FY27 Cost Review: Activity-Level vs Role-Level Staffing Analysis

TL;DR

FY27 opened with three simultaneous cost increases for every NZ employer. Most businesses will respond by reviewing headcount: which roles to keep, which to cut, which to defer. This article argues that headcount is the wrong unit of analysis. When you budget by role, you miss the cost structure hidden inside each role. Activity-level analysis, a methodology proven over three decades but rarely applied to staffing, reveals savings that role-level reviews cannot see. The shift requires different data, not a bigger budget.

Every April, the Same Spreadsheet

FY27 started on April 1 with three cost increases landing at once. Minimum wage rose 2%. KiwiSaver employer contributions went up half a percentage point. ACC levies climbed 4.8%. The ANZ Business Outlook for March showed a net 85% of firms expecting costs to increase, the highest reading since early 2023.

The natural response is to open the staffing budget and start reviewing roles. Which positions to keep, which to defer, which to make redundant. For 18 consecutive months, that is exactly what NZ businesses have done: cut headcount (Xero Small Business Insights, Q3 2025).

Here is the part that rarely gets examined. The staffing review itself follows a structure that almost every business uses and almost nobody questions. Roles. Salaries. Headcount. It is so universal that no major accounting body, HR association, or workforce survey even asks whether businesses budget for labour this way. They assume it. The method is invisible because it is the only method most businesses have ever used.

The question worth asking is whether the method is the problem.

18 Months of Cutting Roles, Not Costs

The numbers tell a clear story. NZ businesses have been cutting jobs for 18 consecutive months. Only 28% are growing their workforce, while nearly 30% are actively reducing (Xero Small Business Insights, Q3 2025). Auckland is down 2.5%. Wellington is down 4.5%. Only Canterbury is showing any growth at all.

This is role-level thinking in action. When costs rise, the instinct is to remove roles. Fewer people, lower costs. It makes sense on a spreadsheet. But it misses something important about how costs actually accumulate inside a business.

Consider a marketing manager on $95,000. That role contains dozens of distinct activities: campaign strategy, vendor coordination, reporting, data entry, creative briefing, social media scheduling, invoice processing. Some of those activities require the marketing manager's expertise and local market knowledge. Others do not. A role-level review sees one line item: $95,000. An activity-level review sees a mix of activities at very different cost points, some of which could be delivered by a specialist at a fraction of the cost, without losing the senior person or the expertise they bring.

This is where the cost blindspot becomes real. Research from Patrick Accounting (March 2026) found that business owners routinely underestimate their true labour costs by 30% or more. Here is what that looks like in practice for a $60,000 NZD base salary, the median for admin and support roles across New Zealand:

Salary benchmarks based on 2025 median figures from SEEK NZ, Glassdoor NZ, PayScale NZ, and Trade Me Jobs for admin, finance, and support roles. On-cost calculations per IRD and ACC guidelines, reflecting the KiwiSaver employer rate effective April 2026.

The base salary is $60,000. The actual annual cost to the business is closer to $74,500. That is a 24% gap between what most owners think they are paying and what they are actually paying. Now multiply that gap across every role in the business.

When you combine understated costs with a budgeting method that cannot see inside a role, the result is predictable. Businesses either cut too aggressively (losing capability they needed) or not aggressively enough (keeping costs they could have restructured without losing anyone). Both mistakes come from the same source: treating the role as the smallest unit of analysis.

What Changes When You Look at Activities Instead of Roles

There is a methodology that solves this. It has been around for over three decades, and the evidence that it works is strong. Firms that adopted activity-based costing outperformed matched peers by approximately 27% over three years, according to the most rigorous study available (Kennedy and Affleck-Graves, Journal of Management Accounting Research, 2001). That study examined UK listed companies using a matched-pair design. It measured financial performance, not productivity. And nothing published since has contradicted it.

The concept behind activity-based costing is straightforward. Instead of allocating costs to departments or roles, you allocate them to activities. What does each activity cost to perform? How much time does it consume? Who is performing it, and does it require their level of expertise?

When Harvard's Robert Kaplan refined the methodology into its time-driven form, it came down to just two parameters: the cost per unit of capacity and the time each activity consumes. That is a simpler lens than most businesses realise. And it reveals something that role-level budgeting structurally cannot: the gap between what you are paying and what the work actually costs.

