KPIs #9 - A Focus on People Performance

In this Newsletter we will start to investigate the design and adoption of Cost performance measures. Here we are focussed on the transactional activities involved in the delivery of our process and more specifically on the ongoing cost of the resources that will be employed during that activity. There are four categories of resources that attract cost within a process. These are People, Equipment, Materials and Site costs, the PEMS of the image above. Every cent of cost incurred within our Profit & Loss account, or our local site or departmental budget will be aligned to one of these four categories. In this episode we will investigate the first of these, our People costs.

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People Resource

Whilst the focus of our attention here will be on the cost of our staff, it goes without saying that people are much more than a simple resource. Our staff are genuinely our most significant asset, not least because they are the catalyst to any process activity and our performance improvement aspirations. It could be argued that getting the buy-in and commitment of staff to your goals and objectives will be the single most decisive factor in business success.

That said, there are still valuable insights, intelligence and opportunities that can be derived by better understanding the levels of efficiency that are being achieved by our staff and the longer-term trends being demonstrated. This is why the adoption of an effective means of performance measurement for our staff is essential, particularly if those staff costs do represent a significant proportion of our process operating costs.

I would highly recommend reading a recent Newsletter release by one of my old colleagues at the UK Industry Forum. Search on Linked-In for the Organisations that Work Newsletter on Productivity. This provides great context to the wider concept of Productivity within which our focus on transactional People Productivity might be better understood

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The Concepts behind Resource Efficiency Measurement

The purpose of adopting performance measures, of any kind, is to give feedback on the condition of our process activities, enable better management or staff decision making, and provide insight into where improvements to performance might be achievable. If those are the objectives of a performance measure, then we should be careful not to eliminate any of the potential levers to improvement through the way we measure our performance.

Any resources that we need, to operate our process, will bring with them a certain amount of operating cost. This is true of all four of those resource categories. All resource types will incur cost compounded along three dimensions; these being:-

·???????? How much of the Resource we deploy (how many units of resource)

·???????? How much we pay each resource unit per unit of time (hour/day rate ￡/$/€)

·???????? Over how many units of time do we pay that rate (related to Lead-Time)

The factoring of the above three dimensions represents the total resource cost incurred, which would then be considered against the amount of delivered output. This would usually be reflected by quantity or volume of output, but could also consider output in value or revenue terms. We should try to ensure that all three dimensions for identifying improvement opportunities are maintained within our performance measures, or at least confirm that a particular angle is not relevant to our process or business before disregarding it. This might be part of the argument for deploying more than one measure across a single resource category.

?For example, the cost rate of our staff is often ignored within a traditional people productivity measure. However, if we have a mix of full time and contract staff (on different rates), of if we pay a premium rate for working a shift pattern or when working overtime or weekends then there exists the potential to reduce the mean hourly rate through improvements that impact on these variables.

?We should also pay attention to the business context and outcome requirements of our process when selecting a specific measure, again to reduce the risk of eliminating a potential lever to improvement or of driving the wrong behaviours. A good example of this would be to consider only including the output for which we have order cover when counting our output quantities. Any additional output is counterproductive. In fact, this overproduction is generally accepted as the most destructive off all production wastes, and could merit being a future Newsletter topic itself.

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People Cost Measurements

There are two recommended performance measures for our Staff efficiency levels. These are the use of People Productivity and Value Added per Person. Dependant on the nature of our business process we might measure one, the other, or both.

We would typically measure our People Productivity (PP) using the following formula: -

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We would normally calculate our Value Added per Person (VAPP) using this formula: -

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Performance considerations

The data generated by our people efficiency measures provide a number of direct and indirect opportunities to the business or local Team. Firstly, if we have established our performance measures along with associated performance targets, we are able to utilise real time feedback on our work status. This might allow us to quickly identify and respond to any issues as they arise.

The measures will also be invaluable during our resource planning and when estimating our anticipated completion time or date for a particular work package. Having accurate statistics on how many staff or hours of work will be typically needed to complete a work package will be invaluable. What might also prove useful is the ability to see our previous best demonstrated performance. This can be really useful when asking for buy in for a last push to get a job finished, or in fighting demoralisation when the challenge looks insurmountable.

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?Finally, the raw performance data, it’s long-term trends and analysis should provide a continuous flow of prioritised improvement opportunities. Like with all other resource categories we can improve our overall people performance through a number of different angles of attack. In theory, we could try to do the same work with less staff, we could try to pay less, on average, for each hour of staff time, or finally we could try to do the same work in less overall time. Where a Lean approach would differ from a traditional Management cost cutting strategy is that the last of these improvement avenues would be pursued most vigorously.

This isn’t because of any moral bias, or in order to secure some long term hidden, unmeasurable value, but is because it can be demonstrated to deliver the greatest and most sustainable positive impact on business performance. Improvements made to overall Lead-time will also impact on all four resource areas at the same time, not leave us with less of a particular resource when we need it and should allow dramatic increases in capacity that might be released at marginal cost.

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Summary

The adoption of People Performance measurement represents an important element of our local or business performance oversight. ?Our staff represent one of the four categories of resources in which we need to invest, or spend money, in order to discharge our business processes. The other categories being equipment, materials and site (including any overheads).

We would typically measure the efficiency achieved by our people resource through the adoption of People Productivity and Value Added per Person performance measures. These measures provide an invaluable source of intelligence to the local area or business and improve management decision making, capacity planning and lead-time estimation. The data generated will also provide the opportunity to identify and deliver prioritised business performance improvements.

The Greybeard Academy is made up of highly experienced, hands-on experts in business performance improvement who have ‘seen it, done it and achieved it’ many times in the past. This means that our advice and support is effective and efficient, saving time and costly mistakes.

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Karl Smith (M.D.)

The Greybeard Academy