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1、Cost and Performance Management: Creating Value with Measures Presented by Focused Management Inc.Facilitating Performance Improvement Through Better Use Of Information And The Application Of Decision Support Tools2022-2-17At Issue Every organization needs to measure and manage performance to satisf

2、y the demands of stakeholders Todays measurement and management methods are much better than in the past but need to be connected together The speed of change and information age computing and communications leave little margin for errors Decision making needs factsThe Fish Tank SyndromeIf each pers

3、on described what they saw, would it be the same description?Perspectives vary! Which is correct?Implications of The Fish Tank Syndrome We need a variety of perspectives and with which to obtain a balanced, disciplined and dynamic view of our businesses We need to develop a common / agreed understan

4、ding of the business and all of its characteristics We need a constantly available set of reference points to which we can return We need a living repository in which locate and maintain knowledgeResult What Is At Stake Inappropriate measurement systems can be costly experiments Sobeys $50m ERP writ

5、e off Boeings production problems in the late 1990s Malcolm Baldridge winner, Wallace Co bankrupt Fortune 500 companies will face a $31.5 Billion knowledge deficit next year By how much can profit be increased by changing your product/market mix to focus on your most profitable productsPerformance A

6、rchitecture A combination of a business logic methodology, relevant software and systems capability. The links between the tools are as important as the tools themselves.Performance Architecture to Drive ValueSystems EnabledStakeholder Need/ValuesCustomersShareholdersEmployeesetc.Process ManagementH

7、uman PerformanceIN OUTPerformance MeasuresScorecardOrganization Designand CompensationBest PracticesActivity Based ManagementActivity Goals Measures ResultsProcess Goals Measures ResultsOrganization Goals Measures ResultsTIMEQUALITYFINANCIALQUANTITYStrategicPlanUnderstand the OrganizationValue-Based

8、 Management “VBM is a holistic management approach that encompasses redefined goals, redesigned organizational structures and systems, rejuvenated strategic and operational processes, and even revamped human resources practices”. “This holistic practice of VBM is in sharp contrast to the finance-dri

9、ven appearance that VBM has taken on in the past ”INSEAD Working Paper, Are you (Really) Managing for Value?Value Creation is an Operational Issue!Linked to Seven Value Drivers:v Sales growth ratev Operating profit marginv Cash income tax ratev Working capitalv Fixed capitalv Cost of capital - (WACC

10、)v Growth duration periodCreating shareholder value requires intense focus on: Delivering benefits to customer in most efficient way Hiring/retaining motivated workforce Maintaining excellent supplier relationships Good citizen in local communities Processes are where the work is done“If you cant de

11、scribe what you are doing as a process, you dont know what you are doing.” W. Edward Deming Processs are connected to the appropriate knowledge and learning elements. All focused on the successful performance of a single task. Processes link organization goals and measures to human performance and a

12、ctivities.How We Organize OurselvesThe Three Levels of PerformanceMarketSuppliersCIOFIII. Performer/Job LevelII. Process LevelI. Organization LevelProductsServicesNeedsOrganization Work is Performed by Systems of ProcessesAlignment of jobs, activities and processes with total organization goals is c

13、ritical to the success of the organization. Shared service organizations are an integral component.purchase orderordersinvoicesamples/duct requestsextrusionsSUPPLIERSCUSTOMERSpromotionsOrder FulfillmentStorePick, pack, shipbill, collectStrategic PlanningPlanning & ControlProduct Develop

14、mentTest dieBuild diedesignProductionProduct madeProcurementBuy materialStore & issueOrder GenerationOrder enteredpromotionInStockWork orderSales orderproductRequisitionMaterialsLinetimeNew DiesGoals/plansPerformance reportsPrice targetsYesNoHuman Resources / Systems / Maintenance / Facilities S

15、upport processesCorp. Gov.6%7%4%48%22%13%Detailed Process MapCustomerCall CenterFirst LevelTechnicalDeptSecond LevelTechnicalDeptInventoryManagementSchedulingLogisticsSiteTechnicianEscalationR&DCall CloseTransfer orRerouteCustomerinformed ofSolutionCallTransferReferencedocsPredictive call(electr

16、onical)Customer callsIVR Routing HWProblemIdentify- Customer- Product- SLAVerify EntitlementValidationCompleted?HardwareLog CallRe-repairQualifiedbyKnowledgetoolsToProcess5Installation?1st levelproduct?RerouteIdentifyProblemRemotesolved?HWProblem?Qualificationdone?Problem IDIdentify PartIdentity Del

17、ivery Method(order parts - somecountries)Solution skill IDDispneeded?LaunchesCourierLogisticProcessSolutionIdentified?ValidationIdentifyPreblemID partID DMSolution skillDispneededCustomer told2nd Line willcall backRemote orProblemsolved?PredictiveGroupRoute toP2HelprequiredTechnicalAssistantResearch

