercial nature of the region and the high competition that is present in the banking industry, it has been important for these banks to maintain high standards and offer quality services in order to maintain their customers and attract new ones (Quayle, 2010).

At the same time, it is essential for these banks to ensure that their operating expenses are at the minimum in order to enjoy profitability. This will guarantee their sustainability in the short run and in the long run (Berry, 2009).

Commercial Bank of Dubai is one of the leading banks in the UAE. Founded in 1969 by the late Sheikh Rashid Bin Saeed Al Maktoum, the bank has grown in its operations and services. The late Sheikh Al Maktoum is accredited for founding the modern Dubai. During its early days, Commercial Banks of Dubai was in partnership with Commerzbank, Chase Manhattan and the Commercial Bank of Kuwait.

Only a small proportion of the UAE citizens were the shareholders of the bank. Majority of the bank owners were foreign investors. Approximately ten years after its incorporation, Commercial Banks of Dubai became a National Shareholding Company. Its operations were further boosted when the government of Dubai became the major shareholder of the company in 1982 (CBD, 2012).

This not only increased the available funds but also increased the popularity of the company among the locals. With massive transformations, the institution gradually grew to be one of the leading commercial banks in Dubai and the UAE at large. At the present moment, Commercial Bank of Dubai offers a wide range of retail and commercial services to its customers.

The bank has a network of branches spread all over the UAE. Given the growth and expansion that the bank is currently experiencing coupled with the advancement in technology, Commercial Bank of Dubai aspires to offer the best banking services in the UAE and the world at larger.

The Bank’s Mission Statement is to be recognized as a quality focused, customer driven, financially sound and socially responsible bank. Its vision is to be the bank that leads the way to greater financial and social prosperity (CBD, 2012). The following are the mission statements of the bank:

  1. Clients – To be recognized as the preferred banking partner in our target client segments.
  2. Employees – To be recognized as an employer of choice through the fostering of a motivational environment which rewards superior performance.
  3. Society – To be recognized for our ethical banking practices and for our contribution to the social well-being of the communities in which we are present.
  4. Shareholders – To be one of the most profitable banks in the UAE.

The values of CBD create its own culture that supports growing of the company for a decade:

  1. Client First
  2. Consistent High Quality
  3. Cooperation and Teamwork

Despite the success that the bank is experiencing, there are a number of problems within its management. All of the branches of the institutions have always been reporting problems that derail them from meeting their short-term and long-term goals and objectives. This is a normal scenario in the normal operations of any institution.

The Immigration Branch of Commercial Bank of Dubai has over the last few years been experiencing high operation costs due to a number of factors. Overtime pay has been one of the main reasons why this branch has been experiencing high operating costs.

It is essential for an employer to follow the labour laws and pay his staff accordingly. With regards to this issue, Commercial Bank of Dubai is not against paying its employees their normal salaries and overtime for the effort that they have put beyond their stipulated hours of employment.

The bank conforms to the Labour Law Article No. 67 and 68 that clearly stipulates the payment rates with regards to normal work and overtime. However, the management of the bank has realised that there is a problem somewhere since it is paying exorbitant amount of money for overtime. In 2011, the bank paid approximately AED 60,000 worth of overtime per month. This figure is lower than that of 2010 but it is still a huge amount.

The rise in overtime has increased the budget of the bank for the last several years. In the year 2010, the bank paid approximately AED 1.2 million in overtime pay (CBD, 2012). In the Immigration Branch, approximately the salaries that were paid in the same year had increased by 10% as compared to those paid in the previous years (CBD, 2012).

The main aim this research study therefore is to determine critically analyze the problem that has been brought about by the overtime issue, the impacts it has on the operation of the branch and the bank in general. After all these issues have been identified and understood, proper recommendations shall be formulated to curb the issues that result to employees working overtime hence reducing the overall budget.

