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Topic: Performance Management. Overview. Management. Functions: planning, coordinating, and controlling. Processes: measurement, analysis/ evaluation, and improvement. Emphasis on the organizational and functional level. Overview.

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overview
Overview

Management

Functions: planning, coordinating, and controlling

Processes: measurement, analysis/ evaluation, and improvement

Emphasis on the organizational and functional level

overview1
Overview

Measurement: understanding of the term KPI or performance measures, identification of the KPI, application of MFPMM, audit to improve KPI by linking with policies, objectives, database, etc., ratio networking, and target setting

Analysis: trend/ variation understanding with MCPMT, benchmarking process, and scorecard and root-cause analysis

Improvement: outsourcing, development of manufacturing strategies, integration of knowledge learned on logistics and supplier partnership

overview2
Overview

What reflects or represents the term performance?

Kaplan and Norton (1992): Financial, customer, internal business, and innovation/ learning

Sink and Tuttle (1989): Profitability, productivity, quality, quality of work life, innovation, effectiveness, and efficiency

Harper (1984): Productivity, unit cost, price, factor proportion, cost proportion, product mix, and input allocation

introduction
Introduction

Multi-national, national, and industrial levels

Organizational, functional, program, and project levels

Team and individual levels

Individual level

Management

Workforces

Knowledge and white-collar

Blue-collar

introduction1
Introduction
  • Measuring productivity/ performance requires a system view of an organization or a unit of analysis.
  • Measuring productivity/ performance is common.
  • Understanding of impacts from low productivity is critical for management (competitiveness).
  • Understanding of unit dimensions and definitions are essential for measurement.
introduction2
Introduction
  • Ongoing Issues for “Productivity” Management
  • Total-, multi-, and single-factor productivity consideration
  • Combination of various input factors (consideration into weight of each input, data collected such as intangible assets, unit dimensions, reporting and information format on tabular and/or graphical forms, etc.) as well as output factors
introduction3

Inputs

Processes

Outputs

Introduction

System View of an Organization

Upstream

Downstream

slide9

Introduction

Purposes of performance measurement:

To identify whether we are meeting customer requirements

To help use understand our processes

To ensure decisions are based on facts, not on emotion

To show where improvements need to be made

To show if improvements actually happened

To identify whether our contractors or suppliers are meeting our requirements

(Department of Energy, USA)

slide10

Introduction

Performance measurement should be used and integrated into a management system and process, based on the following reasons.

Control: Performance measurement helps reduce process variation.

Continuous improvement: Performance measurement helps identify defect resources, process trends, and defect prevention as well as opportunities for improvement.

Need to have feedback by management: Performance measurement helps mangers and administrators realize what is to be done, what is being done, when to take corrective and preventive actions, and when to change the expectation.

(Department of Energy, USA)

introduction4
Introduction

Downstream or outcomes: customers, users, consumers, buyers, and stakeholders (impacts, reaction, satisfaction, financial growth, sales, return, replacement, recall, survival, etc.)

Upstream: providers, suppliers, contractors, and vendors (relationships, partnerships, contractual agreements, etc.)

introduction5
Introduction

Outputs

Intangible

Tangible

Outcomes

[Satisfaction, Expectation, Desirable Impacts, etc.]

basics on measurement
Basics on Measurement

Deming “You cannot manage what you cannot measure.” “You cannot measure what you cannot define.” “You cannot define what you do not understand.”

basics on measurement1
Basics on Measurement
  • Mandated bythe Government Performance and Results Act (GPRA) of 1993
  • Federal agencies must be accountable and focus on improving service quality and customer satisfaction.
  • Coupled with the Government Management Reform Act of 1994 which emphasizes performance improvement and openness for annual financial audit (i.e., PART, activity-based management, performance-based contract, adaptive process for planning and budgeting, ownership cost, etc.)
basics on measurement2
Basics on Measurement

The 1993 Government Performance and Results Act (GPRA) requires the following:

(1) Establishing top-level agency’s policies and objectives as well as annual program goals

(2) Defining how the agency intends to achieve these objectives and goals

(3) Demonstrate how the agency will measure its own performance, including the programs

basics on measurement3
Basics on Measurement
  • Bush Administration (2001): “Performance measurement is not an annual event; rather it is a continuous process requiring clear performance expectations, periodic feedback for review, and analysis for improvement.”
  • Bush Administration (2001): “Performance measurement is not an option; the only question is how well it is done.”
basics on measurement4

Static Ratio: Revenue  Cost

Dynamic Ratio: [Revenue46  Revenue45]

[Cost46  Cost45]

Basics on Measurement

Measurement: understanding on static/dynamic measure, and total-/ partial-/ single- factor measure, and surrogate measure

basics on measurement5
Basics on Measurement

Single-factor measure: Output  labor

Partial- or multi-factor measure: Output  (labor + material)

Total-factor measure: Output  (labor + material + capital + machine + facility + utility + information)

basics on measurement6
Basics on Measurement

Case study for single-factor measure (labor only): 5 employees producing 500 output units in one month by working 22 days per month and 8 hours per day. For the second month, 600 units were made with 5 employees but working 20 days with the same working hours in one day. [880 = 5  22  8] and [800 = 5  20  8]

Static measures (one month):

500 units  880 labor hours = 0.57 units per labor hour

500 units  5 persons = 100 units per person

600 units  800 labor hours = 0.75 units per labor hour

600 units  5 persons = 120 units per person

Dynamic measures (one month):

[(600  500)]  [(800  880)] = 1.20  0.909 = 1.32 or

0.75  0.57 = 1.32

[(600  500)]  [(5  5)] = 1.20  1.00 = 1.20 or

120  100 = 1.20

 No unit dimension!

basics on measurement7
Basics on Measurement

Case study for multi- or partial- factor measure: 5 employees producing 500 output units in one month by working 22 days per month and 8 hours per day. For the second month, 600 units were made with 5 employees but working 20 days with the same working hours in one day. The amount of materials used are 1,000 and 1,250 units respectively. The price for the outputs for the first and second month is $1,000 per unit while the costs of labor over the two months is $15 per labor hour and $150 per material unit (m2) for material. [880 = 5  22  8] and [800 = 5  20  8]

Multi- or partial- factor measures are as follows.

Month # 1: [(500 1000)]  [(880  15) + (1000 150)] = 3.06

Month # 2: [(600 1000)]  [(800  15) + (1250 150)] = 3.01

Months 1 and 2: [(600 1000)  (500 1000)] = 0.98

[(800  15) + (1250 150)]  [(880  15) + (1000 150)]

Static Ratio

Static Ratio

Dynamic Ratio

basics on measurement8
Basics on Measurement

Surrogate measures represent the implication of outputs and inputs that are to be examined. Nowadays, they are used to reflect upstream and downstream as well.

“Transportation services” = total mileage traveled or total passenger mileage traveled such as total miles  buses or total miles  employees, etc.

“Restaurant services” = level of satisfaction, revenue, and profit such as revenue  staffs, level of satisfaction  electricity, etc.

 “quality students,” “innovation in product development,” “quality of work life for office workers,” and so on

basics on measurement9
Basics on Measurement

Performance Measures or KPIs

Quantitative KPIs

Descriptive KPIs

Occurrence Format

Questionnaire Format

Ratio Format

Non-ratio Format

Cross-ratio Format

Cross-ratio Format

Size, weight, scale, reliability, and comprehensive-ness

Weight, scale, accuracy, and comprehensive-ness

Definition of Terms

Data Reliability and Accuracy

basics on measurement10
Basics on Measurement
  • Ratio format: useful for identifying KPI as well as enhancing the quality of information and of information analysis
  • Normalization for trend analysis, benchmarking, etc.
  • Consideration into changes in an organization (such as takeover, new product introduction, etc.)
slide24

Past and Present Projects:

  • Internal Benchmarking for Electricity Generating Authority of Thailand (EGAT) on Generation and Transmission
  • Counterpart on Behalf of Provincial Electricity Authority (PEA): PWC Report on Productivity and Efficiency Benchmarking with 5 Other Public Utilities (Prepared for the Ministry of Energy)
  • Internal Benchmarking for PEA on Distribution
basics on measurement11
Basics on Measurement
  • Issues of Measurement “Robustness”
  • (financial and non-financial dimensions such as weight, distance, volume, time, utility consumption, and so on):
  • Labor: $, hours, and headcounts
  • Materials: $, kilograms, m3, and m2
  • Space: $ and m2
  • Machines: $ and hours
basics on measurement12

Revenues

New Customers

Repeated Customers

Target Group

Unexpected Group

Primary Group

Secondary Group

Basics on Measurement

Robustness

slide27

Basics on Measurement

Robustness

System Availability

Reliability (Uptime)

Maintainability (Downtime)

