Rocky Mountain Mutual: Fun or Fitness Sample Responses
Case Sample Response A
As I mentioned to you in our meeting last week, I have some concerns about your proposal to close the health and fitness center. During the past nine months, I have researched the value of the center, instituted a new program to encourage employee use of the center, and seen great benefits--both tangible and intangible--from employee use of this facility. I will present my findings below and respond to some of your concerns.
My data, collected several months ago, indicates that there are substantial savings in health care costs, significant gains in worker productivity, and important improvements in worker morale which might have a correlation with use of the health and fitness center. For example, annual hospitalization costs per employee over the past two years were $500 for employees who never used the center, $300 for employees who used the center at least once a week, and $100 for employees who used the center at least 3 times per week.
Table 1: Annual hospitalization costs per employee
Weekly visits to fitness center Hospital costs per employee
NONE $500
1 or More $300
3 or More $100
While these figures do not demonstrate a cause and effect relationship between exercise and lower hospitalization costs, they nevertheless show a strong correlation between the two. Thus, it is reasonable to assume that closing the facility may increase health care costs, and that by encouraging more employees to use the facility, costs could be cut further, perhaps by as much as $30,000 per year.
Based on this data, several months ago I launched an incentive program in the Claims
Department which has rewarded employees for using the center at least twice a week. The results even surprised me: productivity has increased by 18% and sick days have decreased by 5% over the previous 6-month period. I, too, have felt more energized and productive on the job. The productivity gains are substantial, and I believe could be enjoyed in every department by instituting this program on a company-wide basis. These gains would save the company
hundreds of thousands of dollars each year, more than covering the cost of operating the center.
Let me address the three important points you raised in favor of closing the center. First, it is without a doubt true that the center is expensive to operate. However, as I have shown above, I am confident that these costs can be recovered through productivity gains and health care savings. Second, you point out that only a small portion of the work force uses the facility regularly. While this is true, I believe that it is a valuable benefit to this 35% of the firm. Perhaps we could increase usage through a promotional program so that more people can benefit from this resource. Lastly, you point out that the center is not necessary for us to effectively compete. The center clearly is unrelated to the insurance business per se, but it may give us some
competitive advantages: lower health care costs, higher productivity, better morale, and an extra benefit with which to attract and retain talented employees.
I believe that there is a strong case for keeping the center open. I trust that you will make the right decision based on all the information at your disposal. Please let me know if you need any additional data from my research or would like to discuss my proposal in more detail.
Case Sample Response B
At our last meeting, you briefly outlined your plans for cutting company costs and improving profits. As I mentioned then, I strongly believe that closing the fitness center is not the best way to achieve those goals, and I have serious concerns about the effect this decision would have on the company as a whole.
You cite three primary reasons for closing the center and using the space for the Corporate Information Systems Department. After carefully reviewing these issues, and analyzing all available information regarding the impact of the fitness center on the employees and the company, I have concluded that the reasons to keep the center open far outweigh those to close it. Therefore, the following is a breakdown of your concerns and my response to those concerns:
Concern #1: The fitness center is too expensive to run
While the total cost of running the fitness center does cost almost $100K a year, that investment is not wasted money.
Only 3 years ago we spent approximately $1 million to build the center. Those costs were allocated over time as a significant capital expenditure; if we were to shut it down now, we would have to allocate $300K to each of the last 3 years as a fixed costs, which would definitely not improve profits from a balance sheet perspective. Shareholders would not be happy. (In addition, it would look as if we took the decision to spend the initial $1 million lightly if we close the center after only 3 years.)
o The average hospitalization cost for non-users (65% of employees) is $500/person or about $81,500 annually.
o Average cost for employees that work out 1-2 X a week (31%) is only $300, $200 less than average non-users.
o For the 4% of employees that use the center 3X or more a week, average cost is only $100, $400 less than the non-users.
This represents total savings of close to $20K annually among current users alone. The more employees that we encourage to use the center, the higher our savings.
Concern #2: Participation rate is not high enough
In the 3 years since the center was opened, about 35% of employees have become regular users, working out at least 1X a week. These people are the early adopters--those who are already into fitness or were interested in trying it on their own. As with any product life cycle, we must now concentrate on providing incentives to other employees in order to be profitable.
In the last 8 months, I have instituted a Wellness Program within my department and have budgeted $2K annually to encourage increased participation. All my department employees are beginning to use the center at least once a week, and exercise support groups have been started. Similar policies could be instituted company-wide, and I am sure we d see similar results.
Concern #3: Center is not necessary to be competitive
This is the concern I disagree with most vehemently. Since my department has been participating in the Wellness Program, productivity has been up 18%. The absentee rate has decreased 5%, and absentee rates are half (average 6 days) for users vs. non-users. In addition, morale is at an all time high. Although morale is an immeasurable factor in productivity and ultimate profits, I am sure you are aware how crucial good morale is to the success of any organization. If we take away the center, morale will suffer:
There is no other fitness center conveniently located.
No other company in our area offers this benefit, so it is source of pride to employees. If we take away a benefit that 35% of our employees use regularly, there will definitely
be a public backlash, and negative PR could impact our image in the community.
Case Sample Response C
As we discussed in last week's meeting, I promised to put in writing my recommendation to support preserving the fitness center. The purpose of this memo is to give you my perspective in the hopes of persuading you to reconsider your position.
The structure of this memo has two parts: first, I will address your three main concerns regarding the fitness center; second, I will try to illuminate additional factors to help you with the decision process.
One of the concerns I heard at last week's meeting centered on low utilization. Data collected via a survey indicated only 35% weekly utilization (or 88 employees). I was surprised by this
statistic. Reports from my own department by people who use the facility indicate very high levels of use--especially during non-work hours. This anecdotal data coupled with my own personal experience leads me to believe that the survey may not have captured all employees using the center. My guess is that at least 50% of RMM employees use the center at least once a week.
The second concern was cost. To justify the $100,000 per year operating costs, consider savings in hospitalization, absenteeism, and productivity. Based on the survey statistics, a conservative estimate of hospitalization savings figures out at $23,000. Absenteeism savings (based on the standard $200 per day) comes to $17,000 per year. The greatest savings by far are found in productivity increases. For example, in my department alone, productivity has increased by a staggering 18% over a six-month period. This implies over $60,000 in per year savings in our department. This--given conservative survey statistics and using productivity figures from a single department--the savings equal approximately $100,000, just enough to offset operating costs. With less conservative statistics and information from all departments, savings would likely more than double the operating costs.
The third concern is that the fitness center is not critical to the success of RMM based on national trends. While the figure is still low (only 25%), the percentage of businesses providing exercise facilities nationwide is projected to increase every year through the year 0000,
according to the Wall Street Journal. Further, on a local level, the center gives us a competitive advantage in the local labor market by attracting healthy, productive workers who value the employee benefits provided by the center.
Having addressed primary concerns, I want to suggest two issues to consider in your decision. The first is internal marketing. If utilization is still a concern, I would recommend adopting a Wellness Program company-wide as a way of supporting healthy lifestyles and increasing the return on the fitness center. In the Claims Department, for example, we have seen positive responses. Employees have set a goal of using the fitness center twice weekly, and some groups have even formed support groups to spur each other on.
and frustrate a large share of our employee base. To help offset this hit on morale, the fitness center will offer sanctuary and solace to employees wanting to let off steam and revel in the simple, uncomplicated, elemental appeal of physical exercise.