Problem Statement

A section of the management believes that paying overtime is still a better option of solving the employee crisis that the bank is currently experiencing. This is because, these employees understand the system and operation of the bank thus it will be easier for them to meet their targets and achieve the set objectives.

On the other hand, there are those individuals within the management who believe that hiring of new employees will be a better option to the current crisis that the bank is facing. They argue that it is cheaper for the institution to hire new employees to meet the current back load in the branch rather than paying the current employees overtime. This study shall therefore focus on these two options and identify the most efficient option among them.

Objectives and Research Questions

The main objective of this research study is to identify the factors that lead to an increase in the overtime cost of the branch. Once this is achieved, corrective measures will be formulated to reduce the amount of overtime pay in the branch and still maintain the same level and intensity of operations. To achieve all these, the following research questions shall be used:

  1. Are there enough employees for each shift?
  2. How are employees allocated within the branch?
  3. Is it cost effective to pay overtime the current employees or to hire more employees in the branch?
  4. Is there any unethical use of overtime?

Literature Review

The world that we are living in is based on a monetary system. Therefore, for individuals, partnerships, corporations and states to be successful in the short run and in the long run, it is essential for them to maximize their earnings (Boone and Kurtz, 2011).

According to Al-Hammad (2010), the best may that an organization can maximize its returns is through minimizing its costs and maximizing its benefits (Nelson, 2006). Once a huge margin has been established between income and expenses, the chances for a firm to maximize its profitability and be sustainable are also increased.

It is with regards to this issue that managers have always strived to cut their costs to ensure that their organizations not only operate within their current budget limits but also maximize on their returns (Al-Hammad, 2010). It is due to this fact that many managers always eliminate unnecessary costs from their operations in a bid to reduce their operating expenses. Over the years, managers have minimized or cut the funds that were directed on a number of projects.

Some of the funds that most organizations are fond of reducing or eliminating include entertainment and recreation allowance, transport allowance, passages, health benefits and funds directed to projects that are deemed as unproductive to an organization. These decisions have been successful in enabling these organizations meet their financial obligations while at the same time they have made others incur even more expenses.

Careful consideration therefore has to be taken into account while cutting down funds and seeking alternatives for an organization. While undertaking such measures, the management has to ensure that the option that they take not only reduces the operating expenses of the firm but also maintains or increases the level and efficiency of operations within an organization (Al-Hammad, 2010).

The banking industry is experiencing radical changes in the manner in which it is operating and the services that it is offering (Al-Hammad, 2010). In order to meet the ever-increasing demands of consumer and achieve consumer satisfaction, managers of banks have to consider the most efficient but cost effective option that will enable them to stand at a competitive edge over their rivals.

Managers therefore have to analyze the existing and new staffing methods that will in order to formulate the most efficient method to meet their restrictive budgets (Nelson, 2006).

There is a lot of controversy with regards to the staffing levels of different departments and the minimum amount of employees that a specific branch can have in the banking industry (Nelson, 2006). From the studies that have been conducted, it has emerged that the most expensive segment of a banking institution`s budget is the payment of salaries of professional staff (Nelson, 2006).

It has been approximated that almost 70% of the budget of all institutions, banking or non-banking, goes to the payment of salaries of professional staff. Most individuals who have conducted similar studies have arrived to the same conclusion. This is because it is the workforce that acts as a vessel of an organization to achieve its vision and missions. Due to this fact, many managers have come up with solutions of trying to reduce this unavoidable cost.

One of the options that many organizations have adopted is via maintaining a minimum number of all the employees. To ensure that all the workload it attended to with this minimum number of employees and to eliminate employment vacancies, managers have opted for the overtime option to cover this gap. Indeed, overtime results to additional costs to an organization but most managers are willing to experience this costs rather than the cost of recruiting new employees (Nelson, 2006).

Many organizations have accepted the fact that overtime spending is part and parcel of their operating costs. They view overtime as a means of maintaining a minimal staff level and at the same time ensure that the operations of their organization are conducted in an effective an efficient manner. While conducting her study, Lelja (2008) interviewed a number of branch managers of banks in downtown Georgia Atlanta.

