Achieving Optimization: If You Are Meeting Budget, Why Care? – Part 2

SOURCE: Kay Sever | November 24, 2020

For decades, management teams have been challenged to meet budget. Their success is measured by the size of budget variances. A zero variance means that budget was achieved. A zero variance implies people were good at budgeting and executing the plan. Zero variances increase management credibility and help leaders and the workforce earn performance bonuses. If you have been meeting budget and are rewarded for meeting budget, why should you care about doing more?

Executive teams often do care and want to achieve more. The desire to improve or “be the best” is often reflected in vision or mission statements that contain the words “best possible”. Executive teams may believe that if these values or goals are written, posted and distributed that their people will be more likely to achieve them. Stating the goal is Step 1, but if a company cannot quantify what “best possible” looks like, they cannot achieve it regardless of the words in the vision or mission statements.

To reach and sustain “best possible” or optimum performance,

you must quantify the gap between where you are today and what is possible to achieve,

then set “best possible” targets and measure your progress.

It’s easier to achieve a goal when you understand the prize or know what’s at stake. If you already had numbers that told you HOW GOOD YOU COULD BE, what would be different in your organization?

The answer is Profit, Culture, Focus, Choices and Leadership!

Everyone in a corporate management/leadership position has the unique opportunity to add value by asking the right questions. One question based on a perception, observation or unexpected variation can ultimately result in millions of dollars of additional profit. Executives and site management teams can only ask questions and make decisions about the numbers they SEE. If they only SEE actual and budget data, their questions will be framed around actual and budget data. Having numbers that add a “third dimension” to your performance capability triggers questions about what’s left to get. These questions change the conversations about production shortfalls, hidden equipment capacity, equipment purchases, expansions, costs and budget targets because, for the very first time, they can be answered!

If you currently feel like you are on “data review overload”, having more data to review may be a concern. Your concern is justified; however, it’s not about adding more numbers to look at. It’s about having data that helps you focus your efforts on the most important problems and opportunities. You will not be able to understand or act on your hidden operating potential and money “left on the table” without data linked to these opportunities. You have already bought and paid for the operating potential you have… you just don’t have measurements that allow you to access all of it!

Corporate culture is most simply defined as the way people think and work together. It is important to know that culture-driven choices and actions of people can cancel out some of the profit delivered by equipment (even if new equipment was purchased to achieve optimization). Millions of dollars in unmeasured and unreported culture-related losses can occur year after year without management’s knowledge. The catalyst for changing the corporate culture is a change in leadership style. The good news is that executives and site management teams can change the corporate culture with the strategic use of “best possible”/optimum data.

If you are an executive that already thinks about your operating potential, you probably wonder how much better you could be:

1. You may sit in budget meetings wondering how the numbers being presented relate to what’s possible to achieve, but have no answer to that question.

2. You may wonder if your equipment could be doing more, but you can’t measure its upside.

3. You may be concerned about how much money you left on the table, profit that you were positioned to make but lost instead.

4. You may wish your people made different choices about the problems they focus on or how they work with other groups to solve them.

5. You may wish you could attach dollars to the weaknesses in your corporate culture.

6. You may wish your people “thought like you do” about chasing operating potential.

A few years ago, I met with a CEO to review the first analysis of his company’s operating potential. He already believed that there was more to get, but did not know how to quantify it. When I explained the analysis and how his people had been involved in developing the numbers, he said “I like this because you are teaching my people to think like I do.”

If you want your people to expand their thinking to include operating potential, ask different questions, make different choices, work together differently and lead differently to capture your potential, they must have data that reveals new insights and creates urgency to change. There is no other way to bring the organization under the optimization umbrella.

In closing, remember this…

1. Optimization is a “steady operating state” reached when assets, people and the management team are all focused on achieving measurable “best possible” results.

2. New equipment and systems sold as “optimization solutions” will not deliver “plug-and-play” optimization to your company’s doorstep or sustain an optimization state into the future.

3. If your vision or mission statements include the words “best possible”, a “best possible” dataset will help you turn that dream into reality.

4. Connecting the assets, people and management system strategically to a dataset for “best possible” or optimum performance is the key to reaching and sustaining “best possible” performance long-term.

Thought for the month: With no data for optimum performance, budget becomes the default for measuring your success, even if optimization is the goal.       

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Kay Sever is an Optimization Management Expert who helps executive and management teams reach their optimization goals. She has developed a LIVESTREAM management training system for Optimization Management called MiningOpportunity – NO TRAVEL REQUIRED. MiningOpportunity modules teach executives and management teams how to strategically “upgrade” parts of their management system to remove barriers that steal profit, divide people and prevent optimization. Training will use your problems and examples to maximize learnings and accelerate change. 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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Kay Sever
Kay Sever Author
P.O. Box 337 Gilbert, AZ USA 85299-0337

Kay has worked side by side with corporate and production sites in a management/leadership/consulting role for 35+ years. She helps management teams improve performance, profit, culture and change, but does it in a way that connects people and the corporate culture to their hidden potential. Kay helps companies move “beyond improvement” to a state of “sustained optimization”. With her guidance and the MiningOpportunity system, management teams can measure the losses caused by weaknesses in their current culture, shift to a Loss Reduction Culture to reduce the losses, and “manage” the gains from the new culture as a second income stream.