(medium C) which may have increased the nitrogen de
mand on this medium.
R. sinica shows great promise for the nursery industry,
particulary as the attributes and uses of this plant become
better known. Optimum growth of R. sinica occurred in
those soil mixes typically used in the nursery industry.
Growth in full-sun results in plants which are fuller and
more compact than those produced in shade, but would
require acclimatization prior to interior use. Use of this
information can enable growers to improve control over
plant development and increase efficiency in the produc
tion of this plant.
Literature Cited
1. American Public Health Association. 1971. Standard Methods for the
Examination of Water and Waste Water 13th Edition 223:518-534.
2. American Public Health Association. 1985. Standard Methods for the
Examination of Water and Waste Water. 16th Edition 417:374-403.
Proc. Fla. State Hort. Soc. 99: 286-290. 1986.
ECONOMIC ANALYSIS OF LABOR SAVING DEVICES IN NURSERY OPERATIONS
D. R. Gilpin-Hudson, F. S. Zazueta, and
A. G. Smajstrla
Agricultural Engineering Department, IFAS
University of Florida
Gainesville, FL 32611
Additional index words. Costs, automation, mechanization,
software, work measurement.
Abstract. A method for economic investment decision analysis
of labor saving devices is presented in this paper. The method
involves performing a time study on the manual or presently
used system. This includes: 1) evaluating the potential sav
ings in time and its associated cost resulting from the new
investment, and 2) using the investment indicators of net
present value, internal rate of return, and real rate of return
to evaluate the investment decision. The advantages of using
these economic indicators include: 1) they account for a
phenomenon known as the time value of money, 2) they
provide figures in real and present terms, and 3) they allow
for the comparison of investments with different depreciation
periods. A software package has been developed based on
this method that allows the user to evaluate labor saving
devices in Florida's nursery industry.
Labor Use and Evaluation in Nurseries
The evaluation of labor saving devices in nurseries can
be done through work measurement. Work measurement
has grown from simple operation charting to time and mo
tion study procedures, predetermined time techniques and
systems, and now moves toward the broad interdisciplinary
prediction of almost all major aspects of human perfor
mance (10). The six fundamental uses for which work mea
surement data are normally applied are: 1) prices (which
includes direct labor costs), 2) cost control, 3) planning, 4)
training, 5) evaluation, and 6) incentives. Jay (9) also recog
nized eight techniques used for work measurement. One
of these is time study which uses direct observation to pro
duce normative rather than descriptive results. Time study
is the most used technique for work measurement in indus
try today (15). This technique is used to determine the
time required by a qualified and well-trained person work
ing at a normal pace to do a specified task (1). Niebel (12)
concluded that the fundamental tools that result in in
creased productivity are the tools of methods, time study,
and wage payment. Work and time studies have been con
ducted in Europe to establish norms for labor require
ments in greenhouse production (5). The time study pro
cedures used in this work are those outlined by Barnes (1).
These methods are discussed in detail below.
Florida's ornamental horticulture industry is of sub
stantial size. Production in 1985 yielded $272 million in
foliage plants alone (7). A major input to production of
ornamentals in Florida is the cost of labor. Labor costs
account for over 30% of the total cost of production in
Florida's nurseries (16). A characteristic of any labor inten
sive industry, such as the Florida nursery industry, is that
production costs increase significantly with the cost of
labor. This leads to reduced profits and additional suscep
tibility to foreign competition. The increased use bf
technology to reduce labor and other manual inputs is a
way to control production costs. As this technology re
quires financial investment, its costs and returns must be
evaluated in order to make an investment decision based
on an objective comparison of labor intensive systems to
automated or mechanized systems.
•Florida Agricultural Experiment Station Journal Series No. 7752.
286
Making a Time Study
To evaluate a labor saving device it is necessary to know
how much time will be saved by that device, or, in other
words, how much time will be needed with and without the
device. There are several methods used to estimate the
amount of time it takes to do specific tasks. One such
method is called the time study method.
Time study is used to determine the time required by
a qualified and well-trained person working at a normal
pace to do a specified task. This time is called the standard
time for the operation. The exact procedure used in mak
ing time studies may vary somewhat depending upon the
type of operation being studied and the application that is
to be made of the data obtained. Barnes (1) stated, how
ever, that these eight steps are usually required:
1) Secure and record information about the operation
and operator being studied. This is to ensure that the
study can be a source of useful information in the fuProc. Fla. State Hort. Soc. 99: 1986.
2)
3)
4)
ture. Typical information consists of a plan of the
working area, starting and ending points of the activ
ity, and a timetable of the operating schedule.
