Operational Efficiency

This is another metric used to test if the organization is truly profitable. It's definitely a big picture metric, but a good manager/supervisor/CEO will always know this number. It essentially tests how efficient the work input was against the actual output of the organization.

The Formula:
Operational Efficiency = (Work output ÷ Work input) x 100%

Why is this number so important? There have been many companies in the past that, despite good sales, simply are struggling to break even. This could be due to many reasons, but knowing how efficient the operations are could help to narrow down the search. On the other hand, even if a company is doing well, it still wouldn't hurt to know this figure given that there may and probably still is room for growth. In the end, no business should waste any resource that they have available. #KnowYourNumbers

What this looks like:

  • Set objectives and make sure the team knows the benchmark.
  • If specific jobs need to collaborate, then put them near each other.
  • In manufacturing, make an assembly line, building and rearranging where necessary.
  • Identify where the waste is occurring and eliminate it.
    • Setup and maintain a maintenance schedule (properly maintained tools function better).
    • Eliminate bottlenecks (no one should be held up from completing a task because someone else needs to finish their job).
    • Clean up and organize workstations (clutter makes it difficult to find things).
  • Continuously monitor and manage performance
  • Provide better support to the employees

What to remember: just because money is coming in doesn't mean that the company is operating at maximum efficiency. To be profitable and sustainable in the long run, a company must eliminate the waste.