Operating Time

Standby

Active Maintenance Time

Delay Time

Administration

Logistics

Corrective Time

Preventive Time

examples
Examples

Business and Industries

1. Bad Debt as a % of Revenue

2. Unplanned Overtime as a % of Overtime

3. % Of Suppliers with 100% Lot Acceptance over One Year

4. % Of Shipments Requiring More Than One Attempt to Invoice

5. % Of Customers Using “Invoiceless” Processing

6. Recycled Material Values as a % of Purchased Material Values

7. Total Time Lost Due to Injuries  1,000,000 Hours Worked

8. Total Time Lost Due to Strikes  1,000 Hours Worked

9. % Of Qualified Suppliers and Subcontractors Receiving 90% of Total Purchased Value

examples1
Examples

Business and Industries

  • % Of Requests for Engineering Actions Open for More Than Two Weeks
  • Spare Parts Cost after Warranty as a % of Total Cost Suggested by Design Teams
  • Standard Parts in New Releases as a % of Total Parts
  • % Of Parts with Two or More Suppliers
  • Suppliers with Quality and Productivity Improvement Programs as a % of Total Suppliers
  • % Of Employment Requested Filled on Schedule
  • Average Time to Process Health and Accident Insurance Claims
  • % Of Employees Who Have Not Been Trained in the Past 12 Months
examples2
Examples

Government (Function)

  • Information Technology Expenditures as a % of Revenue (Government of New South Wales, Australia )
  • Recycled Material Values as a % of Purchased Material Values (Government of New South Wales, Australia )
  • % Of Late Reports (Department of Energy, USA)
  • % Of Errors in Reports (Department of Energy, USA)
  • Errors Reported by Outside Auditors as a % of Total Errors (Department of Energy, USA)
  • Error in Time Estimates  Total Value of Estimates (Department of Energy, USA)
  • Number of Hours Lost due to All Equipment Downtime as a % of Total Available Hours (Department of Energy, USA)
  • % Deviation from Budget (Department of Energy, USA)
  • % Variation to Cost Estimates (Department of Energy, USA)
examples3
Examples

Government (Program/project) by

Department of Trade and Industry, United Kingdom

  • Time Predictability on Design = [(Actual Duration at Commit to Construct - the Estimated Duration at Commit to Invest)  the Estimated Duration at Commit to Invest]  100.
  • Time Predictability on Construction = [(Actual Duration at Available for Use - the Estimated Duration at Commit to Construct)  the Estimated Duration at Commit to Construct]  100.
  • Cost Predictability on Construction = [(Actual Cost at Available for Use - the Estimated Cost at Commit to Construct)  the Estimated Cost at Commit to Construct]  100
  • Differences in the Planned Completion Duration and the Actual Contract (client-agreed) Completion Duration as a % of the Contract (client-agreed) Completion Duration
  • Total Number of Change Orders Issued by the Client  Project Duration Time
  • Value of work subcontracted to or supplied by other parties as a % of Total Project Cost
examples4
Examples

Education

  • % Of graduates who can find work within 6 months
  • % Of graduates who have received job offers from multi-national corporations
  • Publications in international journals  staffs
  • Publications in international journals  research projects
  • % Of laboratory equipment in use
  • % Of texts in elective courses that have been published in the past 10 years
  • % Of courses that have adapted the use of multi-media software
  • % Of incoming students from top-tier high schools
descriptive kpis

Dimensions (Conditions Reflecting Satisfaction)

Weight

Right day, late service

1

Wrong day, late service

5

Complaints reopened by customers

5

Missing proof of delivery

1

Invoice adjustment requested

1

Missed pick-ups

10

Damaged packages

10

Lost packages

10

Over-goods (packages received in lost and found)

5

Abandoned calls

1

Descriptive KPIs

Occurrence Format (Source: FedEx from Neely, 1998)

#

Points

Score

basics on measurement13
Basics on Measurement

Performance measurement

Data

Information

  • Roles of measurement is to convert data to information for decision/actions.
  • Analysis of information for improvement (interventions and budgeting), and rating and ranking (external parties)
  • HR consideration (to be referred to as appraisal not measurement, and to be related to functional job analysis) involves pay-scale, par hike, placement, skill development, promotion, etc.This is not the focus of the material!
basics on measurement14
Basics on Measurement
  • Potential Problems:
  • Lack of knowledge on inputs and outputs in terms of priority and impacts (What are the primary inputs? What constitutes the primary outputs? What represents the inputs and outputs? Current data being collected?)
  • Multiple outputs in terms of products and services [1 truck + 1 car + 1 motorcycle + 1 repair work  4 units] [1 TV + 1 radio  2 units]
basics on measurement15
Basics on Measurement

Potential Problems (cont.):

3. Multiple inputs

[10 m2 of Space + 30 m2 of Materials  40 m2]

4. Consideration must be made into a time-effect for using inputs to generate outputs.

[Outputs  (labor + materials)]

[Outputs  (labor + new investment capital)]

basics on measurement16
Basics on Measurement

Potential Problems (cont.):

5.Integration with the database (Is the database robust enough?)

6.Rapid changes in prices (per unit of outputs) and costs (per unit of inputs). You must be able to differentiate the contributions to the profits whether they are from the productivity improvement or the changes in unit price/ cost.

basics on measurement17
Basics on Measurement

Unit assume constant

Interval Scale (use of mean and standard deviation) such as temperature and position

Arbitrary

origin

0

1

2

3

4

5

No unit between two points

Ordinary Scale (use of median and percentiles) such as preference and street numbers

Order

2nd

3rd

4th

1st

5th

basics on measurement18

# 3

# 5

# 2

# 6

# 7

# 4

# 1

Basics on Measurement

Constant unit

Ratio Scale (use of mean and standard deviation) such as length and time

Non-arbitrary

zero

0

1

2

3

4

5

Nominal Scale (use of mode) such as assignment of numbers for queuing or sport teams

basics on measurement19
Basics on Measurement
  • Scrap and Rework- to- Sales Ratio (in %)
  • Definition
  • Sale: the value of goods and services sold during the period ($)
  • Scrap and Rework: the value in terms of cost with respect to direct labor, material, and other indirect support ($)

%

Starting points, variation, trends, and satisfaction?

Month

linking with analysis evaluation
Linking with Analysis/ evaluation
  • Internal analysis/ evaluation (comparison with past performance in terms of trend and variation, and with the internally-established targets, expectation, and anticipation)
  • External analysis/ evaluation (comparison with standards, benchmarks, industrial averages with respect to the industries/ clusters, benchmarking partners, and competitors)
linking with improvement
Linking with Improvement

Desirable impacts should be anticipated prior to improvement interventions. For example, to improve productivity, one may expect at least one of the following five desirable impacts.

Output

Input

Output

Input

Output

Input

Output

Input

Output

Input

more on measurement
More on Measurement

Department of Energy, USA on “Performance Framework”

Sink and Tuttle’s Seven Performance Criteria

Profitability/ budgetability

Productivity

Innovation

Quality

Effectiveness

Efficiency

Quality of Work Life

slide44

More on Measurement

  • Definitions:
  • Efficiency: Degree to which the system utilizes the “right” thing. This definition may be represented by the ratio of “Resources planned for consumption” to “Actual consumption of resources.”
  • Effectiveness: Degree to which the system accomplishes the “right” thing. This definition may be represented by the ratio of “Actual outputs” to “Planned outputs.”
  • Profitability/budgetability: Ability to generate profit/revenue based on resources consumed
  • Productivity: Relationships between outputs generated and resources consumed for output generation
  • Quality (anywhere in the process model):Degree to which the system conforms to requirements, specification, or expectations.
  • Innovation: Ability to change over time within processes or operations, and products/services offered in the market.
  • Quality of Work Life:Reflecting on how people feel toward their workplace. Feeling in driven by factors such as pay, safety, culture, relationships with co-workers and supervisors, flexibility, autonomy, etc
sink performance criteria interrelationships
Sink’ Performance Criteria Interrelationships

Virginia Quality and Productivity Center at Virginia Tech

more on sink s
More on Sink’s

Quality checkpoint 5

Quality checkpoint 1

Quality checkpoint 2

Quality checkpoint 3

Quality checkpoint 4

TQM = Management of Quality at 5 Checkpoints

slide48

University of California Framework

Effectiveness

Efficiency

Quality

Timeliness

Productivity

Safety

More on Measurement

Definitions:

Effectiveness: A process characteristic indicating the degree to which the process output (work product) conforms to requirements (Are we doing the right things?)

Efficiency: A process characteristic indicating the degree to which the process produces the required output at minimum resource cost. (Are we doing the things right?)

Quality: Degree to which a product or service meets customer requirements and expectations.

Timeliness: Degree to which a unit of work was done correctly and on time. Criteria must be established to define what constitutes timeliness for a given unit of work. The criterion is usually based on customer requirements.

Productivity: Reflecting the value added by the process divided by the value of the labor and capital consumed.