From her results, 68% of the managers accepted the fact that overtime is one of the best staffing methods that maintains the staff levels of their branches at a minimum while they still exhibit high performance. Of the 24 managers who were interviewed, 18 were using overtime as a means of achieving their targets while maintaining a low sized staff in their branches (Lelja, 2008). It has always been argued that overtime pay is a means of guaranteeing revenue increment in organization that wishes to minimize its operating costs (Lelja, 2008).

The rate at which employees are paid for duties they perform in overtime is always higher than the pay they get while working on normal hours. Overtime rate is normally calculated using a number of methods. Despite the method that is used, employees are guaranteed to get more from their overtime efforts.

The same concept applies in the banking industry. Out of overtime, employees of a financial institution tend to make much more than they usually do. A study that was conducted by Nelson (2006) revealed that most of the employees who worked overtime made much more in overtime than their salaries. This study focused on all industries and professions. It emerged that fire fighters and bankers ended up accumulating much more than other individuals in the society as a result of their overtime pay (Nelson, 2006).

In some cases, these individuals ended up earning two times or even three times much more that they earn on normal pay. This fact thus made them to feel respected in the society. This in turn motivated them to even work harder and meet the goals and targets that have been set by their employers. Nelson (2006) concluded that overtime not only reduces the overall expenses of an organization but it also motivates employees to work harder and meet their short-term and long-term targets.

The exorbitant amounts of money that employees make out of overtime normally have a heavy blow on the budget of organization. Firms tend to allocate most of their funds to carter for the pay of their employees. However, much more money is even spent as a result of overtime.

The managers of many banking institutions have always complained that the amount of money their branches are spending with regards to overtime is so high (Boone and Kurtz, 2011). Commercial Bank of Dubai is one of the banks that have been experiencing high costs for the last few years. In the year 2010, the bank spent approximately AED1.2 million on its Immigration Branch alone on overtime (CBD, 2012). In 2011, the branch required an average of AED 60,000 per month to meet its overtime costs.

Most managers in the banking industry believe that the high costs they are experiencing with regards to overtime pay is as a result of the operating shifts that are being used in their respective branches. In her study Quayle (2010) asserted that there is a correlation between overtime pay and the implementation of shifts that last for more than 12 hours. Quayle (2010) believes that the 8-10 hour shift in the banking industry is more effective and efficient than the 10-14 hour shift.

However, other researchers argue that the 10-14 hour shift is more effective since it is beneficial to both the banking institution since it reduces the overall expenses and to the employee since such employees are motivated by the high overtime pay that they get. Quayle (2010) suggested that the 8-10 hour shift is more efficient since it requires minimal utilization of sick days and leave days, it requires minimal overtime pay and employees perform to the best of their ability due to the absence of fatigue that arises from long hours of work.

The 8-10 hour shift is thus viewed as an efficient and cost effective option as compared to the 10-14 hour shift where more sick days and leave days are used, high overtime costs are experienced and employees are fond of making errors and other mistakes due to fatigue and stress that results from long hours of work.

In the 10-14 hour shift, the performance of employees is in most cases not as per the expected standards as employees rarely meet their set goals and objectives as per the requirements of the management. According to Quayle (2010), such shifts have always been associated with decrease in production and quality of goods and services from the employee end point.

Therefore, by adopting the 8-12 hour shift, financial institutions shall increase on their effectiveness and efficiency as the employees will be at their best while working (Quayle, 2010). This will ensure that they carter to the needs of their customers as per their expectations. This is an essential factor in achieving consumer satisfaction. On the other hand, the 8-10 hour shift also reduces the operating costs as fewer sick days are used and overtime is minimized.

