Performance Management. IPMA Personnel Development Presentation 03/18/2009

Transcription

1 Performance Management Overview IPMA Personnel Development Presentation 03/18/2009

2 Why Are We Here? To explore proven strategies that can help you meet service requirements while reducing costs in a challenging g economic climate.

3 Gary Cokins B.S. Industrial Engineering & Operations Research; Cornell University, 1971 M.B.A. Finance & Accounting; Northwestern University, Kellogg Graduate School of Management, 1974 Previous Associations: - FMC Corporation - Consultant with: Deloitte, KPMG Peat Marwick (Bearing Point), & Electronic Data Systems [EDS] (AT Kearney)

4 Chris M. Pieper Chief Executive Officer, Alliance Enterprises 18+ years as a Chief Executive of technology based software companies Recognized thought leader in cost management, process optimization, and performance management Previous associations: Founder, Chairman and CEO, ABC Technologies Founder and Chairman, BetterTechnologies.com com

5 Explore Two Management Initiatives Activity Based Cost Management (ABC/M) Management by Objectives (MBO)

6 A Timely and Relevant Discussion Challenging economic times Fewer resources to deliver required services New requirements regarding Transparency, Performance Management and Cost Reduction

7 A Timely and Relevant Discussion Difficult economic times. Fewer resources to deliver required services. New requirements regarding Transparency, Performance Management and Cost Reduction. In response management will: Focus on cost reduction initiatives Look for rapid returns Seek ways to do more with less Make decisions based on the data available

8 ABC/M - Background Popularized in the late 80 s / early 90 s Better way to allocate overhead Management focus vs. Accounting focus Chart of activities vs. chart of accounts Approximately right vs. accurately wrong Cost accounting for service organizations

9 Chart of Accounts vs. Chart of Activities

10 Six Digits of Implied Accuracy $3.50 $ % $ Product Cost Report:

11 Traditional Accounting $ $500,000 Metal clips Pink vinyl coated Costs allocated based on volume (typically based on labor)

12 Activity Based Cost Accounting $ $500,000 Bending metal Working with suppliers Vinyl coating $25K Metal clips Pink vinyl coated We would do better to stop production and just mail the customer checks.

13 Complexity Activities Costs 1,000%+ % Distortion per unit ABC Reported cost to low 0% 0% 20% Reported cost to high Traditional Costing Rank-ordered Products/Services Simple Products / Services High Volume Complex Products / Services Low Volume Bad information Bad decisions Bad results

14 Creating Value in a Down Economy 500% Cumulative Profit By Customer Identify and eliminate that which destroys value Earned income 80% The best 20% of customers contribute profits equal to 500% of earned income 60% break even at best The worst 20% destroy 400% of earned income An interview with Dr. Peter B.B. Turney, Author of Common Cents

15 Financial Accounting Exercise Traditional Chart of Accounts SALARIES $371,917 FRINGES $118,069 10% cut? SUPPLIES 76,745 FIXED COSTS $23,614 TOTAL $590,345

16 Financial Accounting Exercise Traditional Chart of Accounts SALARIES $371,917 FRINGES $118,069 SUPPLIES 76,745 FIXED COSTS $23,614 TOTAL $590,345 Actions? Eliminate jobs Furlough employees Reduce fringes Cutback on supplies

17 ABC/M Search For Better Information Traditional Chart of Accounts SALARIES $371,917 FRINGES $118,069 SUPPLIES 76,745 FIXED COSTS $23,614 TOTAL $590,345 ABC/M Bill of Activities i i Process sales order $144,846 Source parts $136,320 Farm management $72,143 Expedite internal process $49,945 Resolving supplier complaints $47,599 Reissue purchase orders $45,235 Expedite customer orders $27,747 Schedule intra-company sales $17,768 Request engineer change $16,704 Restacking pallets $16,648 Schedule parts $15,390 TOTAL $590,345 5

18 Special Activities (management surprises) Traditional Chart of Accounts SALARIES $371,917 FRINGES $118,069 SUPPLIES 76,745 FIXED COSTS $23,614 TOTAL $590,345 ABC/M Bill of Activities i i Process sales order $144,846 Source parts $136,320 Farm management $72,143 Expedite internal process $49,945 Resolving supplier complaints $47,599 Reissue purchase orders $45,235 Expedite customer orders $27,747 Schedule intra-company sales $17,768 Request engineer change $16,704 Restacking pallets $16,648 Schedule parts $15,390 TOTAL $590,345 5