18、es/SuggestsSolutionIdentifyon-siteResourcesOrderPartsAssign Call(some Deliverymethodautomated)ToInstallationProcessTechndispatchedPartsProcessCE goes tositecollectsparts Repaircompleted?FinishRepairEscalationProcessProcess same as Div XR&DProcessOff LineValidationClose callClose callClose callNo

19、NoNoYesYesNoYesYesNoNoYesYesNoYesYesNoYesNoYesNoYesYesNoYesYesNoNoYesNoNoYesYesNoNoYes Service Delivery Process Activity Cost ResultsActivity DriverDriver QtyActivity Cost$ / Unit# Credit Control Transactions1,893 36,414 19.24# 3 Piece Height & Dia Changeovers20 171,200 8,560.00# 3 Piece Height

20、Changeovers59 43,850 743.22# Ink Mixes6,401 68,276 10.67# Products Costed115 5,550 48.26# Traded Sales Transactions866 7,162 8.27# Plant 7 Works Order Issues40,551 48,084 1.19# Hrs. Run 3 Pc. Good Products22,261 1,305,303 58.64# Hrs. Run DRD Good Products14,477 1,100,338 76.01# Hrs. Run Marq. Good P

21、roducts9,078 1,205,748 132.82# Hrs. Run Rect. Line Good Products2,981 410,534 137.72ABC & Process Analysis: Thoughtful Interaction Service Delivery Process CustomerCall CenterFirst LevelTechnicalDeptSecond LevelTechnicalDeptInventoryManagementSchedulingLogisticsSiteTechnicianEscalationR&DCal

22、l CloseTransfer orRerouteCustomerinformed ofSolutionCallTransferReferencedocsPredictive call(electronical)Customer callsIVR Routing HWProblemIdentify- Customer- Product- SLAVerify EntitlementValidationCompleted?HardwareLog CallRe-repairQualifiedbyKnowledgetoolsToProcess5Installation?1st levelproduct

23、?RerouteIdentifyProblemRemotesolved?HWProblem?Qualificationdone?Problem IDIdentify PartIdentity Delivery Method(order parts - somecountries)Solution skill IDDispneeded?LaunchesCourierLogisticProcessSolutionIdentified?ValidationIdentifyPreblemID partID DMSolution skillDispneededCustomer told2nd Line

24、willcall backRemote orProblemsolved?PredictiveGroupRoute toP2HelprequiredTechnicalAssistantResearches/SuggestsSolutionIdentifyon-siteResourcesOrderPartsAssign Call(some Deliverymethodautomated)ToInstallationProcessTechndispatchedPartsProcessCE goes tositecollectsparts Repaircompleted?FinishRepairEsc

25、alationProcessProcess same as Div XR&DProcessOff LineValidationClose callClose callClose callNoNoNoYesYesNoYesYesNoNoYesYesNoYesYesNoYesNoYesNoYesYesNoYesYesNoNoYesNoNoYesYesNoNoYesABC ACTIVITY# 524CALL RECEIPT$0.2mABC ACTIVITY # 355CUSTOMERQUALIFICATION$1.1mABC ACTIVITY# 274DISPATCH PARTS$0.3mA

26、BC ACTIVITY#432ON-SITE FIX$7.9mTotal Process Cost = $9.5mCosted ProcessProcess:TOTAL COSTOrder Fulfillment Process:$4,437,716Activities In Process:CostApprove creditsCollecting accountsFreight delivery costEnter credit notesEnter customer ordersFreight pallet miles costPick loose casesPicking pallet

27、sPay promotional claimsShipping paperworkDriver# Credits# Orders# Orders# Credits# Orders# Pallet X Miles# Loose Cases# Pallets# Claims# Orders170,123499,689167,546154,539661,3891,035,546843,869305,769395,342203,903Activity Analysis The first step in an ABC analysis is to understand what activities

28、are performed in the organization. Activity Survey Questionnaire (ASQ) facilitates simple and efficient collection of activity data throughout the organization, prepares the data for import into analysis tools and produces draft activity and process costs. Lets see ASQ in actionPharmacyBest Practice

29、 AnalysisUnit Cost ComparisonActivityIowaLos AngelesNew YorkTempeMichiganReceive orders0.09 0.15 0.16 0.06 0.06 Order set-up0.83 0.59 1.22 0.84 0.71 Checking RXs0.68 0.60 0.59 0.24 0.76 File hard copy RXs & scan0.07 0.10 0.16 0.12 0.25 Process inventory0.07 0.04 0.07 0.03 0.21 Bag & ship ord

