Performance Management - A Quantitative Approach


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A Quantitative approach to performance

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  • 6 Open-loop system, controlled by a closed-loop system. Discuss normal direction of model, and fact that design of a control or improvement measurement system requires that we design in a reverse flow. Also note that the measurement and evaluation tools and techniques are developed last. We want this step last because we’re interested in controlling and improving the organization; not on selecting a measurement system. Selecting a measurement system too early could drive us to a set of measures that don’t match our business needs.
  • 4 Common Practice - review of status of measurement systems in many organizations...
  • 5 Discuss measurement issues above. 1. Need to measure - measurement is essential to control. We cannot control a system if we cannot gain visibility. 2. Measures must be selected carefully. You get what you measure. When a measurement system is developed, the team must consider how the measures will affect performance. Are we measuring the right things? Will the measure have unintended effects because the organization tries to maximize that measure in the absence of others, i.e., we actually hoped for improvement in another actegory but did not define or measure it? How are we using the measures? 3. How do we know we’re measuring the right things? Measurement the correct things means that we understand the organization. How did we get this understanding? A detailed analysis of the organization must be performed to determine how it functions, what are its products, what are its inputs and outputs, and what’s important to the stakeholders: shareholders, employees, management, customers, and suppliers. Only then can we claim that we can develop a measurement system that accurately reflect the organization.
  • 11 Discuss the balanced scorecard - four measurement perspectives. Note that the scorecard treats business from these four perspectives. There exists a linkage (cause and effect) relationship between the perspectives. Discuss the framework for action. Note that implementation of the scorecard should lead to the four outcomes shown above. Note that research has shown that the scorecard does not actually do well relative to planning, setting targets, and aligning strategic objectives. This is one reason why we advocate use of a performance planning process. That is, the measures in themselves (balanced scorecard) cannot help an organization gain an understanding relative to itself. This understanding can only be found by performing a detailed analysis (investigation) of the organization to determine inputs,outputs, transformational processes, goals, objectives,etc...
  • Performance Management - A Quantitative Approach

    1. 1. Topic: Performance Management Arriffin Mansor 1
    2. 2. Overview ManagementFunctions: planning, Processes: measurement, coordinating, and analysis/ evaluation, and controlling improvementEmphasis on the organizational and functional level 2
    3. 3. OverviewMeasurement: understanding of the term KPI or performancemeasures, 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 3
    4. 4. OverviewWhat reflects or represents the term performance? performance Kaplan and Norton (1992): Financial, customer, internal business, and innovation/ learningSink and Tuttle (1989): Profitability, productivity, quality, quality of work life, innovation, effectiveness, and efficiencyHarper (1984): Productivity, unit cost, price, factor proportion, cost proportion, product mix, and input allocation 4
    5. 5. Introduction Multi-national, national, and industrial levelsOrganizational, functional, program, and project levels Team and individual levels Individual level Management Workforces Knowledge and Blue-collar white-collar 5
    6. 6. Introduction(1) Measuring productivity/ performance requires a system view of an organization or a unit of analysis.(2) Measuring productivity/ performance is common.(3) Understanding of impacts from low productivity is critical for management (competitiveness).(4) Understanding of unit dimensions and definitions are essential for measurement. 6
    7. 7. IntroductionOngoing Issues for “Productivity” Management(2) Total-, multi-, and single-factor productivity consideration(3) 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 7
    8. 8. Introduction System View of an OrganizationUpstream Inputs Processes Outputs Downstream 8
    9. 9. IntroductionPurposes of performance measurement:To identify whether we are meeting customer requirementsTo help use understand our processesTo ensure decisions are based on facts, not on emotionTo show where improvements need to be madeTo show if improvements actually happenedTo identify whether our contractors or suppliers are meetingour requirements (Department of Energy, USA) 9
    10. 10. IntroductionPerformance measurement should be used and integrated intoa management system and process, based on the followingreasons.Control: Performance measurement helps reduce processvariation.Continuous improvement: Performance measurement helpsidentify defect resources, process trends, and defect preventionas well as opportunities for improvement.Need to have feedback by management: Performancemeasurement helps mangers and administrators realize what isto be done, what is being done, when to take corrective andpreventive actions, and when to change the expectation. (Department of Energy, USA) 10
