Additionally, it is important to include what matters to the business. At the highest level, OR efficiency metrics and improvements can be put in 5 categories. • Does IT deliver on its service level commitments? Over time, you may find that customizing reports to answer specific questions results in fewer overall reports. 4. Once you collect the questions, you can begin looking at your current metrics and reports. It is calculated by dividing net credit sales by the average gross receivable. Measuring operational efficiency involves keeping track of a company’s inputs and outputs as performance indicators. Rae Ann Bruno is the President of Business Solutions Training, an organization focused on training and consulting in various areas of ITIL, Knowledge-Centered Support (KCS), service desk improvement, internal marketing, metrics, and ITIL process improvement. This webinar will focus on how organizations can operate with agility in today’s uncertain environment. IT makes a change so that the order automatically posts and the screen refreshes automatically. Simple strategies such as investing in search engine optimization, reducing lead conversion time and better targeting your ads can lower customer acquisition costs. Then measure it again, analyze it and improve it until you get the operational efficiency you want! Most likely, your business partners already have questions they’d like to have answered or information that they need to have to help them run or improve business processes in their respective areas. How Efficient is Your Operation? Many calls were escalated to resolver teams (which increases the cost per contact and negatively impacts productivity for escalation tiers). Determine whether you already have reports that answer the questions. MOSs typically relate to readiness or operational availability and, hence, reliability, maintainability, and the item’s support structure. This trend shows that we need to see what’s happening between those hours that is impacting processing time. You can calculate the ROA by dividing the company’s net income by the company’s total assets. The latter approach uses the value of outputs and cost of inputs. Quantify the amount of time IT has helped the business save. Measuring Improvement in Operational Efficiency Internal and external communities can improve how organizations communicate and collaborate. Plots of land, types of soil, and varieties of plants were deemed more productive if they had greater product yield. It is critical to use collaborative systems to discover through the help of some key employees what customers really want, what their real needs are, and how to add value to your company’s products and services. Reducing operational costs means approaching maintenance in a new way. You’d look at the hours you run the Kubota engine and/or the total miles the Kubota traveled. It’s great for a company pep rally, but you cannot produce a strategic plan and measure organizational effectiveness against it. IT can take this a step further to help to identify bottlenecks by providing report break downs by the type of wait time: IT could then overlay the patient experience reports with network status during those same timeframes (and across different locations) to begin to assess the root cause and analyze further. • Does IT contribute to the achievement of our business strategies? Set goals, for example: produce 5,000 shock absorbers per month, or have less than 1% of shock absorbers produced outside the defined parameters. A report showing before and after processing time would definitely quantify the value of IT service improvements! • Are IT services delivered at a competitive cost? As you can see, the key elements of efficiency measurement lie in a warehouse manager’s ability to look at a variety of indicators to see how they function together best. Operational efficiency is a powerful metric that is used to assess the efficiency of profit earned instead of operational costs. Reports should show that we are succeeding or identify areas for improvement. However, if we multiply six seconds by every order on every register, there is a lot of wasted time. Make sure the data is accurate and double-check the results by running different reports and looking at situations from many angles (e.g., customer satisfaction, quality, etc.). Examples of this include automation accuracy, quality indexes and customer satisfaction. It is the sum of the parts measurement that is most critical to overall operational efficiency. Efficiency at work can only be achieved through the efficient exchange of information in real time and a lot of teamwork, integration and collaboration. We all know that people and talent are critical to any business’s success, and HR is at the heart of finding, attracting and retaining that talent. Operational effectiveness comes down to all the work that gets executed to provide a customer with what the business promises to provide. Is it all locations or only some locations? Define some more important processes to give more attention. Efficiency metrics and reports are those that show that we are staffed appropriately and that we are handling the volume well or are meeting service levels. It is achieved by minimizing waste and unemployment while utilizing tec… Which processes in your business generate more value for the customer? Efficiency – “A measure of whether the right amount of resources have been used to deliver a process, service or activity. #HDIchat Recap: What's the Biggest Change in Your Support Center in the Last Year? Revenue Per Employee A basic business input is the labor of employees. Another option is to identify all IT services that impact business processes in that department and everyone who works on that team. What is the target they are trying to achieve? How can OR leaders measure these metrics? An operational KPI is a quantifiable value expressing the business performance in a shorter time-frame level. Machine Efficiency Machine efficiency can be measured in terms of energy efficiency or the productive results of equipment. There is a cause-and-effect relationship between the primary and the business metrics. How much time does it take to complete business