SOURCE: Kay Sever | October 29, 2021
When you assess the feasibility of an expansion, building a new plant, opening a new mine, etc., your team will identify areas of risk that could sabotage the project and its expected gains. Similarly, when you start down the optimization path, you need to know your areas of risk… things that can sabotage your efforts, reduce earnings and make it hard to sustain optimization principles/practices long-term.
What are your areas of risk when you pursue optimization? Many leadership teams believe that optimization is achieved by purchasing new equipment designed specifically for that purpose. Companies invest in that equipment believing they have removed the “risk of loss” from the production value stream and, as a result, will achieve and sustain optimization (i.e., “best possible” performance). They don’t realize that there is another area of risk that is misunderstood and almost always overlooked. Organizations contain invisible barriers to optimization… barriers that support the status quo, hide profit potential and cause unmeasured losses… barriers that make it hard to sustain an optimization initiative for the long term. These barriers remain hidden UNTIL optimization touches the organization.
WHEN OPTIMIZATION TOUCHES THE ORGANIZATION
You may never have considered that your company’s organization might belong under the “optimization umbrella”. Why is this true? The organization connects people to performance. Some of its connections tend to sustain current performance levels, making it difficult or impossible for people to move to or sustain a new level of performance. If these connections are not modified or strengthened to support optimization, they can create losses that are seldom measured. Knowing which connections need to be upgraded makes it easier to align your organization with optimization goals.
So… let’s explore some of these areas of risk. The greatest risks to a company’s ability to truly maximize performance reside inside the management system and management team. Some segments of the management system (management practices, tools and procedures) were designed to manage and measure day-to-day operations and report the results of those efforts in the form of productivity, cost and profit. Comparison to budget is done frequently and budget variances of zero are the goal.
Did you know that there is NO TOOL in traditional management systems that help companies achieve or sustain optimization? There are no metrics for “best” performance, no management process for integrating “best” data with actual and budget data to assess performance and make decisions, no strategy for setting standards for “best” performance, etc. This “mismatch” between your optimization mission and some management processes/procedures creates invisible barriers and risks that make optimization harder to achieve and sustain. The good news is that only a portion of the management system needs to be modified or strengthened to support optimization… just those connections that help people move to and sustain a new level of performance. Understanding the disconnects is the key!
For example, here are some risk factors for the set of organizational connections linked to the budget:
- Management teams are charged with meeting the budget. The procedures and practices they have used for years are designed to accomplish that goal. The team and their people may be financially or professionally rewarded if budget is achieved. Budget is their comfort zone!
- When optimization is the goal, budgeting does not stop and budgets are still important. The budget is an educated guess for future performance… “best” is a number that takes the limit off and helps people reach for levels of performance not considered or thought possible. Management teams must understand the difference between budget and “best possible” data and how to use “best possible” metrics to help them achieve budget. This new skill helps teams move into a new comfort zone that sustains optimization for the long term.
- If management does not know how to integrate budget and “best possible” data for analysis and decision-making, it is easy to revert back to using budget variances for decision-making and ignore what “best possible” values are telling them about dollars that were left on the table.
- When management does not know how to incorporate “best possible” metrics into a subset of their management responsibilities/processes, the opportunity to tap into hidden operating potential and reduce the dollars you are leaving on the table is LOST, regardless of the millions of dollars invested in new equipment and systems.
Thought for the month: Connecting people to optimization goals minimizes the risk of loss caused by weak connecting points in the organization.
Kay Sever is an Expert on Achieving “Best Possible” Results. Kay helps executive and management teams tap their hidden profit potential and reach their optimization goals. Kay has developed a LIVESTREAM management training system for Optimization Management called MiningOpportunity – NO TRAVEL REQUIRED. See MiningOpportunity.com for her contact information and training information.
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