    11. 11. 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.) 11
    12. 12. Introduction Outputs Tangible Intangible Outcomes[Satisfaction, Expectation, Desirable Impacts, etc.] 12
    13. 13. Basics on MeasurementDeming “You cannot manage what youcannot measure.” “You cannot measurewhat you cannot define.” “You cannotdefine what you do not understand.” 13
    14. 14. Basics on Measurement• Mandated by the Government Performance andResults Act (GPRA) of 1993• Federal agencies must be accountable and focus onimproving service quality and customer satisfaction.• Coupled with the Government Management ReformAct of 1994 which emphasizes performance improvementand openness for annual financial audit (i.e., PART, activity-based management, performance-based contract, adaptiveprocess for planning and budgeting, ownership cost, etc.) 14
    15. 15. Basics on MeasurementThe 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 15
    16. 16. Basics on MeasurementBush Administration (2001): “Performancemeasurement is not an annual event; rather itis a continuous process requiring clearperformance expectations, periodic feedbackfor review, and analysis for improvement.”Bush Administration (2001): “Performancemeasurement is not an option; the onlyquestion is how well it is done.” 16
    17. 17. Basics on MeasurementMeasurement: understanding on static/dynamicmeasure, and total-/ partial-/ single- factor measure,and surrogate measure Static Ratio: Revenue ÷ Cost Dynamic Ratio: [Revenue46 ÷ Revenue45] [Cost46 ÷ Cost45] 17
    18. 18. Basics on MeasurementSingle-factor measure: Output ÷ laborPartial- or multi-factor measure: Output ÷ (labor +material)Total-factor measure: Output ÷ (labor + material +capital + machine + facility + utility + information) 18
    19. 19. Basics on MeasurementCase study for single-factor measure (labor only): 5 employees producing 500output units in one month by working 22 days per month and 8 hours perday. For the second month, 600 units were made with 5 employees butworking 20 days with the same working hours in one day. [880 = 5 × 22 × 8]and [800 = 5 × 20 × 8] Static measures (one month): Dynamic measures (one month): 500 units ÷ 880 labor hours = 0.57 [(600 ÷ 500)] ÷ [(800 ÷ 880)] = 1.20 ÷ units per labor hour 0.909 = 1.32 or 500 units ÷ 5 persons = 100 units 0.75 ÷ 0.57 = 1.32 per person [(600 ÷ 500)] ÷ [(5 ÷ 5)] = 1.20 ÷ 1.00 600 units ÷ 800 labor hours = 0.75 = 1.20 or units per labor hour 120 ÷ 100 = 1.20 600 units ÷ 5 persons = 120 units ∴ No unit dimension! per person 19
    20. 20. Basics on MeasurementCase study for multi- or partial- factor measure: 5 employees producing 500output units in one month by working 22 days per month and 8 hours perday. For the second month, 600 units were made with 5 employees butworking 20 days with the same working hours in one day. The amount ofmaterials used are 1,000 and 1,250 units respectively. The price for theoutputs for the first and second month is $1,000 per unit while the costs oflabor 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 Static Ratio Month # 2: [(600 ×1000)] ÷ [(800 × 15) + (1250 ×150)] = 3.01 Static Ratio Months 1 and 2: [(600 ×1000) ÷ (500 ×1000)] = 0.98 Dynamic [(800 × 15) + (1250 ×150)] ÷ [(880 × 15) + (1000 ×150)] Ratio 20
    21. 21. Basics on MeasurementSurrogate measures represent the implication of outputs andinputs that are to be examined. Nowadays, they are used toreflect upstream and downstream as well.“Transportation services” = total mileage traveled or totalpassenger mileage traveled such as total miles ÷ buses ortotal miles ÷ employees, etc.“Restaurant services” = level of satisfaction, revenue, andprofit 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 21
    22. 22. Basics on Measurement Performance Measures or KPIs Quantitative KPIs Descriptive KPIs Ratio Format Non-ratio Format Occurrence Questionnaire Format FormatCross-ratio Format Cross-ratio Format Size, weight, Weight, scale, scale, reliability, accuracy, and Definition Data and comprehensive of Terms Reliability and comprehensive- -ness Accuracy ness 22
    23. 23. Basics on MeasurementRatio format: useful for identifying KPI as well asenhancing the quality of information and ofinformation analysisÌ Normalization for trend analysis, benchmarking,etc.Ì Consideration into changes in an organization(such as takeover, new product introduction, etc.) 23
    24. 24. Past and Present Projects:• Internal Benchmarking for Electricity GeneratingAuthority of Thailand (EGAT) on Generation andTransmission• Counterpart on Behalf of Provincial ElectricityAuthority (PEA): PWC Report on Productivity andEfficiency Benchmarking with 5 Other PublicUtilities (Prepared for the Ministry of Energy)• Internal Benchmarking for PEA on Distribution 24
    25. 25. Basics on MeasurementIssues 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 25
    26. 26. Basics on Measurement Robustness Revenues New Customers Repeated CustomersTarget Unexpected Primary SecondaryGroup Group Group Group 26
    27. 27. Basics on Measurement Robustness System Availability Reliability Maintainability (Uptime) (Downtime)Operating Time Standby Active Maintenance Delay Time Time Logistics Administration Corrective Time Preventive Time 27
    28. 28. Examples Business and Industries1. Bad Debt as a % of Revenue2. Unplanned Overtime as a % of Overtime3. % Of Suppliers with 100% Lot Acceptance over One Year4. % Of Shipments Requiring More Than One Attempt to Invoice5. % Of Customers Using “Invoiceless” Processing6. Recycled Material Values as a % of Purchased Material Values7. Total Time Lost Due to Injuries ÷ 1,000,000 Hours Worked8. Total Time Lost Due to Strikes ÷ 1,000 Hours Worked9. % Of Qualified Suppliers and Subcontractors Receiving 90% of Total Purchased Value 28
