5 Key Area’s
• Using Lean concepts to bring operational efficiencies to the business in a short time-frame
• Focusing effort on areas that are perceived to have high fixed costs
• Maximizing the value from existing processes before re-engineering
• Measuring process capacity and identifying waste
• Providing leaders with the right information to manage operational environments
Empirical Perspectives on Operations
• Leaders underestimate the real capacity of their operations
• Capacity measurements rarely evident
• Best practice not identified – don’t know what good looks like
• Inability to flex up and down for changes in demand
• 40% of investment in human resource paid hours is “lost time” – attributable to the 8 deadly wastes
Breakdown of Paid Hours in Operations
Most Lost Time (aka Waste) Is Hidden
Operational Excellence – Three Key Phases
Why try to fix or re-engineer the “Process”, when value can firstly be achieved by optimizing the current process through gaining greater control of the operations?
Key Steps to Establishing Operational Control
Three Important Metrics to Measure Operations
Most operations teams start at about 50% Efficiency when Operational Control is first established – goal is to improve to 80%. The goal for Utilization is 90%.
Simple Case Study
• A Mortgage Documentation team has 22 staff members working 8 hours per day.
• Last week, 20 were present at work (2 on annual leave or sick leave).
• For half a day last week, the team was in a training workshop on some major regulatory changes.
• Best practice unit time to prepare/issue a set of mortgage documents is 30 minutes.
• The team issued 720 sets of mortgage documents for the week (a bit over 7 per day / FTE).
Questions & Answers
What were the team’s:
a) Paid hours at work? 800 hours (20 staff x 40 hours)
b) Non-Core Hours? 80 hours (20 staff x 4 hours)
c) Core Hours? 720 hours (800 hours – 80 hours)
d) Work Out (hours)? 360 hours (720 x 30 mins)
e) Utilization %? 90% (720 hours / 800 hours)
f) Efficiency %? 50% (360 hours / 720 hours)
Operational Management Equilibrium
In reality, the operations environment is much more dynamic – all of the variables are changing, so understanding their interactions is important for maximizing value.
Model for Maintaining Operational Control
Defining Best Practice for Standard Unit Times Is Critical
• Focus on understanding what good looks like, rather than arriving at an average for the entire team
• Only observe top performers (on speed and quality)
• Ideal sample size of 30 observations for each activity or activity batch
• Activities are a set of tasks completed generally at the same time by the same person
• A completed activity progresses a unit to the next stage of processing
• Observe total time broken down into “value-added time” and “lost time”
• Observations done by Process Improvement specialist as well as Team Leader
• Standard Unit Times are reviewed every 6 – 12 months, or when there is a process change
Standard Unit Time Setting & Defining Activities Are Your Foundations to Success!
• Being able to see Lost Time is critical to understanding how capable our current processes could be, particularly the Lost Time that we can influence
Capacity Measurement Made Simple
Let’s assume that:
• You manage a Mortgage Documentation team of 22 people whom work a 40 hour week, with combined absenteeism
(planned + unplanned) of 10%
– Normal hours available for processing each week = 800 (20 x 40)
• Team is operating at 50% Efficiency & 80% Utilization
– Current core hours = 640 (800 x 80%)
• Best practice unit time to prepare/issue a set of mortgage documents is 30 minutes
– Implies a current output of 640 mortgage docs per week (640 x 50% / 30mins)
• Short-term capacity = Current level of Efficiency plus 5%, and 90% Utilization
– Team should be able to issue 792 docs per week (800 x 90% x 55% / 30mins)
– Or less resource investment
• Long-term capacity = 80% Efficiency and 90% Utilization
– Team should be able to process 1,152 docs per week (800 x 90% x 80% / 30mins)
– Or less resource investment
Develop Your Own Dashboard or Buy From A Vendor
- Spreadsheets and databases work fine until you start getting beyond 10 teams.
- Several reputable software vendors that provide professional and cost-effective solutions that integrate into workflow systems and modern IT architectures.
- Remember that 20% of the potential benefits of Operational Excellence come from effectively measuring operations, and 80% from operational leadership practices.
- Getting a dashboard up and running is relatively easy & inexpensive
- Changing operational leadership practices & introducing lean thinking is where your effort is best spent
What Are the Behaviours of Leaders?
Glossary for Operational Excellence
Mark Harper possesses strong experience in transformation program leadership, banking product & PnL management, strategy development, change management, process improvement and operations consulting. “I really enjoy new & fresh challenges that will break new ground and reinvigorate business execution, particularly in the financial services industry.”
Contact him at firstname.lastname@example.org