Divide the operation into elements and record a com
plete description of the method. The standard time
reached is only valid for this exact method. This may
be important when making future comparisons.
Observe and record the time taken by the operator.
Perform a trial run to enable the estimation of the
number of cycles to be timed.
Determine the number of cycles to be timed. The fol
lowing procedure is proposed:
i)
Take readings: (a) ten readings for cycles of two
minutes or less; (b) five readings for cycles of more
than two minutes.
ii)
Determine the range, R, of the measured time val
ues. R is the high time value measured minus the
low time value measured.
iii) Determine X, as the average of all time values
measured.
iv) Determine R/X as the range divided by the aver
age.
v)
5)
6)
From Table 1 determine the number of readings
required to estimate the time for the given task
with 95% confidence.
vi) Continue to take readings until the total of the
indicated number required is obtained.
Check to make certain that a sufficient number of
cycles have been timed.
Rate the operator's performance. Rating is that process
during which the time study analyst compares the per
formance (speed or tempo) of the operator under ob
servation with the observer's own concept of normal
performance. The rating factor is usually expressed as
a percentage, with normal performance equal to 100
percent. The rating factor is used to calculate the Nor
mal Time as follows:
Table 1. Number of time study readings required for 5% precision and
95% confidence level.2
R/X*
Data from
Sample of
5
.10
3
.12
.14
.16
.18
.20
4
6
R/X
10
2
2
3
.42
.44
.46
.48
.50
8
10
4
12
14
17
7
8
10
.26
20
11
.28
23
27
30
13
17
34
20
.36
38
.38
43
47
22
24
.62
.64
.66
.68
.70
27
.72
.22
.24
.30
.32
.34
.40
6
15
.52
.54
.56
.58
.60
Data from
Sample of
R/X
5
10
52
57
63
68
74
80
86
93
100
107
30
33
36
39
.74
.76
.78
42
46
49
53
57
61
.82
.84
.86
.88
.90
.92
114
65
121
129
137
145
153
69
74
.94
.96
78
.80
.98
1.00
Nt = t-
An attempt can be made in the time study for normalcy
and consistency in pace on the part of the person being
observed. This can be arranged at the outset so that the
operator can receive a constant rating of 100%.
7) Determine the allowances. The normal time for an op
eration does not contain allowances for nonproductive
periods. It is merely the time that a qualified operator
would need to perform the job if he or she worked at
a normal tempo. However, it is not expected that a
person will work all day without some interruptions.
Allowances for interruptions to production may be
classified as follows:
a) Personal allowance (2 to 5 percent, 5 percent is
recommended for heavy work, particularly in a hot
humid, atmosphere).
b) Fatigue allowance. The problem of determining
the amount of time to be allowed for rest is very
complex. Time needed for rest varies with the in
dividual, with the length of the interval in the cycle
during which the person is under load, with the
conditions under which the work is done, and with
many other factors. From long experience, some
companies have arrived at fatigue allowances
which are shown in Table 2 and seem to be satisfac
tory (1).
c)
%
Activities
29
Handle 60-pound containers from skid waist-high to shoulder-high
stack. Pull loaded 4-wheel truck under normal conditions. (Gross
weight, 2500 pounds, 28 wheel diameter, 11 inches.)
Walking on level carrying 75 pounds on shoulder. Push: loaded
wheelbarrow (Weight of material, 350 pounds.) Push loaded 4-wheel
truck. (Gross weight, 2000 pounds; wheel diameter, 11 inches.)
Handle 40-pound containers from skid waist-high to shoulder-high
stack. Handle 65-pound containers from skid waist-high to knee
high stack. Use pick weighing 9 pounds to loosen new salt in R.R.
car. Paint smooth ceiling from step-ladder using a 4-inch brush.
Wet mop rough concrete floor. Dry-mop rough concrete floor. Saw
a yellow pine 2" x 4" 18 across grain. Handle 30-pound containers
from waist-high slide to skid. Pull loaded 4-wheel truck. (Gross
weight, 1000 pounds; wheel diameter, 11 inches.)
5
23
209
218
229
239
250
261
273
284
296
93
98
103
108
113
119
125
131
19
17
138
143
149
156
162
169
15
13
83
88
zAfter Barnes (1).
yR = range of time for sample, which is equal to high time study elemental
value minus low time study elemental value. X = average time value of
element for sample. (For +/- 10% precision and 95% confidence level,
divide answer by 4.)
Proc. Fla. State Hort. Soc. 99: 1986.
Delay allowance. This is lost time which is inde
pendent of the operator. Noncyclic elements that
Table 2. Personal and fatigue allowances for different activities.