    29. 29. 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 29
    30. 30. 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) 30
    31. 31. 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 31
    32. 32. 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 32
    33. 33. Descriptive KPIs Occurrence Format (Source: FedEx from Neely, 1998) Dimensions (Conditions Reflecting Satisfaction) Weight # PointsRight day, late service 1Wrong day, late service 5Complaints reopened by customers 5Missing proof of delivery 1Invoice adjustment requested 1Missed pick-ups 10Damaged packages 10Lost packages 10Over-goods (packages received in lost and found) 5Abandoned calls 1 Score 33
    34. 34. Basics on Measurement Data Performance Information measurement• Roles of measurement is to convert data to information fordecision/actions.• Analysis of information for improvement (interventionsand budgeting), and rating and ranking (external parties)• HR consideration (to be referred to as appraisal notmeasurement, 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! 34
    35. 35. Basics on MeasurementPotential 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] 35
    36. 36. Basics on MeasurementPotential 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)] 36
    37. 37. Basics on MeasurementPotential 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. 37
    38. 38. Basics on Measurement Unit assume constant Interval Scale (use of mean andArbitrary standard deviation) 0 1 2 3 4 5 such as temperature origin and position No unit between two points Ordinary Scale (use of median and percentiles) Order 1st 2nd 3rd 4th 5th such as preference and street numbers 38
    39. 39. Basics on Measurement Constant unit Ratio Scale (use of mean andNon-arbitrary standard 0 1 2 3 4 5 deviation) such as zero length and time #3 Nominal Scale (use of mode) #5 #2 such as assignment of numbers #6 #7 for queuing or sport teams #1 #4 39
    40. 40. Basics on Measurement Scrap and Rework- to- Sales Ratio (in %) Definition •Sale: the value of goods and services sold during the period ($) % •Scrap and Rework: the value in terms of cost with respect to direct labor, material, and other indirect support ($)12.00 Starting points, variation,10.00 trends, and satisfaction? Month2.00 Jan Feb Mar April May June 40
    41. 41. Linking with Analysis/ evaluation1. Internal analysis/ evaluation (comparison with past performance in terms of trend and variation, and with the internally-established targets, expectation, and anticipation)2. External analysis/ evaluation (comparison with standards, benchmarks, industrial averages with respect to the industries/ clusters, benchmarking partners, and competitors) 41
    42. 42. Linking with Improvement Desirable impacts should be anticipated prior to improvement interventions. For example, toimprove productivity, one may expect at least one of the following five desirable impacts. Output Output Output Input Input Input Output Output Input Input 42
    43. 43. More on Measurement “Performance Framework” Seven Performance CriteriaProfitability/ Productivity Innovation Qualitybudgetability Effectiveness Efficiency Quality of Work Life 43
    44. 44. More on MeasurementDefinitions:• Efficiency: Degree to which the system utilizes the “right” thing. This definition may be Efficiencyrepresented by the ratio of “Resources planned for consumption” to “Actual consumption ofresources.”• Effectiveness: Degree to which the system accomplishes the “right” thing. This definition may Effectivenessbe represented by the ratio of “Actual outputs” to “Planned outputs.”• Profitability/budgetability: Ability to generate profit/revenue based on resources consumed Profitability/budgetability• Productivity: Relationships between outputs generated and resources consumed for output Productivitygeneration• 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 Innovationoffered in the market.• Quality of Work Life: Reflecting on how people feel toward their workplace. Feeling in driven Lifeby factors such as pay, safety, culture, relationships with co-workers and supervisors,flexibility, autonomy, etc 44
    45. 45. Sink’ Performance Criteria Interrelationships To maintain the desirable level of productivity, the organization has to pay attention to its human resources.If the organization is • Quality of work life• Effective and• Efficient. The organization will The organization be veryEach critical point will likely bewithin the • Profitable or • Productive. • Budgetable.organization is wellmanaged and haswell-designed To survive the anticipated level ofprocesses in place. competition, and to become• Quality proactive in responding to customer needs, the organization must be become • Innovative. Virginia Quality and Productivity Center at Virginia Tech 45
    46. 46. More on Sink’s Unit of Analysis LevelUpstream Value-added DownstreamSystems Processes Systems Inputs Outputs Quality Quality Quality Quality Quality checkpoint 1 checkpoint 2 checkpoint 3 checkpoint 4 checkpoint 5 TQM = Management of Quality at 5 Checkpoints 46
    47. 47. More on Sink’s Organizational SystemUpstream Value-added DownstreamSystems Processes Systems Inputs Outputs Productivity Efficiency Effectiveness Innovation and Quality of Work Life Quality Profitability 47
