Flash Report » Productivity Section

The Purpose Of The Productivity Section

A major issue that businesses of all sizes face is the inability for the Operations people to connect with the Finance/Accounting people and vice versa.

The Productivity Section seeks to address this disconnect by measuring and tracking certain metrics that both Finance/Accounting and Operations can agree upon.

By identifying and monitoring these non-accounting metrics, management can now manage the productivity of the company in a more meaningful way.

How do you get these metrics? An important by-product of this process is the communication process that both Finance/Accounting and Operations must have with one another. In essence, coming up with these metrics forces each party to “stand in the other person’s shoes.” In so many ways, this section is the most difficult to create, but it is by far the most powerful section.

For companies that have multiple profit centers, it may be worthwhile to have the metrics grouped by profit centers.

Who Produces The Productivity Section?

The controller/CFO sets it up. Then someone in the client’s accounting department inputs the information into the template. The majority of the metrics should be formulas.

How The Productivity Section Produced

Since the goal is to tie operations to financial numbers, it is important to come up with operational metrics that will have significant impact on the financial performance of the company.

Step 1

It is important for both the operations and financial departments to both grasp the general economics of the firm. Some key questions to ask are:

  • What are the key drivers of the business?
  • What/Where is the process bottleneck? How can we measure the bottleneck?
  • What are the unit economics of the business?
  • What is the breakeven point for the business? (Note: Breakeven may be done on a dollar basis or unit volume basis)

Step 2

Map out the business process. Ask yourself how does each part of your business contribute to the key performance indicators identified in step one?

Step 3

Come up with business metrics that tie in the unit economics of the firm (Step 1) to the business process (Step 2).

Out of this process you will come up with several metrics that will indicate how the business is doing. These metrics may not relate directly to dollars, but indirectly they will. Two great ways to approach this is to look at process bottlenecks and sales in terms of volume (i.e. # of feet, # of barrels, # of units).

Focus only on the most important metrics. Four to five will do. If you focus on too many, then it will be hard to measure and difficult act upon.


Here are some examples for various businesses:

  • Consulting Firm » Average Bill Rate

  • Jet Refueller » Gallons Per Aircraft Fueled

Step 4

Also find some metrics that tie your business process down to the employee level. Relating this to the employee gives management a way to see how each employee contributes to business performance.

Here are some examples for various businesses:

  • Construction Firm » # of Active Projects per Employee

  • Construction Firm » Construction Cost per Employee

  • Consulting Firm » Hours Billed per Employee

Step 5

Review and monitor your results. Graphing the results may also be a very effective method to see what is going on in the business process.

Variations Of The Productivity Section

In the spirit of flexibility, the Flash Report can and ought to be customized to fit each company’s needs.

[box] Existing Financial Leaders: The basic format of this Flash Report is just that… A basic platform to help get you started. Feel free to customize it to meet your specific needs. [/box]

For the Productivity Section, some companies have also added the following items:

  • Metrics for each Product Line or Business Unit
  • Separated out FTE employees versus Sales Employees
    • Ex: Sales per Sales Person, Sales per Full Time Employee


 

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