A common benchmark puts staffing costs at 25 to 35% of revenue. But the percentage alone does not tell you whether the spend is efficient. Two businesses can both spend 30% of revenue on people and have very different cost structures underneath. The question that matters is which activities within that 30% are being performed at the right cost point.

Take that $95,000 marketing manager from earlier. Loaded at 1.25x, the true annual cost is closer to $118,750. An activity-level review might show that 40% of their week goes to activities like data entry, report formatting, invoice processing, and social media scheduling. Here is what that looks like when you separate the activities by cost point:

Specialist cost based on validated savings of 60-75% on remote-capable activities (Outrun methodology, category-specific ranges: Administration 67.2%, Marketing 74%, Data Entry 71%). Savings comparison is Outrun versus local hiring for the same activity.

That is approximately $35,000 in annual savings from a single role, without losing the marketing manager, their expertise, or their client relationships. The senior person still does the work that requires their judgement. The activities that require accuracy and consistency are delivered by a specialist at the cost point those activities warrant.

This is not theoretical. Research from Eagle Hill Consulting and Ipsos (January 2025, 1,375 US employees) found that 68% of workers say they regularly spend time on low-value, inefficient tasks. That finding is consistent across industries. The work is happening. It is just happening at the wrong cost point.

The methodology has been proven for decades. The barrier has always been complexity. What has changed is that activity-level data can now do what spreadsheets never could: show you where the money actually goes.

Yet adoption remains remarkably low. In Australia and New Zealand, studies estimate that only 12 to 20% of organisations use any form of activity-based costing, and almost all of those are in manufacturing. A 30-year literature review (Sanchez-Rebull et al., SAGE Open, 2023) found that service-sector applications remain rare. The methodology that outperforms traditional costing by a wide margin is, for the vast majority of businesses in Australia and New Zealand, simply not applied to their largest cost category: people.

The question is why. And the honest answer is that, until recently, the data required to make activity-level analysis practical for staffing decisions did not exist at the scale needed.

Why Almost Nobody Does This Yet

This is where honesty matters more than persuasion.

Nobody in the accounting profession, workforce planning community, or business advisory space is currently making the specific argument that businesses in Australia and New Zealand should shift from headcount budgets to activity-level staffing analysis. The people who understand activity-based costing work predominantly in enterprise manufacturing. The people who understand the cost pressures facing growing businesses in this region do not think in activity terms. The two fields have not converged.

That is not because the argument is wrong. The evidence from three decades of research points consistently in the same direction. It is because applying activity-level analysis to staffing requires a volume of operational data that, until recently, did not exist outside of large enterprises with dedicated cost accounting teams.

Our methodology, built from managing 400+ concurrent projects and drawing on over 90,000 activity-level data points collected monthly, was developed to close precisely this gap. We are not claiming an established consensus. We are applying a proven methodology to a cost category that has been overlooked, and we are being transparent about the fact that this is a newer application of an older idea.

Three Questions to Ask Before Your Next Staffing Decision

If your FY27 cost review is already underway, here are three questions worth adding to the process. They do not require new tools or external help. They just require looking at your staffing costs through a different lens.

For each role under review, where does most of that person's time actually go each week? Not their job title, not their responsibilities on paper. The actual activities that fill their hours.

Which of those activities require their specific expertise, and which just require accuracy and consistency? Some activities need the person in the room, with the relationships and the context. Others need reliable execution, and those can often be delivered at 60 to 75% lower cost by a dedicated specialist.

If you could see the gap between what you are paying for each activity and what it actually requires, would it change the decision you are about to make? If the answer is yes, then the role-level spreadsheet is not giving you what you need.

Our Task Savings Calculator gives you a starting estimate in about two minutes. For a deeper look at your specific cost structure, the Activity Analysis Session is free, takes an hour, and carries no obligation.

Key Takeaways

• The way most businesses budget for staffing (roles, salaries, headcount) is an unexamined default, not a conscious choice. No major survey even asks whether there is a better approach.

• Role-level thinking leads to role-level responses: 18 months of NZ job cuts that remove capability without addressing the underlying cost structure.

• Activity-based costing has outperformed traditional approaches for three decades, but adoption in Australia and New Zealand sits at 12 to 20%, and almost never extends to staffing costs.

• The barrier has always been data. Activity-level analysis requires operational data at a scale that, until recently, was only available to large enterprises.

• Your FY27 cost review does not need new tools to start. It needs a different question: not "which roles can we cut?" but "where does the time go, and does the work require this person's expertise?"