    48. 48. More on Measurement University of California Framework Effectiveness Efficiency Quality Timeliness Productivity SafetyDefinitions:Effectiveness: A process characteristic indicating the degree to which the process output (workEffectivenessproduct) conforms to requirements (Are we doing the right things?)Efficiency: A process characteristic indicating the degree to which the process produces theEfficiencyrequired output at minimum resource cost. (Are we doing the things right?)Quality: Degree to which a product or service meets customer requirements and expectations.QualityTimeliness: Degree to which a unit of work was done correctly and on time. Criteria must beTimelinessestablished to define what constitutes timeliness for a given unit of work. The criterion is usuallybased on customer requirements.Productivity: Reflecting the value added by the process divided by the value of the labor andProductivitycapital consumed.Safety: Degree to which the overall health of the organization and the working environment of itsSafetyemployees. 48
    49. 49. More on Measurement Family of Measures Framework Profitability Productivity External Quality Internal Quality Other QualityDefinitions:• Profitability: Relationships between Outputs Generated and Resources Consumed for output Profitabilitygeneration• Productivity: The value added by the process divided by the value of the labor and capital Productivityconsumed.• External Quality: Measures whether a unit of work was done correctly and on time also meets Qualitycustomer requirements and expectations.• Internal Quality: A process characteristic indicating the degree to which the process produces Qualitythe 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 Qualityif its employees. Ability to change over time within processes or operations, and products/services offered in the market 49
    50. 50. Transformation Kurstedth, 1990 (Management Systems Laboratory at Virginia Tech) Decisions ActionsWho What ismanages? managed? Information Perception Data Information Measurement Portrayal What is used to manage? 50
    51. 51. Transformation Other Audiences: Upper Management, GAO, OMB, “Control Boss, Etc. 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 Improvement Measurement• I/O Analysis Intervention Techniques and• And Techniques Systems: Data Vision/Strategy Collection Process• Report Design• Data Collection Design• Data Analysis Techniques Action Measurement Downstream Upstream Systems Systems Organizational System Sink and Tuttle, 1989 51
    52. 52. Transformation Administer the Build the Management Business Process (improvement) A B Current Situation Suggests a Lack of Continuous Improvement C in Operation and Work ProcessesSource: Hoehn (2002) Cater to crises 52
    53. 53. Transformation Build theAdminister the BusinessManagement (improvement)Process Balance in(visibility & Time Control) A B Management Requires Performance Measurement and Its C Integration with ManagementSource: Hoehn (2002) Systems and Processes Cater to crises 53
    54. 54. 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 54
    55. 55. 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? 55
    56. 56. 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) 56
    57. 57. Background Enhancement Balanced/complete Performance-based Measures Management Performance Measurement Systems Budgeting & Stakeholders Planning (customers and shareholders)Source: Neely, 1998 57
    58. 58. Background Enhancement Process Customer Financial Results Results Results Output/ outcome- driven performancemeasurement at “Best Buy Corporation” 58
    59. 59. Background Enhancement System view of performance measurement Performance Measurement System Performance Robust Database MechanismCriteria and Areas Collection, Verification, Process, Retrieval of Data, Reporting, Performance Analysis, and Decision/actions Measures Cognitive Style of Users 59
    60. 60. Background Enhancement (US Department of Energy, FY 1999)• Area of measurement: Engineering Minimum Desirable Focus Performance Measures (standards) (targets) • % of Operations Manuals 100% within 100% on Systems/ updated in accordance with 30 days of schedule operations schedule schedule Manual updates as • % of manuals that are 100% within 100% on technical accurate and complete in 60 days of schedule support accordance with approved schedule schedule Measure VS targets VS standards 60
    61. 61. Background Enhancement• Area of measurement: Engineering Focus Performance Measures Minimum DesirableProvide • % of deliveries of services and 60% of 95% ofconfiguration publications (on standards, inquiries are inquiries aremanagement Federal rules and decisions, completed completedassistance, and environmental reports, Federal and on date and on datemaintain Codes, State-wide orders, and requested. requested.integrated construction estimatingschedule standards) in accordance tobaseline for requeststask, site, and 70% of all 95% of all • % of schedules and reportsproject basis schedules/ schedules/ are updated and maintained on reports have reports have a monthly basis been updated been updated 61
    62. 62. Background Enhancement• Area of measurement: Management Information Systems Focus Performance Measures Minimum Desirable • % of software problems solved on the first call to Help 50% 85% Desk User satisfaction • Number of support hours with support 2.0 hours 1.5 hours required per end-user devices activities • % of Help Desk technicians certified as 25% 75% Microsoft Office Experts 62