tasks? Document Control - The ability to find necessary documents as easily as possible is a crucial part of operational efficiency. Document the baseline and run the same tests after you’ve implemented a change and show the difference. In this case, you can measure operational efficiency based on the number of customers acquired versus the cost per customer. Salespeople who deal with clients on a daily basis can give you powerful insights regarding this. • Are we successfully improving business productivity? • Are IT costs being managed effectively? Even if you don’t agree, customer perception is reality! She is a member of the HDI International Standards committee and a frequent speaker at leadership and support conferences. The value chain is the business process sequence that culminates in the final delivery of a product or service to your customer. The solution is to clearly spell out what you want to achieve in a measurable way. For the next rollout, the project included training for IT and for end-users. How many clicks are needed to tackle various business processes (this would require observation and usability testing to establish the baseline)? Additionally, determine which metrics and reports measure efficiency, identify improvements, or show results. Show cost savings or an increase in profits or … Just showing whether it was available or not doesn’t provide enough information. Want to achieve operational efficiency in your business without making mistakes like this? Below is a sampling of different types of efficiency, quality, and value reports. Net Profit Margin 4. Typically, these performance indicators relate to efficiency, quality or value. The Importance of Employee Efficiency in Achieving Business Goals. The trend shows that the training was successful. Complete regular and extensive operational audits . There is no point in knowing that a certain process is not happening in the best way possible and taking no action to reverse it. steps operations can take to identify change indicators and ensure operational efficiency today and in the future. Another example could be an availability report for a service. Trending showed a high volume of calls to the service desk after the last rollouts (trended across three rollouts that had similar average numbers of calls—which answers the first question—yes, it is necessary). That boosts … There is nothing as useless as doing with great efficiency something that should not be done. What trends are we seeing that we should explore further? Required fields are marked *. When should the service be available? Efficiency is getting more output from the same resources or getting the same output from fewer resources. Essentially, operating efficiency is the output to input ratio. There are involuntary turnover rates, which is when you are forced to make an employee redundant or you fire someone; this doesn’t necessarily indicate poor team effectiveness, as sometimes circumstances do, unfortunately, increase the turnover rate of a company . Therefore, local efficiency is used to measure resources. The incident management module of your service management tool provides invaluable information for all areas of IT; it’s not just about support! This allows manufacturers to be proactive, rather than re… Once partnerships are established with the business, you should gain support from business partners to ensure that employees are using self-help tools, following IT processes, and adhering to policies. Operational efficiency is the output a business from each unit of input. Improving operational efficiency begins with measuring it. There are two ways to measure this. Even the most streamlined processes require employee input, and how well those employees perform impacts the success of the process. Measure productivity gains facilitated by IT. Planning is divided into 2 stages: 1. Operational efficiency. The operational efficiency ensures that the business is capable of producing, processing, and delivering goods to the customers. Based on the business partners’ questions, IT can provide useful business (effectiveness or value) reports–those that are tied to business processes, goals, and impact–that allow the business to make better decisions and recognize the value of IT services. Hence, efficiency is one of the most used performances measuring tools. We’re noticing a trend of processing slowing down Monday through Friday from 5 a.m. EST to 10 p.m. EST at the end of every month. Your email address will not be published. You can even outsource this type of process. • Can we attract and retain the talent needed to support the business? For example, if the primary metric is to manufacture the product faster, the business metric might be increased profit or reduced fixed costs. Generally, a higher turnover is related to more favorable cash flow. By starting with questions (and getting them from your business and IT partners), you can deliver the right information to the right people. Here’s what you need to know to put these strategies to use. RTY is a great KPI to track as it alerts manufacturers to the health of their entire operation, rolling all processes into a single measurement. How to Measure and Improve Operational Efficiency Operational efficiency is calculated by dividing output (revenue, sales, cold calls, inbound leads, etc) by input (resources, man-hours, licenses, etc). You can make reports say anything you want, but contradictions will surface and reality will be uncovered! Measuring Operational Efficiency and Value: Use Metrics to Tell the Business Story, HDI ITIL and Support Center certification courses. • Is IT helping my team to be more productive? • Do we effectively measure and reward individual and team performance? So, the first step in being “the best” is to set a goal. If you have to explain your report to someone, you are not getting the message across. For example, consider an IT department that supports POS systems in a fast-food restaurant chain. As a general rule, IT should be able to: Site specific business tasks that IT services have facilitated or improved. Being transparent and showing improvements helps to build better relationships with the business. Organizational