The issue of employing additional staff to meet the staff demand of an organization and avoid overtime has always been discussed in a number of studies. Sandberg (2009) conducted a study where he tried to determine whether paying employees at an overtime rate of 1.5 times more than their salary cost-effective as compared to hiring new employees.

From the study, it was identified that it was 13.1% cheaper to pay employees overtime than to hire new individuals (Sandberg, 2009). This index was calculated by considering the employees current salary, their overtime rates and benefits versus the cost of recruiting and hiring new individuals. Hiring new employees in itself also has associated costs.

These include posting the vacancy advertisement on various forms of media, screening the documents of the applicants, contacting successful applicants to come for an interview and conducting the actual interview. Other costs include hiring trainers to train the recruits, purchasing materials that will be used in the process of training, paying the recruits allowances in the process of training and other miscellaneous costs that may arise (Sandberg, 2009).

In the process, the level of production of these employees is not as per the expected standards of an organization. In addition, there are always high trainee turnover rates as only a small proportion of the employees who commence the training actually go through the entire process and become productive members of staff at the end of the process (Sandberg, 2009).

There are also additional costs that are involved with maintaining permanent staff. These include insurance compensation, payment to pension schemes, retirement benefits, holiday pay, leave pay, payment of special tools, equipments and clothing that may be requires for specific works.

It is thus essential for the management of an organization to consider all the associated costs while determining the best option to adopt. From his study, Sandberg (2009) concluded that it was cheaper for financially institutions to pay for overtime rather than experiencing the costs of hiring new employees.

It is due to this fact that many organizations opt to maintain their employees even after their retirement ages. These institutions feel that it is financially feasible to pay such employees their benefits, salaries at a higher rate rather than hiring new employees. Such employees are normally maintained due their expertise that is difficult to get from fresh recruits.

It has always been argued that the college live-in programme to be one of the best alternatives to meet the staffing requirements of an organization without straining its financial limits. With this program, organizations are able to meet their obligations without the hiring of permanent staff. The work overload that an organization may be experiencing is normally shifted to these students who work as part and parcel of the team.

The main aim of these students is to gain experience and not to be paid. Such programs normally give students the change to put their theoretical knowledge and skills into practice and gain experience and exposure in the process. Salary is not their main issue. This gives organizations the best chance of reducing their financial burden by administering chores to these students. The college live-in program is thus a better alternative than hiring new employees.

In the course of giving these students exposure, there are possibilities that industrious students may be identified that will ultimately join the working team as permanent staff. This is a relatively cheaper means of organizations obtaining employees rather than recruiting from scratch. However, such programs are not expected to fill in the employment vacancies that may be available in an organization or reduce the overtime burden (Sandberg, 2009).

Berry (2009) suggested that once overtime has been used for some period of time, it will reach a point that an organization will start o experience the diminishing marginal returns. In his study, Berry (2009) concluded that it is cheaper to utilize the option of overtime pay for a couple of years than to employ new staff to meet the workload at an organization.

This can be achieved by putting in place proper measures, careful planning and wise utilization of financial resources. Once these considerations have been put in place, an organization stands a higher chance of benefiting more from overtime rather than hiring new employees (Berry, 2009).

It is thus advisable for financial institutions such as micro finances and banks to adopt and implement the option of overtime while adhering to strict rules and regulations to ensure that this option becomes part and parcel of their operating system. Once this is achieved, such an organization shall benefit a lot from in terms of cost reduction from overtime rather than recruiting new employees.

Financial institutions advocate for overtime as a means of maintaining their employee level to a minimum (Al-Hammad, 2010). The minimum number of employees who can work in a specific department is normally determined by the volume of work that is expected to be encountered.

However, there are always uncertainties that tend to disrupt the number of available employees in meeting their obligations. Holidays offs, leaves, sick leaves, injuries, workshops and training, major incidents and lateness are some of the factors that facilitate the need of overtime (Al-Hammad, 2010).