Safety: Degree to which the overall health of the organization and the working environment of its employees.

slide49

More on Measurement

Family of Measures Framework

Profitability

Productivity

External Quality

Internal Quality

Other Quality

  • Definitions:
  • Profitability: Relationships between Outputs Generated and Resources Consumed for output generation
  • Productivity: The value added by the process divided by the value of the labor and capital consumed.
  • External Quality: Measures whether a unit of work was done correctly and on time also meets customer requirements and expectations.
  • Internal Quality: A process characteristic indicating the degree to which the process produces the required output at minimum resource cost. (Are we doing the things right?)
  • Other Quality: Measures the overall health of the organization and the working environment if its employees. Ability to change over time within processes or operations, and products/ services offered in the market
transformation
Transformation

Kurstedth, 1990 (Management Systems Laboratory at Virginia Tech)

transformation1
Transformation

Other Audiences:

Upper Management,

GAO, OMB,

Boss, Etc.

“Control

Loop”

Perception

Portrayal

Manager

Measurement And Evaluation

Measurement And

Management Team

Systems

Evaluation

Employees

Output/Visibility

Tools and Techniques:

Data Massaging Process

Decision

Data

Normal Direction

Measurement

Improvement

Techniques and

  • I/O Analysis
  • Vision/Strategy
  • Report Design
  • Data Collection Design
  • Data Analysis Techniques

Intervention

Systems: Data

And Techniques

Collection Process

Action

Measurement

Organizational

Systems

Upstream

Systems

Downstream

System

Sink and Tuttle, 1989

transformation2
Transformation

Administer the

Management

Process

Build the

Business

(improvement)

B

A

Current Situation Suggests a Lack of Continuous Improvement in Operation and Work Processes

C

Source: Hoehn (2002)

Cater to crises

transformation3
Transformation

Build the

Business

(improvement)

Administer the

Management

Process

(visibility &

Control)

Balance in Time Management Requires Performance Measurement and Its Integration with Management Systems and Processes

A

B

C

Source: Hoehn (2002)

Cater to crises

transformation common misuse of performance measurement
Transformation: Common Misuse of Performance Measurement?
  • Measuring A while hoping for B. We measure the easy things, the most pressing things, the wrong things; we hope for quality while measuring and controlling only production schedules.
  • Measuring to control in such a way as to make improvement more difficult. We focus on control of excess, creating a compliance mentality rather than an improvement orientation.
  • Measuring to find those who have performed poorly in order to punish them while ignoring the good performers.

Source: Sink and Tuttle, 1989

transformation common misuse of performance measurement1
Transformation: Common Misuse of Performance Measurement?
  • Behavior is influenced by measures
    • “You get what you measure because that is what you reveal as what you think is important.” (Sink and Tuttle, 1989)
  • But, are we measuring the right things?
    • How do we know the measure accurately reflects system performance?
    • How do we know that the measure is under the control of those it’s attributed to?
    • Are we measuring to control or to improve, or both?
transformation4
Transformation

The Management System Model (MSM) demonstrates a “general” management process and then depicts the roles of performance measurement for the unit of analysis.

(Performance measurement = a management tool)

background enhancement

Balanced/complete

Measures

Performance-based

Management

Performance

Measurement

Systems

Budgeting

&

Planning

Stakeholders

(customers and

shareholders)

Background Enhancement

Source: Neely, 1998

background enhancement1
Background Enhancement

Financial

Results

Process

Results

Customer

Results

Output/ outcome- driven performance measurement at “Best Buy Corporation”

background enhancement2
Background Enhancement

System view of performance measurement

Performance Measurement System

Performance Criteria and Areas

Robust Database

Mechanism

Collection, Verification, Process, Retrieval of Data, Reporting, Analysis, and Decision/actions

Performance Measures

Cognitive Style of Users

background enhancement us department of energy fy 1999
Background Enhancement(US Department of Energy, FY 1999)
  • Area of measurement: Engineering

Minimum (standards)

Desirable (targets)

Focus

Performance Measures

  • % of Operations Manuals updated in accordance with schedule

100% within 30 days of schedule

100% on schedule

Systems/ operations Manual updates as technical support

  • % of manuals that are accurate and complete in accordance with approved schedule

100% within 60 days of schedule

100% on schedule

Measure VS targets VS standards

background enhancement3
Background Enhancement
  • Area of measurement: Engineering

Focus

Performance Measures

Minimum

Desirable

Provide configuration management assistance, and maintain integrated schedule baseline for task, site, and project basis

  • % of deliveries of services and publications (on standards, Federal rules and decisions, environmental reports, Federal Codes, State-wide orders, and construction estimating standards) in accordance to requests

60% of inquiries are completed and on date requested.

95% of inquiries are completed and on date requested.

70% of all schedules/ reports have been updated

95% of all schedules/ reports have been updated

  • % of schedules and reports are updated and maintained on a monthly basis
background enhancement4
Background Enhancement
  • Area of measurement: Management Information Systems

Focus

Performance Measures

Minimum

Desirable

  • % of software problems solved on the first call to Help Desk

50%

85%

User satisfaction with support activities

  • Number of support hours required per end-user devices

2.0 hours

1.5 hours

  • % of Help Desk technicians certified as Microsoft Office Experts

25%

75%

background enhancement5
Background Enhancement
  • Area of measurement: Management Information Systems

Focus

Performance Measure

Minimum

Desirable

60% completion within  15 % of planned date and planned man-hours

85% completion within  15 % of planned date and planned man-hours

Effective project management control of Information Systems projects

  • % of Information Systems initiatives completed
background enhancement6
Background Enhancement

Focus

Performance Measures

Minimum

Desirable

  • Area of measurement: Management Information Systems
  • % of network availability (Access, Visio, Internet Connector, Washington E-mail Connector)

90% overall during 6:30 a.m. to 5:00 p.m shift

97% overall during 6:30 a.m. to 5:00 p.m shift

Maximize network and application availability

90% overall during 6:30 a.m. to 5:00 p.m shift on Monday-Friday

96% overall during 6:30 a.m. to 5:00 p.m shift on Monday-Friday

  • % of business application availability (Travel Manger, P-Centra, Magic-Solutions, and so on)
  • Average turnaround time for problems/maintenance on the primary database

10-day average

Less than 10-day average

background enhancement7
Background Enhancement
  • There have been new reports and articles on this topic appearing at a rate of one for every five hours of every working day since 1994.
  • In 1996 alone, one new book on this subject appeared every two weeks.
  • In 1996, the survey found that 64% of American business were actively experimenting with new ways of measuring and utilizing non-financial data.
background enhancement8
Background Enhancement

Source: DOE, USA

background enhancement9
Background Enhancement

Source: DOE, USA

background enhancement10
Background Enhancement

Source: DOE, USA

background enhancement11
Background Enhancement

Knowledge Management within the Organization Relies on Robust Performance Measurement.

Know-what, know-where, know-when, know-how, and know-why

Increasing Levels of Complexity and Value

Intangible Assets

Experience

Expertise and Skills

Data and Information

background enhancement12
Background Enhancement

Source: DOE, USA

slide72

Background Enhancement

  • The Balanced Scorecard seeks to link four measurement perspectives to provide a comprehensive view of business performance

Framework for Action

Balanced Scorecard

  • Clarify and translate vision and strategy
  • Communicate and link strategic objectives and measures
  • Plan, set targets, and align strategic initiatives
  • Enhance strategic feedback and learning

Source: Kaplan and Norton, 1992, 1996

measurement basics
Measurement Basics

Mission/ objectives/ policies (DOD, USA)

Financial Perspective: How do we add value for customers/stakeholders while controlling costs?

Strategies

Customer Perspective: Who do we define as our customers/ stakeholders? How do we create value for our customers/ stakeholders?

Internal Business Perspective: To satisfy customers/ stakeholders while meeting budgetary constraints, at what work processes must we excel?

Employee Learning and Growth Perspective: How do we enable ourselves to grow and change, meeting legislative and citizen demands?

slide74

Perspective

Question

Performance Focus and Areas

Customer

How do customers see us?

Time, quality, performance and service, and cost [Quality, effectiveness, and innovation in products and services]

Internal Business

What must we excel at?

Cycle time, excellence , and employee skills [Productivity, quality, QWL, effectiveness, efficiency, and innovation in processes]

Innovation

Can we continue to improve and create value?

New product launches, customer value, and operating efficiency [Quality and Innovation in products/services and processes]

Financial

How do we look to shareholders?

