Measure Business Efficiency Where You Are Now - dummies

Measure Business Efficiency Where You Are Now

By Marina Martin

You can’t improve efficiency in your business or organization if you don’t know where you stand currently. Without a starting point, you have no official idea whether the changes you implement in hopes of increasing efficiency actually help or take you ten steps back.

Knowing how to accurately and objectively measure your organization according to certain metrics is an invaluable skill.

Even if improving efficiency isn’t a top priority for you right now, you probably care a lot about certain other measurements, such as revenue, profit, and the number of orders you’re receiving.

Certain measurements can be straightforward: How many dollars entered your bank account this month? How many exited it? How many employees do you have? How much did you spend on payroll this month? What is your average electric bill for the last 12 months?

Sometimes, straightforward measurements reveal inefficiencies right off the bat. A number may simply “feel” wrong to you, and additional research will show it’s way too high. However, a bit more math is usually needed to get to the deeper roots of an organization’s inefficiencies. That’s where the various efficiency-enhancing methodologies like Six Sigma and Lean can come in and really shed light on what’s happening.

Using the Six Sigma calculations

Six Sigma takes the idea of quality to a whole new level. A process that operates at Six Sigma has 3.4 defects (or fewer) per million opportunities. (An opportunity is a point at which a defect might enter the system. For example, when Marge hands a product to Steve on the assembly line, there’s a chance she may drop and damage it — that’s one opportunity for error.)

Six Sigma is far and away the most mathematically driven method for reducing waste and errors in your organization. Measuring your business from a Six Sigma perspective requires time, dedication, and company-wide participation, and it’s definitely not for everyone.

However, there’s a certain magic to seeing your company from a purely mathematical perspective. For one, it can transform a desperate situation into one that you can turn around. All you have to do is reduce ε in the equation y = f(x) + ε. That’s certainly easier to digest than a stack of overdue bills on your desk.

Measuring with a Balanced Scorecard

Too often, an organization begins a measurement process — deciding what to measure, gathering recent data points, digging up historical details, compiling them in spreadsheets, and performing various analyses — but then does not follow through on continuing to measure itself.

This not only sets the stage for having to start all over at square one two years down the line, but also causes participants to quickly lose steam when they see that the work they put into measuring never leads to any results.

Whether you’re 100 percent committed to Six Sigma or you’re content to just measure a few simple data points, you can use a Balanced Scorecard. This scorecard traverses three levels — the long-term, medium-term, and day-to-day — across four areas: productivity, knowledge growth and transfer, customers, and finances.

Going forward with measuring

The process of measuring at the start of a project is the same exact process you’ll go through to measure during, at the close of, and after a project. (Although it’s certainly easier to take subsequent measurements once you get all your ducks in a row at the start!)

Knowing this, you should always be mindful of ways to make it easier to take measurements in the future. For example, you can:

  • Set up automatic data exports from your software system so you don’t have to manually chase down data.

  • Request monthly summary reports from your vendors.

  • Have accounting enter certain expenses in a separate spreadsheet that you can quickly analyze as needed.

  • Create an Excel template to automatically analyze and compare your latest data points.

Discover pivot tables! Available in major spreadsheet programs such as Microsoft Excel and Google Spreadsheets, a pivot table can perform fast, detailed analysis on large data sets. Once you set up a pivot table the way you want it, it will continue to operate and update as you add to or modify the data behind it. For example, a pivot table of monthly sales totals will grow dynamically as you add new months’ figures.