Tag: measures

Building an Integrated Planning and Control System

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In the process revolution since WWII, we have seen every business function discover that input-process-output descriptions of activities followed by a “say what you do, do what you say, be able to tell the difference” feedback structure are the key to long-run success.  Firms need to evaluate and consolidate these planning and control systems into a single fully integrated system, since they are all attempting to reach the same goals using the same tools.  There are at least five different sets of systems independently active in most firms today.

Strategic planning systems operate at the highest organizational level, attempting to evaluate the situation, set direction, identify critical success factors, define strategies and key performance indicators, and approve major investments and projects.  More evolved frameworks, like the balanced scorecard, attempt to link strategic goals to operational performance.  Many firms have learned to link strategy to measures and projects.

Modern financial planning and control systems have evolved for more than 100 years.  Strategic plans are translated into long-term financial plans to guide borrowing, investment, operations and risk analysis decisions.  The financial plan is translated into a negotiated annual budget.   A financial performance management system evaluates managers against business unit, department, product, customer and project goals.  The key transaction processes are defined and monitored.

Risk management has evolved to become a separate discipline apart from classic P&L management.  Regulatory compliance and external financial reporting have become more technical and legal.  Internal controls have moved to secondary and tertiary levels of safety with an emphasis on “defensible positions”.  Emergency preparedness and disaster recovery have developed into new disciplines.  Risk management tools have evolved from insurance policies to include hedges, contracts and outsourcing.

Human resources systems have grown to become parallel factors.  The regulatory side has greatly increased the emphasis on compliance and risk reduction.  HR performance management systems have become linked to business performance through SMART goals.  HR has been charged with helping managers professionally address frequent change management issues.  HR has also become a senior management partner in attempting to create cultural alignment.

The process or quality systems approach has been the greatest innovator.  At the highest level, a management or total quality management system attempts to incorporate all activities.  The quality approach requires clearly defined customer goals.  All processes must be defined and documented at the staff and system level.  Operations measures are defined to provide simple and direct feedback.  Quality goals are set and quality improvement is defined as a separate goal.  Processes are defined within the generic framework of product, sales and delivery.  IT systems are positioned as facilitators, requiring technical and user documentation.  Individual application systems become more complex, incorporating best practices, but allowing many exceptions.  Change management becomes a sub-discipline, with growing project management expertise.  Process changes are driven by re-engineering, kaizen and continuous process improvement efforts.

Ideally, a firm defines and operates a single planning and control system which integrates the strategic, financial, risk, human resources and quality management dimensions.  Failure to integrate these components leads to added costs, political conflicts, waste and missed opportunities.  A performance management cross-team with representatives from sales, product management, finance, HR and operations is needed to coordinate this effort.

There ARE many components.  We need to overcome the desire to have a fully integrated system that encompasses all possible components as exhibited by the US military in their Afghanistan plans.

http://www.nytimes.com/2010/04/27/world/27powerpoint.html

Universal Measure of Quality

tomkapostasyLeave a comment
               
 Table of Standard Quality Levels         
               
   Mean             
   Tasks       Errors       
   Between   Error   Quality   Per       
 Level   Errors   Rate   Rate      10,000  Color     
               
            4             16 6.3% 93.8%         625  Infrared     
            5             32 3.1% 96.9%         313  Red     
            6             64 1.6% 98.4%         156  Orange     
               
            7           128 0.8% 99.2%           78  Yellow     
            8           256 0.4% 99.6%           39  Green     
            9           512 0.2% 99.8%           20  Blue     
               
          10         1,024 0.10% 99.90%           10  Indigo     
          11         2,048 0.05% 99.95%             5  Violet     
          12         4,096 0.02% 99.98%             2  Ultraviolet     
               
 
             
 All quality assurance measures can use the standard scale, levels and colors 
 shown above. The levels reflect the exponential power of 2 required to achieve   
 a given mean time between errors. For example, quality level 4 reflects 1 error 
 every 16 tasks, as 16 is equal to 2 x 2 x 2 x 2, or 2 raised to the 4th power in   
 exponential notation.             
               