Income, expenses, assets, liabilities… [Profitability and productivity]

Background Enhancement

relating to the balanced scorecard doe usa

Customer Perspective: KPI or measures include:

  • % of customers satisfied with responsiveness, cooperation, and communication(Data to be collected through the customer survey)
  • % of customers satisfied with quality(Data to be collected through the customer survey)

Financial Perspective: KPI or measures include:

  • Actual Spending-to-Budget Ratio(Data to be collected from the agency’s financial database)
  • % of late payment in $ on contracted services(Data to be collected from the agency’s financial database)
Relating to the Balanced Scorecard (DOE, USA)
relating to the balanced scorecard doe usa1

Internal Business Perspective: KPI or measures include:

  • % of acquisition transactions using Electronic Commerce(Data to be collected from the agency’s financial database)
  • % of targets achieved within a timeframe(Data to be collected from the agency’s central database)

Learning and Innovation Perspective: KPI or measures include:

  • % of staffs meeting mandatory qualification standards(Data to be collected from the agency’s Career Development database)
  • % of staffs satisfied with the professionalism, culture, values, and empowerment(Data to be collected through an employee survey)
Relating to the Balanced Scorecard (DOE, USA)
relating to the balanced scorecard typical private firms
Relating to the Balanced Scorecard (typical private firms)

Customer Perspective: KPI or measures include:

  • % of revenue from new customers
  • Customer retention rate
  • Market share

Financial Perspective: KPI or measures include:

  • Profit  revenue
  • Revenue  total cost
  • ROI and/or ROA
relating to the balanced scorecard typical private firms1
Relating to the Balanced Scorecard (typical private firms)

Internal Business Perspective: KPI or measures include:

  • Inventory turnover
  • On-time delivery
  • Production yield

Learning and Innovation Perspective: KPI or measures include:

  • % of staffs who have not been trained for the past 12 months
  • % of revenue from new products
  • Product mix
slide79

Past and Present Projects:

  • Office of the Public Sector Development Committee (OPDC) for Assessing a Management System of the “CEO-Provincial” Governors (75 provinces excluding Bangkok)
  • [PM will host the CEO Summit in November 2004.]
  • Institute for the Promotion of Teaching Science and Technology, the Ministry of Education for Assessment a Management System for the Director
slide81

“Internal Control

“External Control

Loop”

Loop”

Organizational

System

Database, Staffs, Participation, and Budget

Other Audiences:

Upper Management,

Deputy Provincial Governors

Perception of Problems and Success, and Integration among Formulation, Implementation, and Success

Budget Bureau, ONESB, BOI,

OPDC, etc.

Reporting Perception

Information Portrayal

Measurement And

Measurement and Evaluation

Provincial Governors

Evaluation

Systems as well as Visibility

Tools and Techniques:

Data Massaging Process

Decisions

Normal Movement

Data

Measurement

Improvement

Techniques and

Intervention

Systems: Data

And Techniques

Collection Process

Actions

Measurement

Upstream

Downstream

Private Sectors, Government Agencies (operation-oriented), Other Audiences

Private Sectors, Government Agencies (operation-oriented), Other Audiences

Value-added Processes

Inputs

Outputs

slide82

Recommendations

Adaptability

Improvement of Management Systems

Ownership

Responsiveness

  • Responsible Parties for Implementation: Provincial Governors and OPDC
  • Adaptability (ability to adapt to different operating environment): Public Franchises, Innovation Funds, Activity-based Costing, Tracking of “Unnecessary Cost,” etc,
  • Responsiveness (ability to timely respond to stakeholder needs– fundamental or emerging needs): Outsourcing, Cross-training Programs, etc.
  • Ownership (ability to receive timely feedback on decisions/actions as well as being accountable for planning): Performance Measurement, Acquisition Logistics, Performance-based Contracts, Vendor Performance Forum, and Program Risk Managmeent
slide83

Recommendations

Empowerment

Sustainability of Management Systems

Supportability

Robustness

  • Responsible Parties for Implementation: OPDC and Central Agencies
  • Empowerment (sustaining the management system by assisting its adaptability): Saving Accounts, Provincial Bonds, etc.
  • Robustness (sustaining the management system by assisting its responsiveness): Management Consulting Clinics, Value-chain Management for Planning, etc.
  • Supportability (sustaining the management system by assisting its ownership): Benchmarking Clearinghouse for Public Organizations, PM Awards for Service Quality and Best-value Procurement, etc.
slide84

Available Assets within a Management System for Becoming More Adaptive, Responsive, Robust, Accountable

Financial Assets

Non-financial Assets

Intangible Assets

Intellectual Properties

Human Capital

Organizational Capital

Innovation Capital

Process Capital

ratio format measures
Ratio-format Measures

Input/ Output Analysis or Upstream-input-process-output-downstream Chain

Unit of Analysis

Upstream

Inputs

Processes

Outputs

Downstream

Internal/ external entities such as suppliers, competitors, etc.

Internal/ external entities such as customers, users, regulators, competitors, etc.

slide87

Ratio-format Measures

University

Upstream

Inputs

Processes

Outputs

Downstream

High Schools

Suppliers

Subcontractors

Budget Bureau

Staffs

Students

Instruments

Facility

Budget

Utilities

Teaching

Approval

Experiments

Review

Planning

Procurement

Graduates

Research

Reports and Documents

Seminars

Intellectual Properties

Qualifications for Workplace

Suitable Skills

Employment

Continuous Education

Publications

Revenue

slide88

Ratio-format Measures

Private Firm

Upstream

Inputs

Processes

Outputs

Downstream

Suppliers

Subcontractors

Staffs

Instruments and Equipment

Facility

Capital

Utilities

Raw Materials

Planning

Procurement

Approval

Production

Inspection

Warehousing

Delivery

Products

Services after Sales

Reports and Documents

Revenue and Profit

Quality of Services (Replacement, Repairs, Return, Recall, etc.)

Customer Satisfaction

Regulatory Compliance

slide89

Ratio-format Measures

Call Center

Upstream

Inputs

Processes

Outputs

Downstream

Suppliers

Subcontractors

Customers

Staffs

Incoming Calls

Facility

Equipment

Database

Receiving

Listening

Data Gathering

Training and Knowledge Building

Responses

Data and Information

Quality of Responses (Accuracy, Clarity, Fast, etc.)

Customer Satisfaction

ratio format measures1
Ratio-format Measures

Ratio Identification

Outcomes  inputs

Outputs  inputs

Outcomes  outcomes

Outcomes  outputs

Outputs  outputs,

Inputs  inputs

Inputs  upstream

Upstream  upstream

Actual outputs  planned outputs

Planned or expected resource consumption  actual consumption of resources

ratio format measures2

Leading and Lagging Categories

Rule Applications

Ratio Format

Dynamic and Static Types

Absolute Rule

Frequency Rule

Improvement or trend-specific

Control or monitoring-specific

Ratio-format Measures
ratio format measures3
Ratio-format Measures
  • Trend: Revenue ÷ Cost and Product ÷ Raw Materials
  • Control: % of Employees under 35-year old and % of Employees with Children under 6-year old

Absolute Rule: Average time to respond to incoming telephone calls and Average time for a corrective maintenance action (type A repair)

Frequency Rule: % of incoming telephone calls that are responded within 45 seconds and % of a corrective maintenance action (type A repair) that is completed within 30 minutes

ratio format measures4
Ratio-format Measures

Verification: (1) Unit dimensions, frequency, data accuracy and reliability, and definition for data collection

(2) Information usefulness for decisions/ actions

(3) Linkage with organizational policies and objectives (through the pyramid or breakdown structure concepts or performance network)

ratio format measures5
Ratio-format Measures

Outcomes÷ Outcomes

  • Revenue from new customers ÷ Revenue
  • Revenue from rework ÷ Revenue

Outcomes÷Outputs

  • Return ÷ Amount produced
  • Delivery errors amount ÷ Delivery amount

Outcomes÷Inputs

  • Revenue ÷ Assets
  • Revenue ÷ (Labor + Utility) cost
ratio format measures6
Ratio-format Measures

Outputs÷Outputs

  • Rework ÷ Amount produced
  • Unplanned amount produced ÷ Amount produced

Outputs÷Inputs

  • Amount produced ÷ Labor
  • Amount produced ÷ Materials

Process

  • Average amount of respond time on a customer complaint
  • Absent hours from unsafe and unsuitable working environment ÷ Working hours
ratio format measures7
Ratio-format Measures

Inputs÷Inputs

  • % Of people who resign after 6-month of employment
  • % Of rejects on incoming materials

Inputs÷Upstream

  • % Of parts from approved suppliers
  • % Of rejects from the same suppliers

Upstream÷Upstream

  • % Of suppliers that have been audited as scheduled
  • % Of active suppliers that have been internationally certified or recognized
value based management with ratio format measures
Value-based Management with Ratio-format Measures
  • “Value added” represents the value which the firm adds to the materials, components, goods/ services which it buys from others in order to create its own sale revenue or value of output turnover.

