Achieving Optimization: If You Are Meeting Budget, Why Care? – Part 3

SOURCE: Kay Sever | December 29, 2020

If you have been meeting budget, why should you care about doing more? Executives often do care and want to achieve more. The desire to improve or “be the best” is often reflected in mission statements with words like “be the best” or “best possible”. If these goals are written, posted and distributed, executives hope that their people will be more likely to achieve “best possible” performance; however, if a company can’t quantify “best possible” performance, they can’t achieve it.

All companies use actual and budget data to assess performance every day, month and year. For the past 100 years, executives and management teams have used these data-sets as gauges to run the company, not recognizing that neither data-set is linked to “best possible” performance. As a result, “best possible” performance (i.e., optimization) remains a wish instead of an achievable goal, regardless of product or service.

If you had numbers that told you HOW GOOD YOU COULD BE, what could you do with that information?

1) 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. If you have wondered how much upside you have already bought and paid for, you or your team cannot answer that question without numbers that quantify “what’s possible”. As a result, your team’s focus and power are trapped within the “budget-actual box”.

A 3rd data-set linked to your performance capability reveals the potential that’s left to get. If you have quantified this data-set, your management box gets bigger. New questions can be asked about production shortfalls, hidden equipment capacity, equipment purchases, expansions, costs and budget targets. For the very first time, these questions can be answered!

For example, if you wish to expand production capacity, you need to know how much hidden capacity currently exists. You cannot use vendor “design” stats to calculate hidden capacity because they tend to be developed in a vacuum or for a design scenario that does not apply in your production value stream. There is a way to determine metrics for performance potential that will give you a materially correct estimate of hidden but already paid for capacity. You may find that you already have the capacity you need OR that your planned expansion capital can be cut dramatically.          

2) Corporate culture is most simply defined as the way people think and work together. Employees at all levels see actual and budget data, are asked to meet budget, and will take actions to achieve that goal. Some of those actions will be beneficial to the company and help it grow and improve… and some will not. Either way, it is important to recognize two things: a) actions taken to achieve the budget help shape the corporate culture AND b) these same actions will not be linked to achieving “best possible” performance.

What does this mean if you think you are losing money because your organization is weak? If you had a dataset that quantified the financial impact of organizational weaknesses, you could use that information to prioritize and focus on the weakest areas first. If you made a change that positively impacted organizational effectiveness, you could measure its contribution to the bottom line.

It is important to know that culture-driven choices and actions of people can cancel out some of the profit delivered by equipment (even when 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 because these losses are not reported. A 3rd data-set linked to potential profit can help your people measure their impact on performance. Management can use this data-set to better understand financial risk linked to different management styles. Management’s power to change the corporate culture goes up exponentially by strategically and constructively incorporating a 3rd data-set for profit potential into their management strategy.

Thought for the month: With no data for optimum/“best possible” 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.