Blog Posts - BP Consulting (NZ)

Best Practice – part 1

7/13/2011

1. There is a process owner
A person in the organisation who takes the process view. They own the process no matter whose area it crosses and are tasked with ensuring what is done is in the best interest of the organisation (not one particular person or part).

2. One shared services style function
Shared services is a methodology for structuring and running processes. Its three main principles are:

All processes are considered key to the business and are taken seriously
People performing the process focus on quality and cost efficiency
There is a focus on continuous improvement

This does not mean you have to have a shared services centre. Just that you try to follow the three main principles.

What to consider in assessing the quality of a process

7/3/2011

You should consider:

Is it streamlined
Are there quick turnaround times
How high is the accuracy
Are there minimal queries
Is it right first time
Are people doing what you would expect them to do

This can be done by assessing how the process compares to Best Practice and what we think are the 6 key quality measures.

Be careful with the term “best practice”. In the end it is “what is best for you” not the person down the road. They will have different circumstances, influences and goals to you. But best practice can be used as a guide to the sorts of things you would expect a reasonable person to do if they wanted a quality process.

The next 7 blog entries will provide a list of criteria for Best Practice. They represent what we believe is a generic process best practice. Not all of the criteria are applicable for every process, but for the majority they ring true.

The aim is to create a list which reflects acceptable best practice for the process you are reviewing, so feel free to add or remove criteria from the list to suit your process.

Key cost metrics for a process

6/21/2011

The two key metrics for measuring the cost of a process are:

Volume drivers processed per FTE per annum
The more a person can process the better. If you can increase this measure your cost performance must be improving.

Process cost per volume driver
The lower the cost per item a person processes the better. If you can reduce this measure your cost performance must be improving.

The Volume Driver is the main item that flows through the process. For example:
Accounts Payable = Vendor invoices
Accounts Receivable = Customer Receipts
Credit Management = Customer Accounts
Purchasing = Purchase Orders
Payroll = Employee Pays
Call Centre = Phone Calls
Inwards Goods = Goods Receipts

The above is not an exhaustive list, they are just examples

The fully loaded cost of an FTE = Direct Cost + Indirect Cost

6/15/2011

It is important to understand the effect of cost choices because if you choose to rent premises in the heart of the city, then you will have a higher “fully loaded” FTE cost than someone who rents premises in the suburbs. When you compare your cost performance against others you need to understand this. You could process the same volume per FTE as someone else but at a higher cost because of your organisations cost choices.

An easy way to estimate an FTE’s “fully loaded” cost
The “fully loaded” cost is most likely in the range of 2 to 3 times the salary / wage cost of the FTE

eg: if the FTE is paid $50,000 pa the fully loaded cost of that person will probably be in the range of $100,000 to $150,000 pa.

You can test this by taking your:

Total organisation annual budget
Total organisation annual salary / wage budget
Divide both by the number of FTEs in the organisation

Compare the two results and you will get an idea as to what your organisations “fully loaded” cost multiple is.

What should be included in calculating the cost of FTEs

6/8/2011

There are two elements to the cost of having a FTE:

Direct costs
These are directly employee related (e.g.: salary / wages, non-monetary benefits, stationery, training etc.). These costs go up or down according to the number of employees

Indirect costs
This refers to the apportioning of the overall business costs such as premises, IT, management time and HR. These costs will not necessarily increase or decrease significantly as the number of employees change. Some may be seen as “step costs” (eg: premises – you maybe able to fit in 1 more person, but not 10, so at some point you will need more accommodation).

How to calculate the number of FTEs involved in a process

6/2/2011

Full time equivalents (FTEs) is the:

Number people involved in the process
Multiplied by their hours worked per week
Divided by the weekly hours a standard person would work in a week

FTE includes all part-time workers and overtime. Occasional overtime can be ignored, but if people regularly work overtime during a week or at month end, this should be included in the calculation.

Sorry for the gap in blog entries

6/2/2011

Sorry for not posting to the blog. We have been distracted by a big assignment in Australia but now have this well underway and we have lined up the next seven months of blog entries so we won’t miss blog entries again.