 Value-added = (Sales or Value of Output Turnover) – (Bought in Materials and Services such as Raw Materials, Components, Goods/services, and Energy)

Source: Screehivasan, V. (1991), the Michigan Manufacturing Technology Center, USA

slide98

Economic Value Added (EVA):

  • Registered Trademark of Stern Stewart & Co.
  • Financial-based measure with focus on shareholders’ wealth
  • Visualize “true” economic profit

EVA = OPBT – TAX – (TCE x COC)

OPBT: Operating Profit Before Tax

TAX: Federal, state, and local tax

TCE: Total Capital Employed

COC: Cost of Capital

Limitations: Data, Not applicable for public organizations, past performance or lagging indicators, not suitable for dynamic environment, etc.

multi criteria performance productivity measurement technique mcp pmt
Multi-criteria Performance/ productivity Measurement Technique (MCP/PMT)

Attempts to combine information from different ratio-format measures into an overall level of performance

Attempts to integrate different types of ratio-format measures into performance information (e.g., productivity = outputs  inputs, profitability = outcomes  inputs, quality = outcomes  outcomes, or outcomes  outputs, outputs  outputs etc.)

mcp pmt
MCP/PMT

Implementation:

  • Identification of ratio-format measures
  • Verification of their suitability
  • Understanding of past information, including trends
  • Selection of a performance scale (to be the same for all selected ratios)
    • Scale should be 0-1.00, 0-10.00, or 0-100.00 for simple interpretations!
mcp pmt1
MCP/PMT

(5) Development of a preference curve (to be unique from one ratio to the next)

  • Desirable, best, competitive levels of performance (driven by internal capability, shareholder expectation, competition, best-practice)

(6) Weight assignment on each ratio

(7) Data collection

(8) Computation

(9) Analysis and improvement

mcp pmt2
MCP/PMT

Average

2.76

8.92

14.20

63.85

24.42

mcp pmt8
MCP/PMT
  • Development of the preference curve
    • Need to understand process capability as well as to expose work process to external factors such as competition
    • Unique from one ratio to the next (unlike the performance scale)
    • Values on the preference curve should be controllable as well as challenging and measurable (numerical figures)
mcp pmt9

Preference Curve for Sales-to-Raw Materials Ratio

Performance Scale

Value Scale

 1.78 0 (Worst)

2.76 50 (Acceptable) 4.48 100 (Best)

100

50

Actual results for November is 4.58  the value on the performance scale is 100 (out of 100)

0

Ratio Information

4.58

1.78 2.76 4.48

MCP/PMT
mcp pmt10

Preference Curve for Sales-to-Direct Labor Ratio

Performance Scale

Value Scale

 6.01 0 (Worst)

8.92 50 (Acceptable)

 12.80 100 (Best)

100

50

Actual results for November is 5.64  the value on the performance scale is 0 (out of 100)

0

Ratio Information

5.64

6.01 8.92 12.80

MCP/PMT
mcp pmt11
MCP/PMT

Preference Curve for Compensation and Injury

Cost-to-Direct Labor Ratio

Value Scale

 11.40 100 (Best)

14.20 50 (Acceptable)

 19.39 0 (Worst)

Interpolation:

14.20- 11.40 = 12.40- 11.40 100 - 50 100 - (X)

X = 82.14

Performance Scale

100

?

50

Actual results for November is 12.40  the value on the performance scale is 82.14 (out of 100)

0

Ratio Information

12.40

11.40 14.20 19.39

mcp pmt12
MCP/PMT

Preference Curve for Sales-to-Utility Ratio

Performance Scale

Value Scale

 39.58 0 (Worst)

63.85 50 (Acceptable)

 90.12 100 (Best)

100

50

Actual results for November is 91.04  the value on the performance scale is 100 (out of 100)

0

Ratio Information

91.04

39.58 63.85 90.12

mcp pmt13
MCP/PMT

Preference Curve for Subcontract-to-Direct Labor Ratio

Value Scale

 17.44 100 (Best)

24.42 50 (Acceptable)

 34.16 0 (Worst)

Interpolation:

34.16- 24.42 = 30.68- 24.42 50 - 0 50 - (X)

X = 17.86

Performance Scale

100

50

Actual results for November is 30.68  the value on the performance scale is 17.86 (out of 100)

?

Ratio Information

0

30.68

17.44 24.42 34.16

mcp pmt14
MCP/PMT

Performance Level from Scale 0-100

100.00

0.00

82.14

100.00

17.86

November

Ratio 1: 4.58

Ratio 2: 5.64

Ratio 3: 12.40

Ratio 4: 91.04

Ratio 5: 30.68

Equal Weight of 20% for Each Ratio

mcp pmt15
MCP/PMT
  • Overall Level of Performance =

(100  0.20) + (0  0.20) + (82.14  0.20) +

(100  0.20) + (17.86  0.20) = 60 out of 100

Interpretations and implications: the level of performance in November  acceptable level

Static VS dynamic views when developing a preference curve with closed- and open- system points of view

Weight assignment (to be consistent with organizational policies and objectives)

slide117

Past and Present Projects:

  • Thai Flour Group (BKK Inter Food) for Possible Interrelationships between Quality of Work Life and Productivity with MCPMT– Please See the Paper for More Details
  • Thai Flour Group (BKK Inter Food) for Developing and Deploying Ratio-format KPIs: Improvement on Monitoring and Management
  • PEA for Developing and Deploying Ratio-format KPIs at the Functional Levels (34 functions + 1 zone)
slide118

Lessons Learned:

  • Database and Performance Measurement: Integral and Inseparable Parts
  • Cost of Developing and Deploying KPIs must be considered prior to implementation. Benefits/cost analysis should be made (although eventually the benefits will outweighs the cost!).
  • Accounting information is still important. The objective is to enhance information for decisions/actions (not to replace what has been in use). Go back to the problems in 1970s for U.S. businesses.
performance network
Performance Network
  • Harper (1984): Historically, the performance has been measured by individual ratios. Financial ratios such as liquidity, debt-equity, inventory turnover, profit margin, return on investment, return on assets, etc. have been applied for a long time.
  • More importantly, the ratios must reflect the systematic nature of the unit under examination. This nature implies the understanding of inputs, processes, and outputs as well as external factors impacting the conversion of these inputs to outputs such as suppliers, competitors, customers, etc.
slide120

Performance Network

  • Several issues embedded during the development and use of these ratios.
    • Output and inputs definitions (tangible and intangible) and their respective importance into the operations
    • Linkage with organizational policies and objectives
    • Interrelationships among the identified ratios for comprehensive cause-and-effect analyses
    • Use of information for planning and realistic target setting
slide121

Performance Network

Identification of the Ratios

Input Factor

Physical Quantity

Financial Value

Output Factor

Physical Quantity

Financial Value

slide122

Performance Network

  • Areas that reflect the performance
    • Productivity
    • Unit Cost
    • Price
    • Factor Proportion
    • Cost Proportion
    • Product Mix
    • Input Allocation
slide123

Productivity = Output(s)

Input(s)

Physical Quantity

per Physical Quantity

Unit Cost = Input(s)

Output(s)

Financial Value

per Physical Quantity

Price = Input

Input

Financial Valueper Physical Quantity (of the same type of an input)

Performance Network

slide124

Performance Network

Factor = Input

Proportion Input

Physical Quantity or Financial

Value of One input over Another Type Input

Cost = Input

Proportion Inputs

Financial Value of One Input

over Total Financial

Value of Entire Inputs

Physical Quantity or Financial Value of One Output over Another Output (or in Some Cases, One Output Can Be Broken into Smaller Categories.)

Product Mix = Output

Output

Applied When One Input Can Be Broken into Smaller Categories for Both Physical Quantity and Financial Value

Input = Input

Allocation Input

slide125

Performance Network

  • Productivity: Output per labor, output per tons of fuel, etc.
  • Unit Cost: Cost per one output unit, Labor cost per one output unit, etc.
  • Price: Total labor cost per worker, Total material cost per ton, etc.
  • Factor Proportion: Material cost per labor cost, Labor cost per fuel cost, etc.
slide126

Performance Network

  • Cost Proportion: Labor cost per total cost, Material cost per total cost, etc.
  • Product Mix: Revenue from product per revenue from repair services, product A per product B, Product A per product A rework, etc.
  • Input Allocation: Inspector per production line worker, Indirect labor per direct labor, etc.
slide127

Performance Network

  • Implementation
    • Defining businesses in terms of outputs and inputs with basic understanding of policies and objectives (may assume outcomes ≈ outputs)
    • Identifying both physical quantity and financial value relating to each output and input factor
    • Listing the required ratios as stated by the 7 aspects
slide128

Performance Network

  • Rules for Ratios:
    • More than one input factor:

Output = OutputCapital

Labor Capital Labor

    • Pay and productivity (cost per unit of a factor is function of both its productivity and price)