    63. 63. Background Enhancement• Area of measurement: Management Information Systems Focus Performance Measure Minimum Desirable Effective project 60% completion 85% completion management • % of Information Systems within ± 15 % within ± 15 % of control of initiatives completed of planned date planned date and Information and planned planned man- Systems projects man-hours hours 63
    64. 64. Background Enhancement• Area of measurement: Management Information Systems Focus Performance Measures Minimum Desirable • % of network availability (Access, 90% overall 97% overall Visio, Internet Connector, during 6:30 during 6:30 Washington E-mail Connector) a.m. to 5:00 a.m. to 5:00 p.m shift p.m shift Maximize 90% overall 96% overall network and • % of business application during 6:30 during 6:30 application availability (Travel Manger, P- a.m. to 5:00 a.m. to 5:00 availability Centra, Magic-Solutions, and so on) p.m shift on p.m shift on Monday- Monday- Friday Friday • Average turnaround time 10-day Less than for problems/maintenance average 10-day on the primary database average 64
    65. 65. Background Enhancement• There have been new reports and articles on thistopic appearing at a rate of one for every five hoursof every working day since 1994.• In 1996 alone, one new book on this subjectappeared every two weeks.• In 1996, the survey found that 64% of Americanbusiness were actively experimenting with new waysof measuring and utilizing non-financial data. 65
    66. 66. Background EnhancementSource: DOE, USA 66
    67. 67. Background EnhancementSource: DOE, USA 67
    68. 68. Background EnhancementSource: DOE, USA 68
    69. 69. Background EnhancementKnowledge Management within the Organization Relieson Robust Performance Measurement.Know-what, know-where, Increasing Levels of know-when, know-how, Complexity and Value and know-why Intangible Assets Experience Expertise and Skills Data and Information 69
    70. 70. Background EnhancementSource: DOE, USA 70
    71. 71. Background Enhancement Planning for Performance Measurement 71
    72. 72. Background Enhancement• The Balanced Scorecard seeks to link four measurement perspectives to provide a comprehensive view of business performance Balanced Scorecard Framework for Action Financial Perspective GOALS MEASURES How Do We Look • Clarify and translate to Shareholders? vision and strategy • Communicate and link strategic objectives andHow doCustomers See Us? What Must We Excel At? measuresCustomer PerspectiveGOALS MEASURES Internal Business Perspective GOALS MEASURES • Plan, set targets, and align strategic initiatives • Enhance strategic feedback and learning Innovation and Learning Perspective GOALS MEASURES Can We Continue to Improve and Create Value?Source: Kaplan and Norton, 1992, 1996 72
    73. 73. Measurement (DOD, USA) Mission/ objectives/ policies Basics Strategies Financial Perspective: How do we add value for customers/stakeholders while controlling costs?Customer Perspective: Who do Internal Business Perspective:we define as our customers/ To satisfy customers/stakeholders? How do we create stakeholders while meetingvalue for our customers/ budgetary constraints, at whatstakeholders? work processes must we excel? Employee Learning and Growth Perspective: How do we enable ourselves to grow and change, meeting legislative and citizen demands? 73
    74. 74. Background EnhancementPerspective Question Performance Focus and AreasCustomer How do customers see us? Time, quality, performance and service, and cost [Quality, effectiveness, and innovation in products and services] Internal What must we excel at? Cycle time, excellence , and employee skills [Productivity, quality, QWL, effectiveness, Business efficiency, and innovation in processes]Innovation Can we continue to New product launches, customer value, and operating efficiency [Quality and improve and create value? Innovation in products/services and processes]Financial How do we look to Income, expenses, assets, liabilities… [Profitability and productivity] shareholders? 74
    75. 75. 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) 75
    76. 76. Relating to the Balanced Scorecard (DOE, USA) 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) 76
    77. 77. Relating to the Balanced Scorecard (typical private firms) Customer Perspective: KPI or measures include: 1. % of revenue from new customers 2. Customer retention rate 3. Market share Financial Perspective: KPI or measures include: • Profit ÷ revenue • Revenue ÷ total cost • ROI and/or ROA 77
    78. 78. Relating to the Balanced Scorecard (typical private firms) Internal Business Perspective: KPI or measures include: 1. Inventory turnover 2. On-time delivery 3. Production yieldLearning and Innovation Perspective: KPI or measures include:1. % of staffs who have not been trained for the past 12 months2. % of revenue from new products3. Product mix 78
    79. 79. Past and Present Projects:• Office of the Public Sector Development Committee(OPDC) for Assessing a Management System of the“CEO-Provincial” Governors (75 provinces excludingBangkok) [PM will host the CEO Summit in November 2004.]• Institute for the Promotion of Teaching Science andTechnology, the Ministry of Education forAssessment a Management System for the Director 79
