SOURCE: Kay Sever | March 1, 2024
The Renaissance Period was rooted in a desire to explore and discover new knowledge. Renaissance thinking focused on discovering “what was unknown, overlooked, missing or misunderstood”. In 2024, we will be using Renaissance Thinking to understand what’s missing from a traditional optimization scope and how to broaden that scope to capture millions of additional dollars with no additional capital.
The Optimization Dis-Connection – a review
Last month we explored the history of accounting and learned that the 800-year-old accounting system used by merchants to track trade (i.e., “buy and sell”) transactions, inventories and profit is still in use today. It still works great for tracking “buy and sell” transactions (i.e., dollars received from customers and dollars spent for operating costs), inventories and profit.
HOWEVER… IF YOUR GOAL SHIFTS to achieving optimization (i.e., “best possible” performance), the financial system lacks data needed to achieve that goal because it was NEVER DESIGNED to report dollars linked to a “best possible” state. Budget data is also missing “best possible” metrics.
- Optimization requires the tracking of hidden operating/financial potential (i.e., the pool of dollars available to convert to profit). Some of those dollars are buried in the financial system and others are simply missing from it.
- Budget data are linked to planned “buy and sell” activities and the profit that results from those transactions. Optimization is linked to dollars for “what could have happened…but didn’t”.
- Measures of success: Budget vs. Optimization
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- You achieve budget if your budget variance = 0.
- You achieve optimization if your hidden potential to generate profit = 0.
TAKEAWAY: If your executives and management team DO NOT HAVE OPTIMIZATION METRICS that quantify the dollars they are leaving on the table, they must SETTLE FOR LESS PROFIT than their equipment and people are capable of achieving! Let’s talk about why this is true…
Have you ever thought about the questions you cannot answer about your site or company… questions about performance, targets and losses? Questions like these…
- How much better can we do without new equipment?
- Does our budget contain unachievable targets?
- Are we budgeting for losses we don’t know about?
- Are we solving our highest cost problems?
- Are inefficiencies in our organization costing us money?
- Are ineffective management practices costing us money?
Before I learned about optimization metrics, I sat in meetings where these questions were asked by executives and site management teams. All of them were great leaders who wanted to make more money, improve how the organization functioned, or achieve “best possible” results. They intuitively knew their equipment and people were capable of more, but NONE of them could answer ANY of these questions because they lacked data linked to the answers.
Actual and budget data (data used to assess performance, set targets and make operating/financial decisions) CANNOT TELL YOU:
- How much better your equipment/people can do… and how much money the gap between today’s performance and “best possible” is worth.
- If any of your budget targets exceed what is possible to achieve. This is important for two reasons: 1) you cannot achieve budget if the bar is too high or too low AND 2) if any of these targets are linked to production bonuses, you have unintentionally set your people up to fail.
- If you have budgeted for losses linked to problems or inefficiencies that, over time, have become “accepted” as part of the process.
- If the problems listed on your project list are really the highest cost problems. By ranking problems by the gap between actual and what’s possible to achieve, you may discover that problems that were ranked low may be the most important things to fix.
- If organizational weaknesses (the way your people work together) are costing you money and which weaknesses you should focus on to achieve your best performance. Remember, the financial system WILL TELL YOU how much you spent on your organization, but IT WILL NOT TELL YOU how much you lost because of inefficient practices between departments.
- If management system weaknesses (quantitative and qualitative) are costing you money and which weaknesses you should focus on to achieve your best performance. Remember, the financial system WILL TELL YOU how much you spent on salaries and benefits for your people in management, but IT WILL NOT TELL YOU how much you lost because of ineffective management practices that created losses elsewhere in the company.
If your team has optimization metrics to use in conjunction with actual and budget data, they can answer these questions and more.
Next month: We will continue our optimization journey and talk about how a lack of optimization metrics impacts what you believe to be true about performance.
Thought for the year: Renaissance thinking has a direct application in positioning your company for success with capital-free optimization. If executives and management teams foster and nurture the desire to explore for hidden profit potential everywhere, what they learn will give them a huge advantage when they want answers to “what’s possible to achieve”.
Kay Sever is a Performance Optimization Expert and Optimization Management Strategist/Coach. 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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- About Us
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.