25
162
171
180
190
199
[1]
where:
Nt = normal time,
t
= selected time, and
R = rating.
Data from
Sample of
10
R
100
10
Wet-mop wooden floor in good condition. Dry-mop wooden floor
in good condition. Scrape dirt from wooden floor in good condition.
(Handle 16 of scraper 60 inches long, blade 6 1/2 inches wide.).
Walking on level carrying 25 pounds.
Sweep rough concrete floor. Handle 20-pound containers from
waist-high slide to skid.
Wash window with wet rag or sponge, working from inside. Pull
empty 4-wheel truck. (Weight, 400 pounds; 11 inch wheel.) 12 Op
erate typewriter. Wipe top of desk or table to remove dust. Cut
strings on bundles of containers.
Walking on level unobstructed. Record data.
9
Make phone call.
7
Visual inspection and maintaining register for printed labels.
5
Personal allowance for men and women.
287
8)
occur as a part of the job are not to be treated as
delays but should be timed as part of the opera
tion.
Determine the standard time for the operation.
The standard time is calculated as follows:
St =
NtlOO
(100-A)
[2]
where:
St = standard time,
Nt = normal time, and
A = allowance (from Table 2).
When the time to be saved by a labor saving device has
been found, it can be used in the determination of the
economic feasibility of that device.
Economic Analysis
Investments in irrigation systems constitute a manage
ment decision with respect to the costs and returns of each
system (13). This requires enumeration of the capital items
and associated returns (14). The importance of the size of
costs and returns to investment decision making are quite
obvious. Not so obvious, however, is the importance of the
timing of these costs and returns. This importance of tim
ing is relevant because of the phenomenon known as the
time value of money.
The time value of money means that a dollar given up
today is not equivalent to a dollar received in the future as
long as there exists the alternative of earning a positive
return on the dollar during the interim. As money can
always earn a positive return, the time dimension of a cap
ital investment project is always of importance. The Net
Present Value (NPV) method for considering the time
value of money provides one economic criterion for accep
tance or rejection of various investment alternatives (2, 8).
In NPV analysis investors comparing two investments will
select the project yielding the highest NPV. Barry et al. (2)
described the method of calculating the NPV and Batliwalla (3) provided an analysis for the possible resulting
values.
Boggess and Amerling (4) used the NPV method as
part of a bioeconomic simulation model to analyze the risks
and returns of irrigation investments. In that analysis par
ticular attention was paid to the impact of variation in wea
ther patterns on the profitability of irrigation investments
in humid regions. Biological crop-growth simulation mod
els were used to generate dry-land and irrigated-crop
yields based on a time series of historical weather data.
These results were then incorporated into a net present
value analysis and Monte Carlo simulation techniques were
used to generate probability distributions of the net pres
ent values.
The Internal Rate of Return (IRR) measures invest
ment worth by discounting the NPV to the present time;
Real Rate of Return (RRR) is similar to IRR, except IRR
includes an adjustment for the rate of inflation (11). The
question of which is a better indicator of investment
worth—NPV or IRR and RRR—is debatable due to a dif
ference in the underlying assumptions. Levy and Sarnat
(11) preferred to use the NPV which assumes reinvestment
at the cost of capital, while Batliwalla (3) preferred the use
288
of the return rates which assume reinvestment at the re
spective rates of return. Batliwalla (3) also questioned the
wisdom of using only one economic indicator to evaluate
investments. In this work the NPV, IRR and RRR methods
are used. The standard time per day, the labor rate, and
the number of days per year that this system operated are
used to calculate the savings per year (Sn) as follows:
S = St W N
[3]
where:
S
St
W
N
=
=
=
=
Savings per year,
standard time,
wage, and
number of days used per year.
The value of these savings versus the costs associated
with the control system was used to calculate the system's
net present value (NPV), internal rate of return (IRR) and
real rate of return (RRR).
Calculation of the Net Present Value
The equation used for the calculation of the NPV is:
NPV = -Io-Mo + J2n
where:
Io
Mo
i
n
Vn
[4]
=
=
=
=
=
initial capital investment,
estimated maintenance cost,
required real rate of return (as a decimal),
number of years in the depreciation period,
salvage value at the end of the depreciation
period, and
Sj
= savings in year j.
The size of the capital investment (Io) was determined
from the bills of sale for components of the labor saving
device. Maintenance cost (Mo) was estimated using
guidelines relevant to the labor saving device. This is ex
pressed as money set aside at the outset for this purpose.