    80. 80. Major Findings from the Assessment Problems/Interpretations Impacts from Management System ProblemsDatabase/IT Roadblock into Decisions/actions to Achieve Strategies and Policies OutlinedStaffs Initial Roadblock into Deployment and Implementation of Decisions/actionsBudget Initial Roadblock into Deployment and Implementation of Decisions/actionsParticipation Initial Roadblock stemmed from a Lack of Awareness on Strategies and PoliciesPerception of Problems within a Unity, Problem Understanding on the Seriousness and Priority, Implications on Use of QuantitativeManagement Team Data/information, Communication and Coordination within a Management Team, Integration of Performance Measurement within a Management System, etc.Perception of Success within a Definition of Success, Yardsticks or Comparable Values (Benchmarks or Standards), Data/informationManagement Team Sharing, Communication of Results, Subsequent Impacts on Future Planning, etc.Integration among Formulation, Planning Process, Accountability within a Management System, Understanding of ContributorsImplementation, and Accomplishment into Success, etc. 80
    81. 81. Database, Staffs, Participation, Other Audiences: and Budget Upper Management, Deputy Provincial Perception of Problems and Budget Bureau, ONESB, BOI, Governors OPDC, etc. Success, and Integration “External Control among Formulation, Loop” Implementation, and Success“Internal ControlLoop” Reporting Perception Information Portrayal Measurement and Evaluation Measurement And Provincial Governors Evaluation Systems as well as Visibility Tools and Techniques: Data Massaging Process Decisions Data Normal Movement Improvement Measurement Intervention Techniques and And Techniques Systems: Data Collection Process Actions Measurement Upstream Organizational Downstream System Private Sectors, Private Sectors, Government Value-added Government Agencies Inputs Processes Outputs Agencies (operation- (operation- oriented), Other oriented), Other Audiences Audiences 81
    82. 82. 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 emergingneeds): Outsourcing, Cross-training Programs, etc.• Ownership (ability to receive timely feedback on decisions/actions as well as beingaccountable for planning): Performance Measurement, Acquisition Logistics, Performance-based Contracts, Vendor Performance Forum, and Program Risk Managmeent 82
    83. 83. 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): SavingAccounts, Provincial Bonds, etc.• Robustness (sustaining the management system by assisting its responsiveness): ManagementConsulting 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 andBest-value Procurement, etc. 83
    84. 84. 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 84
    85. 85. Applications of Ratio-format Measures for PerformanceMeasurement and Analysis 85
    86. 86. Ratio-format Measures Input/ Output Analysis or Upstream-input- process-output-downstream Chain Unit of Analysis Upstream Inputs Processes Outputs DownstreamInternal/ external Internal/ externalentities such as entities such assuppliers, customers, users,competitors, etc. regulators, competitors, etc. 86
    87. 87. Ratio-format Measures University Upstream Inputs Processes Outputs DownstreamHigh Schools Staffs Teaching Graduates Qualifications for WorkplaceSuppliers Students Approval Research Suitable SkillsSubcontractors Instruments Experiments Reports and Documents EmploymentBudget Bureau Facility Review Seminars Continuous Budget Planning Education Intellectual Utilities Procurement Properties Publications Revenue 87
    88. 88. Ratio-format Measures Private Firm Upstream Inputs Processes Outputs DownstreamSuppliers Staffs Planning Products Revenue and ProfitSubcontractors Instruments Procurement Services and after Sales Quality of Services Approval Equipment (Replacement, Reports Production Repairs, Return, Facility and Recall, etc.) Inspection Documents Capital Customer Warehousing Utilities Satisfaction Delivery Raw Regulatory Materials Compliance 88
    89. 89. Ratio-format Measures Call Center Upstream Inputs Processes Outputs DownstreamSuppliers Staffs Receiving Responses Quality of ResponsesSubcontractors Incoming Listening Data and (Accuracy, Clarity, Calls InformationCustomers Data Fast, etc.) Facility Gathering Customer Equipment Training and Satisfaction Knowledge Database Building 89
    90. 90. Ratio-format Measures Ratio Identification Outcomes ÷ inputs Outputs ÷ inputs Outcomes ÷ outcomes Outcomes ÷ outputs Outputs ÷ outputs, Inputs ÷ inputs Inputs ÷ upstream Upstream ÷ upstream Actual outputs ÷ planned outputsPlanned or expected resource consumption ÷ actual consumption of resources 90
    91. 91. Ratio-format Measures Leading and Lagging CategoriesRule Applications Ratio Format Dynamic andAbsolute Rule Static TypesFrequency Rule Improvement or Control or trend-specific monitoring-specific 91
    92. 92. 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 92
    93. 93. Ratio-format MeasuresVerification: (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) 93
    94. 94. Ratio-format MeasuresOutcomes ÷ Outcomes – Revenue from new customers ÷ Revenue – Revenue from rework ÷ RevenueOutcomes ÷ Outputs – Return ÷ Amount produced – Delivery errors amount ÷ Delivery amountOutcomes ÷ Inputs – Revenue ÷ Assets – Revenue ÷ (Labor + Utility) cost 94
    95. 95. Ratio-format MeasuresOutputs ÷ Outputs – Rework ÷ Amount produced – Unplanned amount produced ÷ Amount producedOutputs ÷ Inputs – Amount produced ÷ Labor – Amount produced ÷ MaterialsProcess – Average amount of respond time on a customer complaint – Absent hours from unsafe and unsuitable working environment ÷ Working hours 95