Wage Cost = Wage CostOutput

Output Labor Labor

slide129

Performance Network

  • Pay your greatest attention to the greatest proportion

Profit = Profit Output or

Labor Output Labor

Profit = Profit Output or

Capital Output Capital

Output = OutputMaterials or

Labor Materials Labor

slide130

Performance Network

Profit/Capital Employed

Profit/ Revenue from Sales

Revenue from Sales/ Capital Employed

Revenue from Sales/ Total Cost

Labor Cost/ Total Cost

Labor Cost/ Capital Employed

slide131

Performance Network

Overhaul Units/Capital Employed

Overhaul Units/ Labor

Training Cost/ Labor

Training Cost/ Capital Employed

÷

Training Cost/ Working Hours

Working Hours/ Inventory

Inventory/ Capital Employed

slide132

Performance Network

Actual Bus Miles/ Total Cost

Actual Bus Miles/ Operation Cost

Operation Cost/ Total Cost

Actual Bus Miles/ Fuel Cost

Fuel Cost/ Operation Cost

Actual Bus Miles/ Maintenance Cost

Maintenance Cost/ Operation Cost

Actual Bus Miles/ Available Bus Miles

Available Bus Miles/ Maintenance Cost

slide133

Performance Network

Profit/ Equipment Asset

Profit/ Outputs

Outputs/ Equipment Asset

Outputs/ Labor

Equipment Asset/ Labor

Outputs/ Materials

Materials/ Labor

slide134

Performance Network

Revenue/Total Cost

Revenue/Labor Cost

Labor Cost/Total Cost

Material Cost/Labor Cost

Revenue/Material Cost

Labor Cost/Labor Hours

Labor Hours/Total Cost

slide135

Performance Network

Inventory Value/ Operating Cost

Inventory Value/ Labor Cost

Labor Cost/ Operating Cost

Inventory Value/ Material Handling Cost

Material Handling Cost/ Labor

Labor Cost/ Labor

÷

Labor Cost/ Audit Cost

Audit Cost/ Operating Cost

Damage and 3-month Inventory Value/Material Handling Cost

Damage and 3-month Inventory Value/ Inventory Value

÷

information analysis for target setting research with bkk inter food

Revenue

Total Cost

Y

Revenue

Util. Cost

Util. Cost

Labor Cost

Labor Cost

Total Cost

8

Revenue

Mat. Cost

1

2

4

Revenue

Raw. Inv.

6

Revenue

Labor Cost

7

Util. Cost

Total Cost

3

Mat.Cost

Total Cost

Util. Cost

Mat. Cost

5

Raw. Inv

Mat. Cost

Information Analysis for Target Setting (Research with BKK Inter Food)
  • Next step for performance measurement
information analysis cont
Information Analysis (cont.)

Target Y: Revenue-to-Total Cost ratio

MeasuresX1: Revenue-to-Material Cost ratio

X2: Material Cost-to-Total Cost ratio

X3: Utility Cost-to-Total Cost ratio

X4: Utility Cost-to-Material Cost ratio

X5: Revenue-to-Material Cost ratio

X6: Revenue-to-Raw Material Inventory ratio

X7: Revenue-to-Labor Cost ratio

X8: Labor cost-to-Total Cost ratio

Y = -0.310 - 0.0002 (T) + 0.576 (X1) - 0.291 (X2) + 14.145 (X3) -10.166 (X4) + 0.004 (X5) + 0.024 (X6) + 0.010 (X7) + 1.826 (X8)

information analysis cont1
Information Analysis (cont.)
  • Network is dynamic!
    • Contributions from one ratio will change over time.
    • Suitability must be revisited to expand or reduce the network scope
  • Data must be collected over the same frequency.
  • More than one network should be made to help comprehensively analyze the circumstance.
  • Network must be aligned with business operations and strategy.
audit to improve measures or ratios aim
Audit to Improve Measures or Ratios (AIM)
  • Revisiting the development of measures or ratios
  • Five components for developing a ratio (upstream, inputs, processes, outputs, and downstream)
  • Each component can be assessed in terms of financial and non-financial value (e.g., $, m, person, m2, m3, hour, day, week, company, etc.)
slide140
AIM
  • Measures or ratios must be clearly defined (e.g., injury cost, maintenance, return, revenue, inventory, etc.)
  • Measures or ratios must have their dimensional units for data collection.
  • Measures or ratios must be aligned with organizational policies and objectives.  Pyramid or breakdown concept may be necessary to demonstrate this linkage.
  • Measures or ratios must be accepted and integrated into management processes and systems for continuous performance improvement.
other measurement tools
Other Measurement Tools

Multi-factor Productivity Measurement Model (MFPMM)

Development by the American Productivity and Quality Center (1977) for measuring productivity/performance at the organizational and functional levels

Attempt to combine outputs and inputs for analysis and evaluation

Attempt to relate productivity with changes in profits, the ability to raise price, and the impacts from changes in unit cost

mfpmm
MFPMM

Benefits from the Model:

  • Identify the overall level of productivity from an integrated point of view as well as contributions from a single input factor
  • Realize the impacts from productivity on the profit/loss
  • Provide forward-looking or leading information for management by applying both static-and dynamic- measure formats
mfpmm1
Framework for MFPMM DevelopmentMFPMM

Impacts from Productivity Changes

20022003

Output Value $170 $252

Input Value $200 $280

Output  Input 0.85 0.90

Dynamic view [(252 170)  (280 200)] = 1.0588

Profit/loss ($30) ($28)

mfpmm2
MFPMM

Interpretations:

  • Productivityby 5.88%
  • Loss decline by $2
  • Based on the 2002, the organization should have generated $238 (according to input value). At the same time, the cost should have been $296.5 (according to output value)

 Generate more output value than it should be by $14

 Consume less input value than it should be by $16.5

mfpmm3
MFPMM

Interpretations (cont.):

4. “$14” and “$16.5” represent the opportunity gain! You don’t find these figures in typical company reports.

5. If the productivity level remains constant, the loss would have been between $42 – 44.5.

6. Revisit the consequences in productivity increase!

7. Leading information on future profit/loss?

mfpmm4
Framework for MFPMM Development (cont.)MFPMM

Impacts from Productivity Changes

20022003

Output Value $500 $600

Input Value $100 $150

Output  Input 5.00 4.00

Dynamic view [(600 500)  (150 100)] = 0.80

Profit/loss $400 $450

mfpmm5
MFPMM

Interpretations:

  • Productivity by 20%
  • Profit increase by $50
  • Based on the 2002, the organization should have generated $750 (according to input value). At the same time, the cost should have been $120 (according to output value)

 Generate less output value than it should be by $150

 Consume more input value than it should be by $30

mfpmm6
MFPMM

Interpretations (cont.):

4. “$30” and “$150” represent the opportunity loss! You don’t find these figures in typical company reports.

5. If the productivity level remains constant, the profit would have been between $480-600 (implying less profits than it should have been).

6. Revisit the consequences in productivity decrease!

7. Leading information on future profit/loss?

mfpmm7
Framework for MFPMM Development (cont.)MFPMM

Impacts from Productivity Changes

20022003

Output Value $200 $300

Input Value $150 $175

Output  Input 1.33 1.71

Dynamic view [(300 200)  (175 150)] = 1.29

Profit/loss $50 $125

mfpmm8
MFPMM

Interpretations:

  • Productivity by 29%
  • Profit increase by $75
  • Based on the 2002, the organization should have generated $233.33 (according to input value). At the same time, the cost should have been $225 (according to output value)

 Generate more output value than it should be by $66.67

 Consume less input value than it should be by $50

mfpmm9
MFPMM

Interpretations (cont.):

4. “$50” and “$66/67” represent the opportunity gain! You don’t find these figures in typical company reports.

5. If the productivity level remains constant, the profit would have been between $ 58.83-75.

6. Revisit the consequences in productivity decrease!

7. Leading information on future profit/loss?

mfpmm10
MFPMM

Factors Contributing to Performance

Changes in Product Quantity

Change in Product Price (Unit Price)

Change in Revenue

Change in Productivity

Change in Profit

Change in Recovery

Change in Resource Quantity

Change in Cost

Change in Resource Cost (Unit Cost)

computations column 7
Computations (Column 7)

Output quantities (Boats A and B): 27.27% more outputs from period 1 to 2 with price/cost remains constant at period 1 to reflect true changes in quantity:

[(70  5,000) + (35  10,000)] = 1.2727

[(50  5,000) + (30  10,000)]

Input quantities: 5% less total labor consumed from period 1 to 2 with price/cost remains constant at period 1 to reflect true changes in quantity:

[(304  20) + (760  8) + (1,064  6)] = 0.95

[(320  20) + (800  8) + (1,120  6)]

computations column 71
Computations (Column 7)

Input quantities: 36.3% more total materials consumed from period 1 to 2 with price/cost remains constant at period 1 to reflect true changes in quantity:

[(3,000  50) + (1,000  3)] = 1.363

[(2,200  50) + (750  3)]

Input quantities: 29.9% more total inputs consumed from period 1 to 2 with price/cost remains constant at period 1 to reflect true changes in quantity:

[(30420)+(7608)+(10646)+(300050)+(10003)+(82000.1)+(904)]= 1.299

[(32020)+(8008)+(11206)+(220050)+(7503)+(80000.1)+(1004)]

 Output quantities  VS input quantities 

computations column 8
Computations (Column 8)