30、ers12.06 7.72 8.45 6.90 7.47 Product / Market MatrixMarket segmentsPharmaCoWholesaleProfessionalCommercial$ thousandsBuYers RetailAll Other RetailWholesaleHospitalClinicsExportOtherTotalsAdult4,814 32,901 18,363 56,077 Analgesia1,464 16,335 8,572 26,371 30%50%47%47%Childrens1,510 10,121 5,594 17,226

31、 Analgesia258 3,678 1,867 5,804 17%36%33%34%Cough303 1,614 997 2,914 Relief(166) (566) (382) (1,114) -55%-35%-38%-38%Cold696 4,524 2,581 7,801 Medicine29 1,091 539 1,658 4%24%21%21%Allergy728 4,941 2,907 8,577 Relief107 1,666 893 2,666 15%34%31%31%TotalRevenue8,051 54,102 30,441 - - - - 92,594 Margi

32、n1,692 22,204 11,490 - - - - 35,385 % Margin21%41%38%38%How to read this chart. Each cell contains.* Note: Costs do not include $6.6 M in Business Sustaining Costs1. ABC results2. Sales & Marketing strategy / expectationsSales Revenue$kdecliningstablegrowthContribution Margin$ksalesvolumeopportu

33、nityMargin % sales.%RetailProductsProduct / Customer ABC ProfitEconomic ProfitEP = Margin - Capital Employed x WACC* * Weighted Average Cost of Capital12.2%Market segmentsPharmaCoWholesaleProfessionalBuYers RetailAll Other RetailWholesaleHospitalClinicsTotalsAdult3,536 25,986 12,922 42,444 Analgesia

34、431 3,170 1,577 5,178 447$ 6,631$ 3,567$ 10,644$ Childrens1,136 9,160 4,497 14,793 Analgesia139 1,118 549 1,805 16$ 1,089$ 572$ 1,677$ Cough331 1,344 795 2,470 Relief40 164 97 301 (140)$ (504)$ (326)$ (969)$ Cold676 4,942 2,568 8,186 Medicine83 603 313 999 (65)$ 52$ 10$ (4)$ Allergy712 4,580 2,491 7

35、,783 Relief87 559 304 950 (23)$ 441$ 232$ 650$ TOTAL:6,391 46,013 23,273 - - 75,676 780 5,614 2,839 9,232 235 7,709 4,055 11,999 Capital employed is determined by careful analysis of key capital items & drivers including Accounts Receivable (revenues & DSO);Inventories (Cost of Sales & I

36、nventory turns); and Fixed Assets (Dedicated Assets and/or Machine hours).Cost of Capital = Capital Employed x WACC (12.2% in this firm)Economic Profit = NOPAT (segmented - see chart xx) - Cost of CapitalEconomic ProfitCost of CapitalCapital EmployedRetailProductsVBM Product / Customer Economic Prof

37、itKey Process Measures Measures can be limited to M1 (end of process) and M2 (sub-process) measures M1-E (External) measures should be derived from goalsM2M1-IExternal/Customer MeasuresInternal/Business MeasuresSubprocess MeasuresM1-ECUSTOMERFUNCTION AFUNCTION BFUNCTION CM2M2M2M2M1-EM1-ILinking Proc

38、ess to Job“SHOULD” PROCESS MAPCustomerFunction AFunction CFunction DCROSS-FUNCTIONAL ROLE/RESPONSIBILITY MATRIXFunctions and OutputsFunction AFunction BFunction CFunction D“Should” Macro StepsFUNCTIONAL ROLE/RESPONSIBILITY MATRIX“Should” Process StepsJobs and OutputsJob 1Job 2Job 3Job 4Function B Ou

39、tputsConsequencesInputOutputFeedbackHuman Performance System“IS” PROCESS MAPMeasuresEverywhereProcess Measures WorksheetMaterial Acquisition ProcessTotal Process MeasuresDimensionCurrent PerformanceMeasureShort TermGoalLong TermGoalActionsto be takenProcessOutputDistribute toProductionTime1. # of Hr

40、s. from order toproduction5 days6 hours3 days2 hrs.Appoint a process owner2. # of days of backlog14 days1 day10 days0 daysMove to a pull systemQuality1. Material availablewhen needed80%90%85%100%Develop long term relationship w/ keysuppliers2. # of material shortages90%100%90%100%see above3. % of ma

41、terial issueswhich meet job specs85%100%87%100%Better communicationCost1. Total process cost$150,000$60,000$140,000$200,000Appoint a process owner2. Cost per transaction$85$75$63$40Improve work flow3. Inventory cost /month$4.0 m$3.8m$3.5 m$1.0 mInstall point of use inventoryQuantity1. # of items mov

42、ed/employee4009006001,000Automation2. # of stock outs500500Better supplier relations3. % of time machinesare idle due to materialshortages15%0%10%0%Improve EDI, batch processingBench-marksPerspectives of Measurement(Create & Gather)(Store & Deploy)(Use & Learn)processesknowledgetrainingI