    96. 96. Ratio-format MeasuresInputs ÷ Inputs – % Of people who resign after 6-month of employment – % Of rejects on incoming materialsInputs ÷ Upstream – % Of parts from approved suppliers – % Of rejects from the same suppliersUpstream ÷ Upstream – % Of suppliers that have been audited as scheduled – % Of active suppliers that have been internationally certified or recognized 96
    97. 97. 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 97
    98. 98. 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 CapitalLimitations: Data, Not applicable for public organizations, pastperformance or lagging indicators, not suitable for dynamic environment,etc. 98
    99. 99. Multi-criteria Performance/ productivity Measurement Technique (MCP/PMT)Attempts to combine information from different ratio-format measures into an overall level of performanceAttempts to integrate different types of ratio-formatmeasures into performance information (e.g.,productivity = outputs ÷ inputs, profitability =outcomes ÷ inputs, quality = outcomes ÷ outcomes, oroutcomes ÷ outputs, outputs ÷ outputs etc.) 99
    100. 100. Productivity Measurement Technique (PMT) 100
    101. 101. Multi-criteria Performance 101
    102. 102. MCP/PMTImplementation:(2) Identification of ratio-format measures(3) Verification of their suitability(4) Understanding of past information, including trends(5) 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! 102
    103. 103. 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 103
    104. 104. MCP/PMT (Baht, x 1,000) Month Sales R. Mat. Direct La Injury/ Subcont. Utility Compen.Jan. 78,762 24,547 7,963 98 1,583 874Feb. 60,134 23,334 6,227 112 2,127 912March 82,277 23,870 6,455 85 1,855 989April 47,556 10,619 4,852 78 846 652May 31,467 12,055 4,047 51 997 545June 20,425 11,457 3,398 54 785 516July 28,064 12,141 3,352 65 1,005 576August 24,974 12,379 3,751 45 998 544Sept. 33,449 14,327 4,274 49 776 512Oct. 51,325 18,177 4,912 56 1,056 743 104
    105. 105. MCP/PMT Month Sales ÷ Sales ÷ Injury ÷ Sales ÷ Subcont. ÷ Raw. Mat. Direct La. Direct La. Utility Direct La. (per 1,000) (per 100)Jan. 3.21 9.89 12.31 90.12 (B) 19.88Feb. 2.58 9.66 17.99 65.94 34.16 (W)March 3.45 12.80 (B) 13.19 83.19 28.78April 4.48 (B) 9.80 16.08 72.94 17.44 (B)May 2.61 7.78 12.60 57.74 24.64June 1.78 (W) 6.01 (W) 15.89 39.58 (W) 23.10July 2.31 8.37 19.39 (W) 48.72 29.98August 2.02 6.66 12.00 45.91 26.61Sept. 2.33 7.83 11.46 65.33 18.16Oct. 2.82 10.40 11.40 (B) 69.08 21.50Average 2.76 8.92 14.20 63.85 24.42105
    106. 106. MCP/PMT Sales-to-Raw Materials Ratio 5 4Ratio Value 3 2 1 0 1 2 3 4 5 6 7 8 9 10 Month 106
    107. 107. MCP/PMT Sales-to-Direct Labor Ratio 15 aio a eR t V lu 10 5 0 1 2 3 4 5 6 7 8 9 10 M nh ot 107
    108. 108. MCP/PMT Compensation and Injuries-to- Direct Labor Ratio (per 1,000 Baht) 30R t Va e aio lu 20 10 0 1 2 3 4 5 6 7 8 9 10 Month 108
    109. 109. MCP/PMT Sales-to-Utility Ratio 10 0 80R tioVa e a lu 60 40 20 0 1 2 3 4 5 6 7 8 9 10 Month 109
    110. 110. MCP/PMT Subcontract-to-Direct Labor (per 100 Baht) 40Ratio Value 30 20 10 0 1 2 3 4 5 6 7 8 9 10 Month 110
    111. 111. 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) 111
    112. 112. MCP/PMTPreference Curve for Sales-to-Raw Materials RatioPerformance Value Scale Scale ≤ 1.78 0 (Worst)100 2.76 50 (Acceptable) ≥ 4.48 100 (Best) 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 4.48 112
    113. 113. MCP/PMTPreference Curve for Sales-to-Direct Labor RatioPerformance Value Scale Scale ≤ 6.01 0 (Worst)100 8.92 50 (Acceptable) ≥ 12.80 100 (Best)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 12.80 113
    114. 114. MCP/PMTPreference Curve for Compensation and Injury Cost-to-Direct Labor RatioPerformance Value Scale Interpolation: Scale ≤ 11.40 100 (Best) 14.20- 11.40 = 12.40- 11.40100 14.20 50 (Acceptable) 100 - 50 100 - (X) ? X = 82.14 ≥ 19.39 0 (Worst)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 19.39 114
    115. 115. MCP/PMT Preference Curve for Sales-to-Utility RatioPerformance Value Scale Scale ≤ 39.58 0 (Worst)100 63.85 50 (Acceptable) ≥ 90.12 100 (Best)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 90.12 115
    116. 116. MCP/PMTPreference Curve for Subcontract-to-Direct Labor Ratio Performance Value Scale Interpolation: Scale ≤ 17.44 100 (Best) 34.16- 24.42 = 30.68- 24.42 100 24.42 50 (Acceptable) 50 - 0 50 - (X) X = 17.86 ≥ 34.16 0 (Worst) 50 Actual results for November is 30.68  the value on the performance scale is 17.86 (out of 100) ? 0 Ratio Information 30.68 17.44 24.42 34.16 116
    117. 117. MCP/PMT Performance Level November from Scale 0-100Ratio 1: 4.58 100.00Ratio 2: 5.64 0.00 Equal WeightRatio 3: 12.40 82.14 of 20% for Each RatioRatio 4: 91.04 100.00Ratio 5: 30.68 17.86 117
    118. 118. 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 100Interpretations and implications: the level of performance inNovember ≥ acceptable levelStatic VS dynamic views when developing a preference curvewith closed- and open- system points of viewWeight assignment (to be consistent with organizationalpolicies and objectives) 118
    119. 119. Past and Present Projects:• Thai Flour Group (BKK Inter Food) for PossibleInterrelationships between Quality of Work Life andProductivity with MCPMT– Please See the Paper forMore Details• Thai Flour Group (BKK Inter Food) forDeveloping and Deploying Ratio-format KPIs:Improvement on Monitoring and Management• PEA for Developing and Deploying Ratio-formatKPIs at the Functional Levels (34 functions + 1 zone) 119