These factors normally result in a decline in the number of available employees to meet the daily obligations of a branch. Due to this fact, Al-Hammad (2010) stated that it was essential for managers to put into consideration all factors that may lead to the occurrence of overtime. However, some of these factors are unpredictable thus difficult to quantify.

Due to this fact, Al-Hammad (2010) in his study used historical data to determine the trends and occurrences of factors that led to the development understaffing in various bank branches. From the results that he found, he developed a breakeven point of hiring additional employees and advocating for overtime. In his study, he concluded that it was advisable for a branch or an organization to employ more individuals up to the breakeven point.

Once this point has been exceeded, it was advisable for a firm to utilize the overtime option as it will yield more benefits and result to lower costs that hiring of new employees (Al-Hammad, 2010). With his results, he was able to develop a profitability formula that would calculate the optimal number of employees who are able to meet the daily staffing obligations of a specific organization.

There are however a number of drawbacks that are associated with overtime. It has been argued that the process may be insidious (Berry, 2009). Once the act has been introduced in an institution, it will be virtually impossible for the management to cut on the resultant costs, leave alone eliminating it from the organization. In such circumstances, overtime becomes part of the operating activity of an organization.

All the employees of an organization accept it as a norm and it becomes part of their organization culture. Overtime, in some instances, is not successful in meeting the goals and objectives that it has been advocated to meet in the first place. This is because overtime requires employees to work for long hours.

This normally leads to brain drain, fatigue and loss of concentration. As a result, employees tend to become less productive. This in some circumstances may lead to a decline in productivity of the entire organization since the employees are incapable of meeting the needs of their clients.

From the literature that has been covered in this paper, it is evident that managers are always striving to come up with the best means of reducing their operating costs. One of their main methods has been to maintain the number of the staff at a minimal level. However, this has normally resulted in back loading.

Due to this, most managers have advocated for overtime as the most cost effective method rather than hiring new employees. This study shall therefore go further on this area of study and determine whether indeed overtime is a cost effective option as compared to hiring of new employees.

Methods

Literature Review

Literature review was a source of secondary information for the exercise. This data was obtained from books, magazines, peer reviewed journals, online articles and other relevant sources that had discussed the issue of overtime and related labour laws. Through literature review, some of the methods that had been used in the previous studies were borrowed and applied to the current study.

Also the recommendations of the previous studies were considered in the current work and further research and analysis were conducted on the same. Information from literature review was therefore used as a guiding tool in conducting this study.

Administering of Questionnaires

To gain quantitative data, questionnaires were administered to the target groups using the following procedure:

  • There were two sessions of interviews on each day.
  • The interviews were conducted in the morning hours and in the afternoon.
  • In each session, only one individual was interviewed. This was done to ensure that employees still meet their employment obligations while giving time for the study.
  • Members of different ranks and departments were interviewed to ensure that the attitudes of different employees are tested.
  • Each session lasted for around 60-90 minutes.
  • Techniques: Construction (visual)

I conducted all the interviews with the help of a moderator. This ensured that all requirements of the study have been precisely covered. To ensure this, a pre-determined agenda was used.

Analysis of qualitative data and questionnaire designing

To construct a questionnaire that was precise and straight to the point, qualitative data had to be analyzed and interpreted first. This information helped in the making the questionnaire. It ensured that the questionnaire that was used for the study became a powerful tool for the collection of quantitative data. The resulting questionnaire therefore was precise, flexible and be able to collect only the relevant data that was needed for the research study.

Method: Qualitative data coding and survey conducting preparation

The data that was obtained from the interviews that were conducted on the target groups was coded statistically to reveal the trends and sequences. Finally, the data that was obtained was used in the preparation of the final report. The inferences that were arrived at from the analysis of qualitative data together with the information from the literature review were used to structure the questionnaire to reflect only the relevant information for the study.

Primary Research (quantitative)

Primary data is used to refer to data that has been collected directly from the area of study (Hadjimonolis, 2009). For this study, questionnaires were used to collect this vital information. This was a critical procedure to obtain first hand information that helped to explore the research objectives and gain statistical data that is necessary for data analysis.