The next 4 blog entries look at measuring the cost of a process
The 14 after that look at measuring the quality of a process
And then 12 look at what influences the performance of a process

Customer Service Surveys

4/13/2011

“Internal Customer Service Surveys” can be a useful tool in improving processes because:

Perception can become reality if you do not deal with it
You need cooperation from people to get the job done (and this means making them feel they are part of what you are doing)
People will not always tell you there is a problem, so you need to ask them
It helps to be seen to be interested, even if you can not always resolve someone’s problem
You need to measure what people think versus the reality to ensure it is supported by fact

A customer service survey is a way of reminding the people (who also have them as a KPI) that they are providing a service and need to remember this when doing their job and interacting with people. They are a great tool but you should not take the findings entirely at face value:

People tend not to answer surveys in the extreme (ie: go for the highest or lowest score – they usually answer somewhere in the middle)
Accept that people will answer a questionnaire based on the last thing that happened, which may just have been a bad experience which in reality does not occur very often. Also people tend to remember bad things before good things
Try not to allow people answering the questionnaire to get personal. It is not a mechanism for someone to get at a person they do not like. We will all have experienced personality conflicts at work but this should not stop professional, mature people from working productively together. The questions in the survey will be fairly generic, this is hard to avoid.
The questions in the survey will be fairly generic, this is hard to avoid.

The survey can cover more than customer service. If you are doing a survey you should include questions or statements that can be used to prove or disprove perceptions on other topics (not just customer service). For example you could ask for people’s views on the following statements:

If you have implemented a new computer system ask for views on:

The new system is settled down and is operating well
Personnel at my location know how to use the system
Personnel at my location do not need further training

If you have just completed a budget round ask for views on:

The budget process worked well
My branch / cost centre owns and is committed to achieving its budget

If you are trying to standardise processes across the organisation ask for views on:

The processes at my branch are well documented
If personnel moved from another branch to my branch they would easily be able to perform the same role

Key Performance Indicators (KPI’s)

4/6/2011

Some people say you should measure everything and that what gets measured gets managed. While it is true that if you measure something you are more likely to manage it, if you try to measure everything you run the risk of data fatigue (there is just too much of it). This could result in:

Reports getting left in in-trays
The review becoming half hearted
Important data and trends getting lost amongst the mass of information
People losing focus because they can not concentrate on everything

Whether you are measuring a person, a process or an organisation you should measure only what is important to achieve the result you are seeking (and this may change over time). There are seven golden rules for KPIs:

Have realistic targets – eg: if your target is on-going cost reduction you must take into account the reducing cost curve which means that as you reduce the cost per transaction each subsequent reduction becomes harder to achieve.
Reflect what you are trying to achieve – eg: if your goal is to process quicker to ensure your financial information is up-to-date, you will want to measure turnaround time. But why measure it every day if you are only really concerned about month end, or maybe the end of the week. Measuring every transaction is probably unrealistic so make it easy to do.
Be fair – you need buy-in for the measure to be effective and people need to feel the measure and target are fair otherwise they will not be motivated to achieve it.
Be supported across the organisation – there is no point having a KPI in one area which conflicts with the KPI in another. And because people need the help of others to get their jobs done, critical KPIs need to be part of everyone’s goals (to the extent that they have an impact on the outcome).
Not be counter productive – eg: an organisation had a stated goal of achieving long-term sustainable growth. Yet its bonus schemes were based entirely on achievement against the annual budget. The consequence was that senior managers made decisions based on the short term result not the long-term benefit. The bonus scheme targets needed to be balanced between the two desired outcomes because short-term gain is not always compatible with long-term sustainable growth.
Be (relatively) easy to measure - if it takes a lot of effort then you should question if it is the right measure or measure it for short (regular) periods. You want useful data with the minimum of effort.
Have a purpose – it is not data for data’s sake. You are measuring either the performance of the people, process or organisation, or that of an improvement initiative.

Managers need to make decisions

3/27/2011

Part of a managers job is to make decisions. The decisions will not always be the right one's, but it is better to make a decision and be wrong than to dither and not make a decision at all. And face it, we probably learn more from our bad decisions than we do our good ones. To make a good decision (more often than not) you should:

Clarify the real objective
Develop creative alternatives
Understand the consequences of the decision
Make appropriate trade offs amongst conflicting objectives
Deal sensibly with uncertainties
Take account of your risk taking attitude
Plan ahead for decisions

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