 Once a process measure has been defined and the process observed to be   
 “under control”, without wide swings in daily error rates or significant one time 
 events, then the average error rate can be determined.  This will set the current 
 quality level.  For example, if the observed error rate is 2.3%, then the quality   
 level is 5, as level 6 at 1.6% has not yet been attained.       
               
 Moving from one quality level to the next higher quality level requires the   
 process owner to cut the number of errors in half.  This applies to each upward 
 step.  In practice, process owners can typically move up one step every 2-4   
 months using standard root cause analysis tools.         
               
 Once the measure for a process has been defined and approved by   
 management, then the process owner reports on the monthly measured error   
 rate. A master table should be maintained showing the current quality level for 
 each defined process, and the first date at which each level was achieved.   
               
 While the ultimate goal of any process is zero defects or errors, this   
 pragmatic, incremental approach has been shown to be most effective in   
 helping front-line staff members to own and improve their processes through   
 time.               
               
 Most unmeasured processes operate at quality level 4, with a 5-7% error rate.  
 Once a process is measured, the error rate usually drops to 3-4% very quickly, 
 at quality level 5.  Once a staff member is assigned responsibility, the move to 
 quality level 6 and a 2% error rate soon follows.  These first improvements can 
 usually be done by using common sense and a little more attention. Process   
 steps are usually documented and performed consistently at this level.   
               
 Moving to level 7 and an error rate below 1% is typically much more   
 challenging.  Staff members usually need to record the details of each error   
 and analyze the errors in a time period such as a week or a month in order to   
 identify the largest cluster of problems.  At this stage, the bottleneck   
 identification and elimination techniques described in “The Goal” are very   
 useful.  Identifying the type of error, the person, the product, the time of day,   
 the machine or other sources of variability commonly leads to rapid   
 identification of the greatest problem area.  Eliminating the bottleneck can   
 often be done through manual process changes, retraining, device calibration, 
 more frequent measurements, and changes in user settings.  While computer 
 system changes may be identified at this stage, it is best to attempt to use   
 manual changes first, until these have been exhausted.     
               
 Reaching the Yellow level of stage 7 merits some celebration.  Reducing errors 
 to below one in one hundred is an important milestone.  At this point, the   
 number of errors has been cut in half 3 times for an overall reduction of 85%.    
 Fully 5 out of every 6 errors that originally occurred have been eliminated for   
 good.  Some simple processes can move straight to level 7 within a few weeks 
 or months.  It is important for staff members not to became disappointed when 
 they do more of the same good actions, but “hit the wall”, and are unable to   
 move forward as quickly, if at all, at some point.  This is normal, but there are   
 always ways to go over, around or through the wall.       
               
 The progression to Green level 8 and Blue level 9 typically requires the   
 application of more advanced quality techniques and/or the revision of   
 computer systems.  For many processes, the Kaizen approach to rapid   
 process revision can work here.  The introduction of poke yoke or failsafe   
 devices, steps, and specialized tools is appropriate here.  Moving repetitive   
 tasks to the computer is common at this time.  Staff members should have   
 been trained in quality concepts, including the basic ISO tenets of say what   
 you do, do what you say, and be able to tell the difference.  Staff members   
 should be performing all of their own measurements.  Reliance on final   
 inspection should be diminishing, as staff work quality control steps into their   
 core process.             
               
 Until a process has reached Green level 8, it is typically unwise to attempt to   
 change the underlying customer service level that is desired.  Attempting to   
 reduce a service cycle time from 14 days to 10 days when a process is not at 
 least at level 8, is likely to lead to a reversion back 2 or 3 quality levels,   
 thereby offsetting the benefit of greater speed with lower reliability.     
               
 For most processes and customers, Blue level 9, with one error for every 512   
 transactions, is at or below the threshold of materiality.  Staff members should 
 be encouraged to apply their skills to move to the next level, but be warned   
 that further improvements often require additional invest- ments in equipment,   
 computer systems or a total process re-engineering effort, including adjacent   
 processes, suppliers and customers.  Staff members should focus their   
 attention on any processes which remain at levels 4-7, before they pursue level 
 10, where errors occur once in every 1,024 transactions.  This level is usually   
 reached by front line staff with 3 or more years of quality management   
 experience or those with access to quality specialists.