The questionnaires were structured in such a way to minimize the occurrence of errors that would have otherwise made the data collected from the field to become unreliable. Careful measures were taken to avoid this. Prior to the conduction of the interviews, the validity of the questionnaires was tested and approved for use.

Method: Survey

Structured questionnaires were used to collect data from the target group. These questionnaires comprised of a total of 15 questions that were structured in such a way that one question led to the other. 20 individuals were interviewed face to face for five straight days excluding weekends. The interviews were only conducted on the Immigration Branch of the Commercial Bank of Dubai.

The managers, heads of different departments and employees from all the departments formed the target group of the study. The target group was composed of individuals who held different ranks within the branch. This was essential as it assisted in the determination of the attitudes and perceptions of all branch employees with regards to overtime and hiring of new employees. Random sampling technique was used to get the individuals to be interviewed in the study to avoid biasness.

Data Analysis

Raw data from the field is of no use since it does not make any sense at all. It is mainly composed of numbers and codes that need to be analyzed to make sense. Analysis of data involves three major steps:

  • Data preparation that involves the organization of the data that has been collected for easy analysis.
  • Descriptive statistics that entails the description and interpretation of the data that has been collected. This can be done using charts and bar graphs to explain the trends that have been observed.
  • Inferential statistics that is done to test whether the data that has been collected is consistent with the objectives and hypothesis of the study. This is where either the null hypothesis or alternative hypothesis is proved to be true.

Method: SPSS 16.0

For accurate analysis of the statistical data, a computer programme called SPSS 16.0 was used for descriptive data analysis. The data was explored using descriptive statistics and histogram plots to determine the shape of the distribution for each sample variable. The name given to each variable for the data analysis was given in a table.

Data analysis was carried out using parametric tests where the data followed a normal distribution and where the sample number was equal to or greater statistical power. Where the data did not follow a normal distribution or where the data was split into groups of less than the sample size (n), non-parametric test was used. For example, a Pearson correlation test was carried out on the data to explore any linear relationships between the variables.

Ethical Considerations

For the data to represent a true and fair view, the study had a few considerations on ethics. The data collection exercise was conducted in only one branch but employees from all the departments and ranks were involved in the study. In addition, the issue of gender was also put into consideration as the members of all the sexes were equally represented in the study.

This consideration was done to gather information on the immigration department and the data that was collected could be generalised to reflect all the the branches of Commercial Bank of Dubai and all the banks in general that have been experiencing the same problem.

The questionnaire was structured in a manner that it avoided any conflicts with regards to ethical considerations such as traditions, religion, age, rank and gender. It mainly focused on collecting the data that was required for the study. Prior to the commencement of the research, the management, departmental heads, employee representatives and all the employees of the Immigration Branch were notified.

Results

The results that were found from the study were very interesting. The data that was acquired from the questionnaires were interpreted using the Likert scale. These results clearly showed the attitudes and perceptions of the employees who were interviewed during the study. Each question in the questionnaire was used to measure a unique variable that was being tested in the study.

Additionally, literature review acted as the main source of information for this study. Financial data from the branch revealed the data and statistics of hiring new employees and paying overtime. This data was essential as it guided the course of the research, its analysis and the results that were used to answer the research questions.

Due to the ever-rising number of clients, Commercial Bank of Dubai has been employing approximately 80 individuals annually who were distrusted in all their branches. The Immigration Branch for instance receives at least 8 -15 new employees annually. In the process of hiring new employees, the branch experiences direct and indirect costs.

Indirect costs include those costs that are charged directly to the human resource department of the headquarters while direct costs are those costs that are charged directly to the Immigration Branch. Table 1 below summarised the costs required to hire new employees.