effectiveness denotes the concept of how effectively an organization achieves the outcomes it intends to produce. Too often, reports are made up of the easy-to-collect metrics or show a single metric instead of telling a story and providing useful information that drives action or shows business value. quantifiable value expressing the business performance in a shorter time-frame level Imagine a company that produces shock absorbers for heavy trucks. Follow Rae Ann on Twitter @raeannbruno and connect with her on LinkedIn. After seeing this trend, IT provided training and added knowledge articles and how-to videos in a self-help portal (for the most frequently asked Outlook questions). The reports can also help IT to be more proactive, which also provides value to the business! To use the examples above, terms like availability and abandoned rate are IT terms, and the value isn’t recognized without adding information to tell the whole story. There are efficiency ratios used to measure production or financial efficiency, or a combination of both. It can be measured using metrics such as revenue per kwh. In many cases, facilities have the space for more customers but don't have enough power for them. • Is training before a rollout necessary? Since operational efficiency is about the output to input ratio, it must be measured on both the input and output side. Instead, IT should generate a report (or multiple reports) from different data sources: The report would correlate these data points to calculate average turnaround time, which should provide insight into the cause of the bottleneck and allow the business to develop potential solutions. Reading the trends, making improvements, and becoming more efficient helps IT to be less reactive and positions it to make a real difference for the business. Your trending showed that the employees were frequently reaching out to the service desk with how-to questions on Outlook. Many organizations struggle to measure gains in efficiency and translate that into measurable ROI. The key is to understand that every challenge encountered is actually an opportunity to be better every day. The ROA looks at how the business is using shareholder assets to earn returns. Why the last week of every month? Use reports to provide factual information that drives the right actions and results. So how do you calculate operator efficiency in the factory? Many manufacturers still operate preventative maintenance schedules. Operational efficiency is about doing things right. Operational efficiency – it’s not just about cost cutting by Matthew Burrows . It shows how efficient you are at collecting credit sales. How to achieve operational efficiency in processes? But it is very difficult to control absolutely everything! The quest for operational efficiency is to identify problems and create solutions. The basic formula is a ratio of output to input expressed as a percentage: ... A definition of operational efficiency with examples. These reports are usually written from an IT perspective and show how efficiently we are operating. Was the volume lower than normal or did they resolve calls more quickly? The receivable turnover can also be expressed in days. Gross Profit Margin 2. IT operations could generate a report showing physician availability between 12 p.m. and 3 p.m., but that alone doesn’t answer the question. Let’s consider the service availability report. Debt Asset Ratio What does IT need to know in order to improve services and run efficiently and effectively? Use the following formula and calculate operator efficiency. Too often, we start with the data and canned reports that our tools provide to develop reports. Inputs can be operational, capital, and resource expenditures. • What value does the expenditure on IT deliver? • Are targeted inter-company IT strategies being achieved? Think of a new way to execute the process and train your employees to meet the new improved procedures. 1. • Are we growing professional competencies needed for successful service delivery? If it wasn’t, was it due to routine maintenance or an outage? Keep in mind that some answers or stories may require collecting data from different tools or modules and combining them into one report. Finding the most current variation of … After many studies, time and money employed, they begin to produce this piece with an effectiveness and operational efficiency the envy of any German or Japanese plant. And using a process control system will also help a lot. It's about WHAT work is done. These will vary depending on the type of organisation. ), when IT connects the dots between IT services and business success, IT gains credibility and becomes a valued business partner and strategic asset. You would need to measure fuel costs and maintenance costs. The service desk saw fewer calls overall and had higher first contact resolution, which equates to fewer escalations. Measure of Suitability (MOS) Measure of an item’s ability to be supported in its intended operational environment. How can I improve operational efficiency in a college. Operational expenditure, capital expenditure and people resources, revenue, customer satisfaction and quality are among the elements included in the calculation. The goal of any operational effectiveness program is to improve business processes and, ultimately, the customer experience. Here are some examples of questions your business partners and IT executives may be asking: • Does IT support the achievement of business objectives? • How are IT services impacting my department or business processes? Leverage Ratios Leverage Ratios A leverage ratio indicates the level of debt incurred by a business entity against several other accounts in its balance sheet, income statement, or cash flow statement. Either the structure doesn’t work, the terminology isn’t understood, or the report is not using the right data. Is there an end-of-month business process that all locations in all time zones carry out during that last week? This can save time, reduce costs, and improve performance. In a month, a drilling machine takes inputs such as labor, electricity, materials and depreciation on the machine itself that cost 50,000 dollars. This