43、nsights, Procedures, Guidelines, ExpertiseFront linesBusiness Repository:your corporate DNAFeedbackKnowledge Management Creates “Living Processes”Web/ IntranetInternal or External CustomerThe Performance Point !Measures Software to Influence Human BehaviorFDistribution of consistent and appropriate

44、measurement information to everyone in the organization is fundamental to execution of A/VBM FUse of computer technologies - data warehouse, OLAP and presentation layer software provide the “media” of distributionFIt is the media that facilitates organization change. The marriage of management philo

45、sophy with technology and the imperative to create valueFThe media is represented by the presentation of current measures and performance information on computer screens to all accountable partiesFThe suite of tools includes software to perform simulation modeling of processes and economic performan

46、ceSample Measurement Scorecard / DashboardFocused Management Info CenterPersonal Product Customer Projects Presentations Financial Models News Links Info & Profit Info & ProfitData& AnalysisE-mailNew flashes & Alerts-market-competition-industry-company info and alerts(push technology

47、)Calendar Tasks Stock Price External LinksThe Performance Architecture-ScorecardWith Links and drill downActivity Goals Measures ResultsProcess Goals Measures ResultsOrganization Goals Measures ResultsActivity Goals Measures ResultsProcess Goals Measures ResultsOrganization Goals Measures ResultsAct

48、ivity Goals Measures ResultsProcess Goals Measures ResultsOrganization Goals Measures ResultsAll Activities Goals Measures ResultsAll Processes Goals Measures ResultsOrganization Goals Measures ResultsTIMEFINANCIALQUALITYQUANTITYStrategicPlanActivity Goals Measures ResultsProcess Goals Measures Resu

49、ltsOrganization Goals Measures ResultsActivity Goals Measures ResultsProcess Goals Measures ResultsOrganization Goals Measures ResultsActivity Goals Measures ResultsProcess Goals Measures ResultsOrganization Goals Measures ResultsActivity Goals Measures ResultsProcess Goals Measures ResultsOrganizat

50、ion Goals Measures ResultsActivity Goals Measures ResultsProcess Goals Measures ResultsOrganization Goals Measures ResultsActivity Goals Measures ResultsProcess Goals Measures ResultsOrganization Goals Measures ResultsAll Activities Goals Measures ResultsAll Processes Goals Measures ResultsOrganizat

51、ion Goals Measures ResultsTIMEFINANCIALQUALITYQUANTITYStrategicPlanActivity Goals Measures ResultsProcess Goals Measures ResultsOrganization Goals Measures ResultsActivity Goals Measures ResultsProcess Goals Measures ResultsOrganization Goals Measures ResultsActivity Goals Measures ResultsProcess Go

52、als Measures ResultsOrganization Goals Measures ResultsMy Activities Goals Measures ResultsMy Process Goals Measures ResultsOrganization Goals Measures ResultsTIMEFINANCIALQUALITYQUANTITYStrategicPlanActivity Goals Measures ResultsProcess Goals Measures ResultsOrganization Goals Measures ResultsActi

53、vity Goals Measures ResultsProcess Goals Measures ResultsOrganization Goals Measures ResultsActivity Goals Measures ResultsProcess Goals Measures ResultsOrganization Goals Measures ResultsActivity Goals Measures ResultsProcess Goals Measures ResultsOrganization Goals Measures ResultsActivity Goals M

54、easures ResultsProcess Goals Measures ResultsOrganization Goals Measures ResultsActivity Goals Measures ResultsProcess Goals Measures ResultsOrganization Goals Measures ResultsMy Activities Goals Measures ResultsMy Process Goals Measures ResultsOrganization Goals Measures ResultsTIMEFINANCIALQUALITY

55、QUANTITYStrategicPlanThe OrganizationMy Part of the Organization2022-2-17Driving Performance in Organization Determine stakeholder needs Develop organization strategy Analyze activities, processes and measures Determine costs, current performance and benchmark Establish performance standards Establi

56、sh goals / budgets & action plans Deploy measures and knowledge repository systemsWorld Class Tools To Lead You Into The FutureThe Performance Management PortalProCartaActivity Survey QuestionnaireOther software Applications:Activity Based CostingERPDatabase InternetCRMn Strategy Reviewn Value B

57、ased Managementn Business Process Improvement and Managementn Balanced Performance Measurementn Activity Based Management / Budgetingn ERP / Databasesn CRMn Portals / Presentationn ABM / Knowledge Managementn Systems Planning and Analysis n Systems Implementationn Managed Services & TrainingValue Creating MethodologiesInformation Technology ServicesSoftwareValue CreatingSolutions=PerformanceInformation TechnologyPortalsAssessments Training D