19 Identify Non-Value-Added Activities Traditional Chart of Accounts SALARIES $371,917 FRINGES $118,069 SUPPLIES 76,745 FIXED COSTS $23,614 TOTAL $590,345 ABC/M Bill of Activities i i Process sales order $144,846 Source parts $136,320 Farm management $72,143 Expedite internal process $49,945 Resolving supplier complaints $47,599 Reissue purchase orders $45,235 Expedite customer orders $27,747 Schedule intra-company sales $17,768 Request engineer change $16,704 Restacking pallets $16,648 Schedule parts $15,390 TOTAL $590,345 5

20 Data to Make Informed Decisions 30% to 40% of total costs are NVA Exposes snake-trails root cause of NVA that t resides in other departments t Provide acceptable & understandable detail for chargebacks Determine if/where outsourcing can be beneficial Source: Shared Services News Small opportunities can add up quickly to the 6 and 7 figure range

21 ABC/M Will Identify Opportunities Discovered a total t of $252,000 in repair costs associated with a single garbage truck (originally purchased for $90,000) taxpayers cost of $39 per mile. Determined that duplicating rolls of 35mm film was costing the department e t $15 per roll, while market rates were e $7 to $9 per roll. Better information Better decisions Better results

22 ABC/M Lessons Learned Activities cause costs not people Cost reduction opportunities are abundant Up to 40% of activities are non value added Quick wins surface ( surprises to management) Employees provide the best cost reduction ideas Fire the NVA activities and invest in VA activities Need a sustained effort to realize cost reduction Management participation in the process is critical

23 Next: Cost Reduction Requires Action An MBO process should: 1. Define success in terms of measurable outcomes 2. Keep the organization focused on achieving the set goals 3. Recognize and reward success Most organizations are good at developing strategy, they are just poor in implementing their plans.

24 Case Study - Alliance Enterprises Develop and implementation software Manager of Application Services Department Multiple customers, multiple products Push to reduce costs Similar economic issues you may be facing.

25 Where We Were Set objectives and planned semi-annually Companywide objectives Developed by managers with input from staff Always more than we could do, frequently changed mid time-frame Finished most objectives on time, but at what cost?

26 MBO s How it Works at Alliance 1 Develop Objectives 2 Review and Approve Strategy: 3 4 and peers Present and Share 5 Lessons Learned 7 Repeat Review Progress 6 Present Results 1. Managers develop objectives and negotiate buy-in from direct reports d 2. Management meeting to present, discuss, review and approve quarterly objectives 3. Present objectives to all team members our shared definition of what is success

27 MBO s How it Works at Alliance 1 Develop Objectives 2 Review and Approve Execute: 4. Weekly review of progress against objectives staff meetings, one-on-ones d bli iti h t is success. 3 4 and public positing what Present and Share Review Progress 5 Lessons Learned 6 Present Results 7 Repeat

28 MBO s How it Works at Alliance 1 Develop Objectives 2 Review and Approve Review: 5. Quarter end peer review and open discussion of successes, short falls and l l d 3 4 lessons learned Present and Share 5 Lessons Learned Review Progress 6 Present Results 6. Presentation of results to all team members celebrate our successes 7. Repeat the process each quarter 7 Repeat

29 Alliance MBO example Use Excel Template Big Idea goal followed by specific objectives Owner indicates project lead Notes capture status and issues

30 Lessons Learned Quarterly cycle works better than semi-annual Stretch objectives accommodate non mission-critical good ideas Process involves everyone at appropriate level Reviewing weekly keeps everyone on task When new objectives arise, evaluate and schedule for next quarter We accomplish an amazing amount of work and stay on track!

31 Next Steps ABC/M! Train department staff Complete list of activities (maximum of 50) Develop ABC/M Model Services Customers Discover results

32 Using Objectives to Focus Efforts Identify short-term objectives to be completed quarterly Employees want to succeed they set aggressive goals A great tool to develop and communicate strategy A framework to maintain focus and avoid rat-holes That which gets measured gets done Learn from losses and celebrate wins Fosters a culture that encourages process improvement and cost reduction

33 Presenter Contact Information: Chris M. Pieper Chief Executive Officer Lisa Gifford Executive VP, Application Services