Output prices (Boats A and B): 15% higher price per unit of outputs from period 1 to 2 with quantity remains constant at period 2 to reflect true changes in price/cost:

[(70  5,500) + (35  12,000)] = 1.15

[(70  5,000) + (35  10,000)]

Input costs: 13.11% higher cost per unit of overall labor from period 1 to 2 with quantity remains constant at period 2 to reflect true changes in price/cost:

[(304  22) + (760  9) + (1,064  7)] = 1.1311

[(304  20) + (760  8) + (1,064  6)]

computations column 81
Computations (Column 8)

Input costs: 68.63% higher cost per unit of overall materials from period 1 to 2 with quantity remains constant at period 2 to reflect true changes in price/cost:

[(3,000  85) + (1,000  3)] = 1.6863

[(3,000  50) + (1,000  3)]

Input costs: 62.20% higher cost per unit of inputs from period 1 to 2 with quantity remains constant at period 2 to reflect true changes in price/cost:

[(30422)+(7609)+(10647)+(300085)+(10003)+(82000.1)+(904)]= 1.622

[(30420)+(7608)+(10646)+(300050)+(10003)+(82000.1)+(904)]

 Price per unit of output  VS cost per unit of input  

computations column 9
Computations (Column 9)

Output value or revenues (Boats A and B): 46.36% higher from period 1 to 2:

[(70  5,500) + (35  12,000)] = 1.4636

[(50  5,000) + (30  10,000)]

Input value or costs: 7.46% higher cost of overall labor from period 1 to 2:

[(304  22) + (760  9) + (1,064  7)] = 1.0746

[(320  20) + (800  8) + (1,120  6)]

computations column 91
Computations (Column 9)

Input value or costs: 129.8% higher cost of overall materials from period 1 to 2:

[(3,000  85) + (1,000  3)] = 2.298

[(2,200  50) + (750  3)]

Input value or costs: 110.7% higher cost of inputs from period 1 to 2:

[(30422)+(7609)+(10647)+(300085)+(10003)+(82000.1)+(904)]= 2.107

[(32020)+(8008)+(11206)+(220050)+(7503)+(80000.1)+(1004)]

 Output value or revenue  VS input value or total cost  

computations column 10
Computations (Column 10)

Total labor cost represents 3.55% of total revenue or [(19,520 550,000)].

Total material cost represents 20.41% of total revenue or [(112,250 550,000)].

Total cost represents 24.18% of total revenue or [(132,970 550,000)].

You may use the Pareto Diagram to reflect the proportion of the inputs.

computations column 11
Computations (Column 11)

Total labor cost represents 2.61% of total revenue or [(20,976 805,000)].

Total material cost represents 32.05% of total revenue or [(258,000 805,000)].

Total cost represents 34.8% of total revenue or [280,156 805,000)].

You may want to look at the trend (increasing and declining) of each input factor as well as the consistency in the “high” proportion relatively to the revenue.

computations column 12
Computations (Column 12)

Revisiting: Productivity = Outputs  Inputs

Need to combine various output types and input factors!

Total Labor Productivity

[(50  5,000) + (30  10,000)] = 550,000 = 28.18

[(320  20)+(800  8)+(1,120  6)] 19,520

Total Material Productivity

[(50  5,000) + (30  10,000)] = 550,000 = 4.90

[(2,200  50) + (750  3)] 112,250

computations column 121
Computations (Column 12)

Overall Productivity

= [(50  5,000) + (30  10,000)][(32020)+(8008)+(1,1206)+(2,20050)+(7503)+(8,0000.1)+(1004)]

= 550,000 = 4.14

132,970

computations column 13
Computations (Column 13)

In order to reflect the change in productivity, the price/cost must remain constant at period 1 while focusing on the quantity aspect!

Total Labor Productivity

[(70  5,000) + (35  10,000)] = 700,000 = 37.75

[(304  20) + (760  8) + (1,064  6)] 18,544

Total Material Productivity

[(70  5,000) + (35  10,000)] = 700,000 = 4.58

[(3,000  50) + (1,000  3)] 153,000

computations column 131
Computations (Column 13)

Overall Productivity

= [(70  5,000) + (35  10,000)][(30420)+(7608)+(1,0646)+(3,00050)+(1,0003)+(8,2000.1)+(904)]

= 700,000 = 4.05

172,724

computations column 14
Computations (Column 14)

Overall Labor Productivity Level

= [(70  5,000) + (35  10,000)]

[(50  5,000) + (30  10,000)]

[(304  20) + (760  8) + (1,064  6)]

[(320  20) + (800  8) + (1,120  6)]

= 1.2727  0.95 = 1.34

 Rate of output quantity generated > Rate of labor quantity consumed over the same period

Dynamic measures on productivity (comparing a rate of change in output quantity with a rate of change in input quantity)

computations column 141
Computations (Column 14)

Overall Material Productivity Level

= [(70  5,000) + (35  10,000)]

[(50  5,000) + (30  10,000)]

[(3,000  50) + (1,000  3)]

[(2,200  50) + (750  3)]

= 1.2727  1.363 = 0.933

 Rate of output quantity generated < Rate of material quantity consumed over the same period

Dynamic measures on productivity (comparing a rate of change in output quantity with a rate of change in input quantity)

computations column 142
Computations (Column 14)

Overall Productivity Level

[(70  5,000) + (35  10,000)]

[(50  5,000) + (30  10,000)]

[(30420)+(7608)+(10646)+(300050)+(10003)+(82000.1)+(904)]

[(32020)+(8008)+(11206)+(220050)+(7503)+(80000.1)+(1004)]

= 1.2727  1.299 = 0.98

 Rate of output quantity generated < Rate of input quantity consumed over the same period

Dynamic measures on productivity (comparing a rate of change in output quantity with a rate of change in input quantity)

computations column 15
Computations (Column 15)

Overall Labor Price-recovery Level

= [(70  5,500) + (35  12,000)]

[(70  5,000) + (35  10,000)]

[(304  22) + (760  9) + (1,064  7)]

[(304  20) + (760  8) + (1,064  6)]

= 1.15  1.10 = 1.045

 Rate of increase on output’s price per unit > Rate of increase on unit cost of labor consumed over the same period

Dynamic measures on price-recovery (comparing a rate of change in output’s price per unit with a rate of change in input’s cost per unit)

computations column 151
Computations (Column 15)

Overall Material Price-recovery Level

= [(70  5,500) + (35  12,000)]

[(70  5,000) + (35  10,000)]

[(3,000  85) + (1,000  3)]

[(3,000  50) + (1,000  3)]

= 1.15  1.6863 = 0.682

 Rate of increase on output’s price per unit < Rate of increase on unit cost of material consumed over the same period

Dynamic measures on price-recovery (comparing a rate of change in output’s price per unit with a rate of change in input’s cost per unit)

computations column 152
Computations (Column 15)

Overall Price-recovery Level

[(70  5,500) + (35  12,000)]

[(70  5,000) + (35  10,000)]

[(30422)+(7609)+(10647)+(300085)+(10003)+(82000.1)+(904)]

[(30420)+(7608)+(10646)+(300050)+(10003)+(82000.1)+(904)]

= 1.15  1.622 = 0.709

 Rate of increase on output’s price per unit < Rate of increase on unit cost of input consumed over the same period

Dynamic measures on price-recovery (comparing a rate of change in output’s price per unit with a rate of change in input’s cost per unit)

computations column 16
Computations (Column 16)

Overall Labor Profitability Level

= [(70  5,500) + (35  12,000)]

[(50  5,000) + (30  10,000)]

[(304  22) + (760  9) + (1,064  7)]

[(320  20) + (800  8) + (1,120  6)]

= 1.4636  1.0746= 1.362

 Rate of output value or revenue generated > Rate of overall labor cost consumed over the same period

Dynamic measures on profitability (comparing a rate of change in output value or revenue with a rate of change in input value or cost)

computations column 161
Computations (Column 16)

Overall Material Profitability Level

= [(70  5,500) + (35  12,000)]

[(50  5,000) + (30  10,000)]

[(3,000  85) + (1,000  3)]

[(2,200  50) + (750  3)]

= 1.4636  2.298= 0.637

 Rate of output value or revenue generated < Rate of overall material cost consumed over the same period

Dynamic measures on profitability (comparing a rate of change in output value or revenue with a rate of change in input value or cost)

computations column 162
Computations (Column 16)

Overall Profitability Level

[(70  5,500) + (35  12,000)]

[(50  5,000) + (30  10,000)]

[(30422)+(7609)+(10647)+(300085)+(10003)+(82000.1)+(904)]

[(32020)+(8008)+(11206)+(220050)+(7503)+(80000.1)+(1004)]

= 1.4636  2.107= 0.695

 Rate of output value or revenue generated < Rate of overall cost consumed over the same period

Dynamic measures on profitability (comparing a rate of change in output value or revenue with a rate of change in input value or cost)

computations column 17
Computations (Column 17)

It is recommended that a single-factor is used for this computation and summarize each factor’s value for the total input factor.