The nominal required rate of return (i) is the minimum
rate of return on an investment which is acceptable to the
investor. This is sometimes referred to as the cost of capital
as it can be the interest rate on a borrowed sum or the rate
receivable on an alternative investment. This nominal rate
of return was then adjusted for the effect of inflation. The
real required rate of return was found using the following
equation (11):
1 +h
[5]
where the following variables are expressed in decimal
form:
Rr = required real rate of return,
Rn = required nominal rate of return, and
h
= inflation rate.
The length of depreciation period assumed in this
analysis was five years. This is standard procedure for
equipment in the nursery industry.
Calculation of the Internal and
Real Rates of Return
The Internal Rate of Return (IRR) is another time dis
counted measure of investment worth. The IRR is defined
Proc. Fla. State Hort. Soc. 99: 1986.
as that rate of discount which equates the present value of
the stream of net receipts with the initial investment outlay
(11). The IRR is therefore that discount rate which equates
the net present value to zero. The Real Rate of Return
(RRR) is the IRR which has been adjusted for the rate of
inflation. Because uninflated savings were used in the cal
culation of the NPV, the relevant equation yielded a real
rate of return. The real rate of return by definition does
not include the effects of inflation. The RRR was deter
mined by iteration from the following equation:
Mo+Io=
RRR)!
[6]
where RRR is the Real Rate of Return and all other terms
are as previously defined.
The Internal Rate of Return (IRR) was calculated from
the RRR using the following equation:
IRR= (1 + RRR)(1 + h)- 1
[7]
where:
IRR = Nominal Internal Rate of Return
RRR = Real Rate of Return, and
h
= inflation rate.
The purpose of calculating a nominal rate of return
(IRR) was to enable comparison to be made to other invest
ments or required rates of return expressed in nominal
terms.
Discussion of Economic Results
Assuming that reinvestments earn at a rate equal to the
cost of capital, the fact that the investment has a positive
NPV means that:
1) The initial cost of the device plus the estimated mainte
nance cost will be returned by the investment.
2)
The investment will earn the real (as opposed to the
nominal) cost of capital per annum on the capital out
standing.
3)
A further amount will be returned by the investment.
This amount constitutes "profit" and if discounted at
the real cost of capital is equal to the NPV at the time
the investment was made.
If the assumption is made that the project's annual cash
flow could be reinvested at the project's respective rates of
return then the fact that the investment has a positive IRR
and RRR indicates that:
1) In nominal terms this investment yields the IRR annu
ally.
2)
In real terms this investment yields the RRR annually.
If the investment has return rates which are higher
than the respective required rates of return it is an accept
able investment. Comparisons with possible alternative in
vestments allow investors to maximize profits.
Several equations required in this method of economic
analysis require cumbersome and repetitive calculations.
For this reason computer software has been developed to
facilitate the users of this method.
a decision weather to install a computer control system tor
automation of irrigation operations, or to carry out irriga
tion by manually controlling the system (17). The following
information needs to be collected in order to use the
software that performs the evaluation:
a) The number of days that the device is to be used in
one year. Due to rainfall there was no need to irrigate
for 67 days in the year. Thus expected use of the con
trol system is 298 days per year.
b) The average time required by labor to perform the
operation that is to be automated or mechanized. The
average timing for the manual operation of the irriga
tion system was measured at the site as 1 hour and 8
minutes per day. This information was determined by
performing a time study as previously described.
c) The operator worked briskly during the timings and
was assigned a rating factor of 105%.
d) The personal fatigue allowance for a task of this sort
(from Table 2) is 10.5%.
e) Labor cost. The operator earned a wage of $3.95/hr.
0 Required rate of return. The rate that which outstand
ing loans were being paid was 15%.
The
initial cost of the device. In this case it included
g)
the computer system interfaces, solenoid valves and
wiring. The cost was $927.50.
h) Salvage value. The value of this device at the end of
the depreciation period (salvage value) was assumed to
be $75.00.
i) Maintenance cost. The anticipated maintenance cost
was assumed as 10% of the initial cost, that is, $92.75.
Depreciation
period. The depreciation period was esti
j)
mated to be 5 years.
k) Inflation rate. The inflation rate at the time the
analysis was done was estimated to be 5.7%.
Using these data, the software was uses to estimate the
economic indicators, the results can be seen in Fig. 1. The
average hourly wage rate was found to be $4.56/hour. This
is the present wage rate adjusted for the estimated inflation
rate and averaged over the depreciation period. The sav
ings at present labor rate, were found to be $1565.08/year.