Table 1

CostAmount per Employee (AED)
Application of a Position2500
Application Review3500
Application Data Entry2500
Application Status Notification1300
Written Exam Administration5500
Written Exam Notification5500
Other Expenses (Facing the Panel etc)18,500
Total Costs39,300

Table 2 below shows other associated costs incurred in the process of employment.

Table 2

CostAmount per Employee (AED)
Background Reference Check5500
Background Educational Check5500
Background Credit Check5500
Medical Check5500
Review of Background Information18500
Fingerprinting7200
Provision of Accessories98,000
Total145700

The total overall cost that is thus required to hire a new employee was approximated to be AED 185,000. This cost does not include the additional salaries and benefits that employees are entitled to.

From the analysis of the employment records of the immigration branch between 2008 and 2010, it was evident that vacancies were available in all the departments and ranks. From this analysis, it was concluded that the backlog in work that the Immigration branch is experiencing is as a result of understaffing.

This has prompted the manager to advocate for overtime as a solution to their current problems. It is due to this shortage that the management implemented the 10-14 hour shift instead of the 8-10 hour shift. The branch manager`s rank ranged to the no manager on duty to a full time manager.

The same trend applied to other managers and departmental heads. For the tellers, their shifts ranged from a low of three 3 on duty to a maximum of 11. Accountants ranged from a low of 4 to a maximum of 12. The customer care department ranged from a low of 2 to a maximum of 6. The number of employees present in a single shift was determined by the peak hours of the day.

The peak hours were experienced between 9 am to 10.30 am and from 2.30 pm to 4 pm. The bank also experienced an influx of customers during the period of end month and the beginning of a new month. Due to the seasonal nature of the consumer peaks, the management felt that during off peaks, the branch would be overstaffed hence incur unnecessary expenses.

To determine whether overtime was cost-effective than hiring new employees, a thorough examination of the employees annual salary and the hourly rate determined. The hourly rate was determined by dividing the total compensation with the 2256 (the total numbers of hours an employee is expected to work in a year). The overtime rate was then calculated by multiplying the hourly rate by 1.5. Table 3 below shows the summary of hourly rate pay for employees of different ranks.

Table 3

PositionAnnual Income (AED)Hourly Rate

(AED)

Overtime Rate

(AED)

Managers360,000159.57239.36
Accountants144,00063.83103.25
Tellers120,00053.1979.79
Customer Care Reps96,00042.5563.83

To determine the impacts of hiring a new employee, the cost of training can be added to the annual salary that each employee is entitled to. This information can be analysed in the Table 4 below.

PositionAnnual CostHourly rate
Managers545,000241.57
Accountants329,000145.83
Tellers305,000135.2
Customer Care281,000124.56

From the above table, it is evident that paying overtime is cheaper than employing new individuals. The cost of employing new individuals becomes higher as one moves down the ranks and this are the positions that have the ultimate need of effort from employees. To determine the financial impact of overtime versus hiring new employees on the branch, a Pearson Correlation was conducted. Its results are represented in the Table 5 below.

Correlations
Overtime CostsRecruitment Costs
Overtime CostsPearson Correlation10.618
Sig. (2-tailed)0.626
N3030
Recruitment CostsPearson Correlation0.6181
Sig.(2-tailed)0.626
N3030

A Pearson correlation of 0.618 implies a strong positive relationship with insignificance at 5% therefore suggesting that it is more expensive for the organization to employ new individuals rather than paying overtime.

Discussion

The main aim of conducting this research study was to determine whether is overtime was a cost-effective option for Commercial Bank of Dubai to employ on its Immigration Branch over the option of hiring new employs. Studies that have been conducted by Berry (2009), Quayle (2010) and Sandberg (2009) concluded that there is no significant difference between paying overtime and hiring new employees.

However, from the results of this study, it is evident that there is a significant difference between hiring new employees and paying overtime. The significance in difference increases as the ranks of employees in the branch reduces with employees on the customer care department exhibiting huge differences between overtime pay and the cost of hiring new employees. This was evidenced by the AED 60.73 difference in the hourly rate.