Input: Labor Assembly

Revisiting productivity computation: a unit price and cost remains constant at the period 1 while the definition is output inputs

Output (based on the unit price at the period 1):

(505,000) + (3010,000) = 550,000 for period 1

(705,000) + (3510,000) = 700,000 for period 2

computations column 171
Computations (Column 17)

Labor assembly (based on the unit price at the period 1):

(1,120  6) = 6,720 for period 1

Given:

550,000 consumption is 6,720

700,000 the use of labor assembly should have been

(700,000  6,720) 550,000 or 8,552.73

 The quantity of labor assembly that should have been consumed is (8,552.73  6) or 1,425.46.

computations column 172
Computations (Column 17)

Quantity Expected to Consume at Period 2 = 1,425.46.

Quantity Actually Consumed at Period 2 = 1,064

 Consume less than it should be = 361.46 and in the monetary (value) term is (361.46 6) or 2,168.73

computations column 173
Computations (Column 17)

Input: Fiberglass

Output (based on the unit price at the period 1):

(505,000) + (3010,000) = 550,000 for period 1

(705,000) + (3510,000) = 700,000 for period 2

Fiberglass (based on the unit cost at the period 1):

(2,200  50) = 110,000 for period 1

computations column 174
Computations (Column 17)

Given:

550,000 consumption is 110,000

700,000 the use of fiberglass should have been

(700,000  110,000) 550,000 or 140,000

 The quantity of fiberglass that should have been consumed is (140,000  50) or 2,800.

computations column 175
Computations (Column 17)

Quantity Expected to Consume at Period 2 = 2,800.

Quantity Actually Consumed at Period 2 = 3,000

 Consume more than it should be = 200 and in the monetary (value) term is (200 50) or 10,000

computations column 19
Computations (Column 19)

Labor assembly:

Output value from period 1 = 550,000 with the value consumption of labor assembly of 6,720

Given the actual output from period 2 of 805,000, the value of labor assembly input should have been =

(805,000  6,720)  (550,000) or 9,835.64

However, the actual consumption value is 7,448.

 The system has consumed (9,835.64-7,448) or 2,387.64 lesslabor assembly value than it should have!

computations column 191
Computations (Column 19)

Fiberglass material:

Output value from period 1 = 550,000 with the value consumption of fiberglass of 110,000

Given the actual output from period 2 of 805,000, the value of fiberglass input should have been =

(805,000  110,000)  (550,000) or 161,000

However, the actual consumption value is 255,000.

 The system has consumed (255,000-161,000) or 94,000 morefiberglass value than it should have!

computations column 192
Computations (Column 19)

Total inputs:

Output value from period 1 = 550,000 with the value consumption of total inputs of 132,970

Given the actual output from period 2 of 805,000, the value of total inputs should have been =

(805,000  132,970)  (550,000) or 194,619.7

However, the actual consumption value is 280,156.

 The system has consumed (280,156,000-194,619) or 85,536.3 moreinput value than it should have!

consideration during use
Consideration during Use
  • Impacts from unit price/ cost escalation (large increase or decrease from one to the next period)
  • Standardization of operations and processes (consumption standards), including clear contributions from each input factor to output generation as well as types of outputs generated or offered

 If not standardized, how the MFPMM can be applied?

consideration during use1
Consideration during Use
  • Impacts from rapid changes in product variety (product portfolio) and consequences on inputs or resources consumed!
  • Inputs and outputs that can be quantified (What about intangible assets? What about outsourcing that generates the output value? What about idle or standby machines that are not part of output generation but are important for sustainability?)
consideration during use2
Consideration during Use
  • For material inputs, careful decisions on unit of cost when procured or used (storage time in inventory)
  • Cost- VS profit-center point of view for opportunity gain/ loss
  • Static VS dynamic perspective when comparing the results over the two periods (e.g., 1st VS 2nd, 2nd VS 3rd, or 1st VS 3rd) and when computing the opportunity gain/loss. Remember the scale in regard to the arbitrary of the starting point.
  • Opportunity gain/loss can be used as a performance measure as well.
consideration during use3
Consideration during Use

Opportunity Gain = Consume less resources or inputs less than a unit should have or generate more revenue or output value than a unit should have

Opportunity Loss = Consume more resources or inputs less than a unit should have or generate less revenue or output value than a unit should have

note for computation on price recovery
Note for Computation on Price-recovery

Input: Labor Assembly

Output (based on the quantity at the period 2):

(705,000) + (3510,000) = 700,000 for period 1

(705,500) + (3512,000) = 805,000 for period 2

Labor Assembly (based on the quantity at the period 2):

(1,064  6) = 6,384 for period 1

note for computation on price recovery1
Note for Computation on Price-recovery

Given:

700,000 consumption is 6,384

805,000 the value of labor assembly should have been

(805,000  6,384)  700,000 or 7,341.6

 The unit cost of labor assembly that should have been consumed is (7,341.6  1,064) or 6.90.

note for computation on price recovery2
Note for Computation on Price-recovery

Expected Unit Cost for Labor Assembly at Period 2 = 6.90.

Actual Unit Cost for Labor Assembly Consumed at Period 2 = 7.00

 Pay higher unit cost than it should have been = 0.10 and in the monetary (value) term is (0.10 1,064) or $106.40 (But the actual figure is $218.91??? Which is based on Column 19- Column 17 results)

note for computation on price recovery3
Note for Computation on Price-recovery
  • Interesting investigation on why the computational approach for productivity cannot be used for price-recovery?
  • Do we need to know all information provided by the MFPMM, especially on each “single” input factor?
slide195

Past and Present Projects:

  • Vichit Parquet Limited andThai Flour Group (BKK Inter Food) for Possible Interrelationships among Price-recovery, Productivity, and Profitability– Please See the Paper for More Details
  • Lessons Learned:
  • Activity-based Costing needs to be in-place prior to the applications of MFPMM. Otherwise, the necessary data may not be possible. Measuring profitability directly seems to be easier. At the same time, the cost of raw materials must be decided whether to use the purchasing or use value. The situations for rapid changes in product mix may not be suitable.
analysis and improvement basics
Analysis and Improvement Basics

“C” Management: culture, commitment, communication, coordination, competency, and complaints

“R” Management (during initial change especially quality and personnel issues): reject, rework, return, and replacement

Part of Risk Management Consideration when Implementing Changes or Improvement Interventions: Probability and Impacts (Consequences)

analysis and improvement basics1
Analysis and Improvement Basics

Understanding of current situations from performance measurement  awareness of past improvement interventions and audit into practices

Grouping of past improvement interventions: resources specific (labor, capital, facility, materials, etc.), types (behavior, economic, structure, technology, etc.), and levels (individuals, groups, functions, organizations, etc.)

analysis and improvement basics2
Analysis and Improvement Basics

Resource-specific

Levels

Types

slide199

Analysis and Improvement Basics

  • Internal Analysis:
  • Trends: Individuals, Cross-examination, and Overall (with MCPMT)
  • Target Comparison
  • External Analysis:
  • Benchmarking
  • Standard Comparisons
analysis and improvement basics3
Analysis and Improvement Basics

Most commonly used interventions: Acquisition Logistics, Program Risk Management, Adaptive Process for Budgeting, Quality Circle, Automation, E-learning, Machinery Replacements, Job Design such as Rotation and Enrichment, Material Handling, Inventory Management, Preventive Maintenance, Profit- or gain-sharing, Facility Layout, Routing and Networking, Design of Life-cycle, Work Methods, Database Management, Training and Continuous Education, Ergonomics or Human Factors, Supplier Development and Management, etc.

acquisition logistics
Acquisition Logistics

Blanchard, 1998

slide202

Acquisition Logistics

Blanchard, 1998

slide204

Past and Current Projects:

  • E-learning for Performance Improvement thru Skill Development of Staffs (with OPDC)
  • Planning with Logistics (in conjunction with the Department of Industrial Promotion, Ministry of Industry)
  • Life-cycle Costing for Acquisition and Public Utilities’ Investment Decisions (with Metropolitan Electricity Authority, BKK Inter Food, and OPDC)
change management
Change Management

Key “C” Dimensions for Change Management

Competitiveness

Competency

Culture

Concept

Commitment

Coordination/ communication

Customer Connection

Individuals

Organization

slide206

Summary of Related Major Regulations on Performance Measurement in USA

National Center for Public Productivity

Rutgers University

Management Systems Laboratory

Virginia Productivity and Quality Center

Virginia Polytechnic Institute and State University (Virginia Tech)

slide213

Ongoing Research in the Area of Performance Measurement:

  • Verification of Sink’s Hypothetical Interrelationships among 7 Performance Criteria with MCPMT
  • Guidelines for Selecting and Utilizing KPIs for Monitoring and Evaluation
  • White-collar Productivity Measurement within the Context of Performance-based Contracts (or Performance Agreements)