    120. 120. Lessons Learned:• Database and Performance Measurement:Integral and Inseparable Parts• Cost of Developing and Deploying KPIs must beconsidered prior to implementation. Benefits/costanalysis should be made (although eventually thebenefits will outweighs the cost!).• Accounting information is still important. Theobjective is to enhance information fordecisions/actions (not to replace what has been inuse). Go back to the problems in 1970s for U.S.businesses. 120
    121. 121. 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. 121
    122. 122. 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 122
    123. 123. Performance Network Identification of the Ratios Input FactorPhysical Quantity Financial Value Output FactorPhysical Quantity Financial Value 123
    124. 124. Performance Network• Areas that reflect the performance – Productivity – Unit Cost – Price – Factor Proportion – Cost Proportion – Product Mix – Input Allocation 124
    125. 125. Performance NetworkProductivity = Output(s) Physical Quantity per Physical Quantity Input(s)Unit Cost = Input(s) Financial Value per Physical Quantity Output(s)Price = Input Financial Value per Physical Quantity (of the same type of Input an input) 125
    126. 126. Performance Network Factor = Input Physical Quantity or Financial Value of One input over Proportion Input Another Type Input Cost = Input Financial Value of One Input over Total Financial Proportion Inputs Value of Entire Inputs Physical Quantity or Financial Value ofProduct Mix = Output One Output over Another Output (or in Some Cases, One Output Can Be Output Broken into Smaller Categories.) Applied When One Input Can BeInput = Input Broken into Smaller Categories for Both Physical Quantity andAllocation Input Financial Value 126
    127. 127. 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. 127
    128. 128. 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. 128
    129. 129. 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 129
    130. 130. 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 130
    131. 131. Performance Network Pay your greatest attention to the greatest proportionProfit = Profit × Output orLabor Output LaborProfit = Profit × Output orCapital Output CapitalOutput = Output × Materials orLabor Materials Labor 131
    132. 132. Performance Network Profit/Capital Employed Profit/ Revenue Revenue from Sales/ from Sales × Capital Employed Revenue from Labor Cost/ Labor Cost/Sales/ Total Cost ÷ Total Cost × Capital Employed 132
    133. 133. Performance Network Overhaul Units/Capital EmployedOverhaul Units/ Labor ÷ Training Cost/ Labor × Training Cost/ Capital Employed Training Cost/ Working Hours/ Inventory/ Capital Working Hours × Inventory × Employed 133
    134. 134. Performance Network Actual Bus Miles/ Total Cost Actual Bus Miles/ Operation Cost × Operation Cost/ Total Cost Actual Bus Miles/ Fuel Cost/ Fuel Cost × Operation CostActual Bus Miles/ Maintenance Cost × Maintenance Cost/ Operation Cost Actual Bus Miles/ Available Bus Miles/ Available Bus Miles × Maintenance Cost 134
    135. 135. Performance Network Profit/ Equipment Asset Profit/ Outputs × Outputs/ Equipment Asset Outputs/ Labor ÷ Equipment Asset/ LaborOutputs/ Materials × Materials/ Labor 135
    136. 136. Performance Network Revenue/Total Cost Revenue/Labor Cost × Labor Cost/Total CostRevenue/Material MaterialCost × Cost/Labor Cost Labor Cost/Labor Labor Hours × Hours/Total Cost 136
    137. 137. Performance Network Inventory Value/ Operating Cost Inventory Value/ Labor Cost × Labor Cost/ Operating CostInventory Value/ Material Labor Cost/ Material × Handling ÷ Labor Handling Cost Cost/ Labor Labor Cost/ Audit Audit Cost × Cost/Damage and 3-month Damage and 3- Operating Inventory ÷ month Inventory Cost Value/Material Value/ Inventory Handling Cost Value 137
    138. 138. Information Analysis for Target Setting (Research with BKK Inter Food)• Next step for performance measurement Y Revenue Total Cost 8 Revenue Util. Cost Labor Cost Util. Cost Labor Cost Total Cost 1 2 3 Revenue Mat.Cost Util. Cost Mat. Cost Total Cost Total Cost 4 5 6 7 Util. Cost Raw. Inv Revenue Revenue Mat. Cost Mat. Cost Raw. Inv. Labor Cost 138
    139. 139. Information Analysis (cont.) Target Y: Revenue-to-Total Cost ratio Measures X1: 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 ratioY = -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) 139
    140. 140. 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. 140
    141. 141. 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.) 141
    142. 142. 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. 142
    143. 143. Multi-factor ProductivityMeasurement Model (MFPMM) 143
    144. 144. 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, theability to raise price, and the impacts from changes in unit cost 144
    145. 145. MFPMMBenefits 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 145
    146. 146. MFPMM Framework for MFPMM Development Impacts from Productivity Changes 2002 2003Output Value $170 $252Input Value $200 $280Output ÷ Input 0.85 0.90Dynamic view [(252 ÷170) ÷ (280 ÷200)] = 1.0588Profit/loss ($30) ($28) 146
    147. 147. MFPMMInterpretations:• Productivity by 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 $16.5 147
    148. 148. MFPMMInterpretations (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? 148
    149. 149. MFPMMFramework for MFPMM Development (cont.) Impacts from Productivity Changes 2002 2003 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 $450 149
    150. 150. MFPMMInterpretations:• 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 $30 150
    151. 151. MFPMMInterpretations (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? 151