However, it should be noted that this additional cost is only incurred during the base year of employment. Once the employee has been assimilated into the system, the overall costs are expected to reduce.

However, it is due to this reason that Berry (2009) asserted that employers opt to maintain their staff rather than employing new ones every year due to the high costs that are incurred in the process of recruiting these individuals. It is due to this fact that the management of Commercial Bank of Dubai have advocated for overtime over hiring of new employees.

Consequently, from the analysis of the employment records and performance, it can be concluded that the bank is slightly understaffed. It is due to this reason that the banks always have a backlog of work hence the need for overtime. However, the bank managers argued that this overload of work is only seasonal and is experienced only during peak hours.

Once the operations of the bank return to normal, the number of staff that is present is capable of meeting the operational demand. However, if the bank had opted to hire new employees, its operations would only be efficient during peak hours. However, during off peak hours, the branch will be overstaffed hence it will incur unnecessary costs. It is due to this fact that the management prefers overtime over hiring new staff.

Finally, there are some drawbacks that are associated with overtime. In her study Lelja (2008) proved that there is a direct relationship between decrease in employee performance and an increase in the amount of work and hours of work. The Immigration Branch has also experienced the same effect since employees complain of fatigue as a result of working for long hours. In addition, there have been cases of errors and mistakes in the branch.

Although these events did not greatly affect the performance of the branch, it is essential for the management to check these issues. However, at the current moment, the bank stands a better chance of meeting its short-term and long-term goals and objectives through cost cutting by embracing overtime over hiring new employees. From the results that have been presented in this study, it is evident that overtime is the most cost-efficient option as compared to hiring of new staff.

Conclusion and Recommendation

Management is an essential aspect in the determination of the long-term sustainability of an organization. In the process of running an organization, it is the role of a manager to minimize his costs and maximize his benefits in order to ensure that his/her organization is profitable in the short-run and in the long-run.

The immigration Branch of Commercial Bank of Dubai has been experiencing high operating costs as a result of overtime. To cut costs, the branch had the option of hiring new staff or implementing overtime. From the results that were arrived at in this study, overtime was the most cost efficient option that the bank had. However, there are some shortcomings that are related to this option.

The main shortcoming is the decline in efficiency and productivity of the branch. To avoid this, I would recommend that the bank develops a breakeven point that would determine the best the best staffing alternative with regards to the two options given the prevailing situation. This will ensure that the bank enjoys the benefits of overtime and hiring new staff at the same time.

References

Al-Hammad, I. (2010). The Obstacles of Instructional Supervision in Arabian Banks. Unpublished Master Thesis. King Saud University: Riyadh.

CBD. (2012). About Us. Commercial Bank of Dubai. Web.

Berry, L. (2009). Relationship Marketing of Services, Growing Interest and Emerging Perspectives. Journal of the Academy of Marketing Science, 23, 236–245.

Boone, L. and Kurtz, D. (2011). Contemporary Management. New York: Cengage Learning.

Hadjimonolis, A. (2009). Staffing and Ethics: A Case Study of Developing Nations. Technovation, 19 (9), 561-570.

Lelja, V. (2008). The Role of Gender in the Perception of Barriers to E-commerce Adoption in SMEs: A Case Study of the United Arab Emirates. IBIMA, 4, 121-147.

Madar Research Group (2008). Dubai E-Commerce Special Feature. Madar Research Group. Web.

Nelson, C. (2006). UAE National Women at Work in the Private Sector: Conditions and Constraints. Dubai: Trident Communications.

Quayle, M. (2010). Management: The Challenge of Financial Institutions in the 21st Century. International Journal of Operations and Production Management, 22 (10), 1148-1161.

Sandberg, K. (2009). An Exploratory Study of SME`s Management. Journal of Small Business and Enterprise Development, 10 (4), 408-417.

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