automation saves four seconds per order, which gives the restaurant back four hours of processing (or taking more orders) per day . One advantage of being an SMB is the ability to react more quickly than larger competitors. IT should not define business (value) reports without consulting business partners! We are looking to identify ways to improve an operation… • Service review meetings and improvement plans, Site specific business tasks that IT services have facilitated or improved, Quantify the amount of time IT has helped the business save, Measure productivity gains facilitated by IT, Show cost savings or an increase in profits or customer retention (at the organizational level), Demonstrate that IT is working efficiently and cost-effectively. Preventative maintenance is costly because only 15% to 20% of all components failafter a predictable time. Value is defined and measured by the business, not IT. Additional information is needed to assess whether they are doing well or whether action needs to be taken. This is a laudable goal, but it is too vague to take concrete steps towards achievement. The ROE looks at the return generated by using shareholder capital, which is the equity capital invested by shareholders and their share of the earnings. By establishing best practices and managing knowledge, resources, infrastructure, and communication, an organisation can optimise this to set in place processes that decrease costs and maximise output, thereby, exceeding business goals and … In fact, even if goals are being met, it is always interesting to try to make processes more and more efficient. I will accept any reply of consultants that can provide this service. The ‘technical’ way to measure operational efficiency is to calculate the ratio of output gained to the input expended. Rae Ann holds several ITIL and HDI certifications and is a faculty trainer for HDI ITIL and Support Center certification courses. Key topics • Common challenges • 10 steps toward operational efficiency • Key performance indicators • Bottom line rewards But what operating room efficiency metrics should you look at? Even though important, input indicators like the unit production cost … Ultimately, efficiency can be measured in time, money, or both. Assuming that your categorization allows you to trend on those services or people, you can run a high-level trending report to see the number of tickets received from that business unit that are related to those services. This will ensure that operational (efficiency and quality) reports–those that show how efficiently and effectively IT is running–are not given to the business (unless requested) but used internally to improve IT operations. Simply measuring performance without having a parameter to know if it is within the expected range, will not help at all. For example, a weekly abandoned rate report for the service desk cannot stand alone. But the cleaning of the facilities or the factory concierge do not directly affect the quality of the product. • Do we capture organizational knowledge to continuously improve performance? They do not need to shine, they have to be efficient in carrying loads and last a long time on our rather rough roads. This takes an extra three seconds to click on post and another three seconds before returning to the screen to enter a new order (IF people always remember to click “post” right away). However, if the report title is Revenue Impacting Incidents, the importance is clear to the business without explanation! Although we have plenty of data to use for trending, improving services, and promoting value, many IT organizations struggle to deliver the right mix of metrics and give the right reports to the right audience. Understand what your customer wants 2. Reports should be intuitive. The goal of operations is to run efficiently, provide consistent, high-quality services, and continually improve the customer experience. These are measures that you must do in the process and that adequately reflect if the execution of the process will achieve the required quality and features that customers are looking for. Net Profit 3. Measuring employee turnover is a great way to measure effectiveness. 7 Examples of Operational Efficiency … Document Control - The ability to find necessary documents as easily as possible is a crucial part of operational efficiency. To demonstrate the approach, let’s take one of the questions from the business unit managers list and walk through the necessary steps: Is IT helping my team to be more productive? The office administrators are complaining that patient wait times are too long after lunch and want to know why. Operational efficiency is a measure of how much costs are incurred during a given economic or financial activity, where lower costs equals greater efficiency. What benchmarks can be used to see how an organization is doing? Once you recognize trends, take deeper dives into data to develop specific reports that clarify the trends or identify necessary action. Looking for more great content like this? However, they don’t connect the dots to the value we are providing to the business. If you don’t currently have reports that answer the questions, determine what data would be needed to tell the story or provide the answers. If yes, is it successful? In other words, ask; don’t assume. Measuring employee efficiency makes it possible to pinpoint areas where work slows. Having the right financial metrics and business performance metrics in place provides you with a consistent flow of data you can use to measuring operational efficiency to streamline effort and increase success. Hi Carol, maybe you need the help of a consultant. Combined physician and staff availability data from the staffing application, Average number of patient check-ins for that location between 12 p.m. and 3 p.m. from the patient registration system, Average time per patient seen from the electronic medical record, Patient seen by nurse to patient seen by MD, They process 40 orders/hour * 5 registers *18 hours = 3600 orders/day, 6 seconds wasted/order * 3600 orders/day = 21,600 seconds (360 minutes or 6 hours) wasted/day  item. 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