SOURCE: Kay Sever | December 1, 2019
OPTIMIZATION… When we think about that word, phrases like “achieving the best results”, “eliminating bottlenecks” and “making the most money” come to mind. You are told by vendors and experts that you must buy new equipment and systems (often millions of dollars) to achieve optimization. If the executive team decides to move forward with optimization, three words commonly summarize management’s focus: Machines, Money and Maximization.
What if I told you that there are three more areas of focus that will make or break your efforts to maximize results? What if you knew that ROI would be less than you promised the board of directors AND less than was possible to achieve if these areas of focus were ignored? What if you learned that little or no investment is required to include these areas of focus in your optimization plan?
It’s time to pull the veil back on three additional aspects of optimization that are overlooked, underrated and misunderstood. These aspects are important to know about because they are sources of organizational weaknesses that reduce reported ROI. It’s time to explore the “organizational side of optimization”: Mindset, Measures and Management.
Part 4 of this article will focus on Measures, the 5th M of Optimization.
MEASURES, the 5th M of Optimization
Decades old accounting systems capture financial data about what happens in a company… revenue collected, dollars spent to run the business and fix problems, and the income or loss that is reported as a result of those activities. Other databases capture values for KPIs (key performance measures) related to equipment and systems. Trends for these values give management a “window” into how production processes are performing over time… tons moved or processed, grade and percent recovery of material, productivity measures for speed, pressures, weights, etc. Targets for these KPIs are 1) chosen by management, 2) compared to actual data to assess performance, and 3) included in the budget.
You will notice that the data just described DO NOT QUANTIFY “potential” or “best possible performance” (i.e., what could have been achieved with the equipment and people in place but wasn’t). Optimization means capturing your operating potential and achieving the best possible performance across a value stream. Investments in equipment and systems are made to achieve that goal. How do you know if you have achieved that goal without numbers that reveal the best you can do?
Without data that reflect optimums for processes and people, management is “running blind”, which means management has no tool to maintain a focus on “best” performance and minimize losses that could have been avoided as people work with equipment and each other. Millions of dollars of losses (i.e., potential income not earned) are linked to this void in management system tools for success.
What a Void in Optimum Data means to Leaders in Day to Day Responsibilities:
If executives and site management teams have no numbers for what is possible to achieve,
- They cannot assess what they are leaving on the table (i.e., there is no way to quantify upside potential), which means that achieving budget becomes the goal… the same goal of operations that have not made heavy investments in optimization.
- They have no agreed-to values to assess the achievability of proposed budget goals, which means that budgets can be approved with goals that exceed optimum performance; when this happens, management will have new problems to deal with, including reduced credibility with the board of directors as they explain continuing budget shortfalls and low morale/mistrust of employees that are locked out of bonuses even with great performance every single day.
- They have no way to identify/value recurring problems that are eroding potential performance down to actual reported levels, which means that these problems will not be solved and their associated losses stopped. Problems that steal operating potential may be accepted as part of “normal” operations and may even be budgeted for, which means that these problems or opportunities will not be identified and millions of dollars of hidden losses continue unabated for months or years.
- If measures for optimization are in place at start-up of a new operation, management has a tool to determine if losses are occurring from Day 1, which means they can take immediate action to stop them and perform at true optimum levels over LOM. For a large operation, losses prevented can exceed millions annually, possibly $1B over LOM for properties with long lives. Imagine being able to earn millions of dollars more each year just by preventing losses caused by problems that are accepted as unfixable or viewed as part of normal operations or the corporate culture (i.e., “just the way it is here”). With measures focused on “best performance”, preventing these losses at little or no cost is possible!
- They have no way to assess unused excess capacity that they have already paid for, which means that they may spend money for expansion capital that is not needed OR they may place expansion capital in the wrong place in the value stream, a very expensive mistake that is very damaging to the credibility of the management team approving an expansion plan.
- They have no “best” target for employees and management to connect with, which means that they have no strategy for incorporating those targets into expectations and communications that build trust, elevate morale and encourage collaboration.
- Most employees enjoy coming to work when they can perform at their best levels every day. Measures that tell them what “best” looks like help them achieve that goal, which means fewer problems, more money and happier people.
- Millions of dollars are lost when there are no measures that link the corporate culture and organization to the concept of optimization. If people in all departments are linked to the concept of optimum performance and simple optimum goals as they perform their daily activities, managers and employees make choices linked to loss reduction when communicating about problems and solving problems. They understand that accepting problems as normal, ignoring problems, hiding problems and solving problems in ways that cause losses are not acceptable in an optimization culture because these behaviors cause losses that are avoidable. Measures for optimization are the key to accelerating this shift in thinking and behavior and making it sustainable.
When companies aren’t using measures to monitor optimum performance levels, they don’t know how much money and untapped potential they are leaving on the table, which means that “true optimization” and profit maximization are not possible despite investments in new equipment and processes.
Next month we will continue to explore the 3M’s linked to the corporate culture and organization.
Thought for the month: “Full Optimization” of a site or company requires a “6M” focus to truly maximize profit over the long term.
Kay Sever is a leading expert in reducing financial losses caused by corporate cultures, optimization and change barriers. She has developed a management training system called MiningOpportunity which is based on her 20 years of experience working with mines and plants to reduce the losses they never measure… losses linked to corporate culture, hidden excess capacity and change barriers. MiningOpportunity modules teach executives and management teams how to find and quantify their losses and apply strategies and tactics that stop them. Unique insights from Kay’s 3-year study of management’s barriers to change and optimization are included in the content. See MiningOpportunity.com for her contact information and several training options for your team, including the NEW “Spend a Day with Kay” option.
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