This is the expected savings per year released by the device
NET PRESENT VALUE EVALUATION OF LABOR SAVING DEVICES
Number of days used
Measured time
Performance rating
Personal fatigue allowance
Labor rate
Required rate of return
Initial cost of device
Salvage Value
Maintenance cost
Depreciation period
Estimated inflation rate
Average hourly rate
Savings at present labor rate
Savings at average hourly rate
Net present value (NPV)
Internal rate of return
Real rate of return
298.00 /year
68.00 minutes/day
105.00 %
10.50 %
3.95 $/hour
15.00 %
927.50
75.00
92.75
5.00
5.70
4.56
1565.08
1805.80
5148.54
166.37
$
$
$
years
%
$/hour
$/year
$/year
$
%
152.00 %
Example
The following example is taken from an analysis done
for a commercial nursery in Florida. It deals with making
Proc. Fla. State Hort. Soc. 99: 1986.
Fig. 1. Microcomputer display showing the data and computed values
of the economic estimators.
289
if wages remain the same. It reflects the hours of labor
saved by the device per year multiplied by the present
hourly rate.
The savings at the average hourly wage rate were
$1805.80/year. This is the expected savings per year re
leased by the device if wages increase at the inflation rate.
It reflects the hours of labor saved by the device per year
multiplied by the average hourly rate.
The net present value (NPV) of the investment was
found to be $5148.54, indicating that the project returns
more than the selected discount rate and, therefore, is an
acceptable project from this standpoint.
The internal rate of return (IRR) was found to be
166.37%. This is substantially higher than the required
15%. A project with an IRR which is higher than the re
quired rate of return. Thus, the investment is an accept
able project from this standpoint.
The real rate of return (RRR) was found to be 152%.
This is equal to the IRR with the effects of inflation re
moved. This is substantially higher than the required real
rate of return. Thus, the investment is an acceptable invest
ment from this standpoint.
Literature Cited
1. Barnes, R. M. 1980. Motion and time study design and measurement
of work. John Wiley & Sons Inc., New York
2. Barry, P. J., J. A. Hopkin, and C. B. Baker. 1979. Financial manage
ment in agriculture. The Interstate Printers and Publishers Inc., Dan
ville, Illinois.
3. Batliwalla, M. 1978. Investment decision. Asia Publishing House Inc.,
New York.
290
4. Boggess, W. G., and C. B. Amerling. 1983. A bioeconomic simulation
analysis of irrigation investments. Southern Journal of Agricultural
Economics. 15(2):85-90.
5. Bosch, D., and A. J. Bolsink. 1978. Work study in forcing lilies. Instituut Voor Mechanisatie. Arbied Nen Gebouwen. Wageningen,
Netherlands.
6. Council of Economic Advisors. 1986. Economic indicators February
1986. Prepared for the Joint Economic Committee. U.S. Govt. Print
ing Office, Washington, D.C.
7. Florida Crop and Livestock Reporting Service. May 1986. Foliage,
floraculture and cut greens. Author, Orlando, Florida.
8. Hopkin, J. A., and P. J. Barry and C. B. Baker. 1973. Financial
management in agriculture. Interstate Printers and Publishers Inc.,
Danville, Illinois.
9. Jay, T. A. 1981. Time study. Blanford Management Series. Blanford
Press, New York.
10. Karger, D. W., and W. M. Hancock. 1982. Advanced work measure
ment. Industrial Press Inc., New York.
11. Levy, H., and M. Sarnat. 1982. Capital investment decision. PrenticeHall, Englewood Cliffs, New Jersey.
12. Niebel, B. 1982. Motion and time study. Richard D. Irwin Inc, Homewood, Illinois. Nineteen eighty-five irrigation survey. 1986. Irrigation
Journal 36(l):21-28.
13. Prevatt, J. W., B. K. Harbaugh, and J. A. Otte. 1979. A cost appraisal
of capillary mat, tube weight, hand water, and overhead irrigation
systems used in potted chrysanthemum production. Proc. Fla. State
Hon. Soc. 92:306-308.
14. Semprevio, R. D., D. L. Gunther, and J. R. Strain. 1979. Financial
analysis of a small bedding plant nursery in Florida. Proc. Fla. State
Hort. Soc. 92:308-313.
15. Smith, G. L. Jr. 1978. Work measurement: A systems approach. Grid
Publishing Inc., Columbus, Ohio.
16. Strain, J. R., and A. Hodges. 1986. Business analysis of foliage plant
nurseries in central Florida 1984. Economic Information Report 219.
Food and Resource Economics Dept., IFAS, Univ. of Florida, Gaines
ville, Florida.
17. Zazueta, F. S., S. Park-Brown, A. G. Smajstrla, and D. S. Harrison.
1984. Microcomputer control of irrigation systems for nurseries.
Proc. Fla. State Hort. Soc. 97:285-286.
Proc. Fla. State Hort. Soc. 99: 1986.