DERIVATION OF OPERATING EFFICIENCY LEVELS ETC.

3-17-13 Updated in green on 6-25-16

INTRODUCTION

Operating Efficiency is the Percentage Ratio of Total Cost of Goods or Services Prepared Perfectly, to Actual Total Cost to Prepare Them.

 The operating efficiency levels for the Iowa Department of Education (DOE), Department of Transportation (DOT) and the Department of Administration and Regulation--and levels for other organizations were prepared in the same manner using similar methods--many at the request of a State Senator.  Some were made at the request of others and are now performed primarily by Iowalive professionals using the following methods.   The operating efficiencies for Iowa State Government organizations, including that of Governor Vilsack's office (19% efficiency) were posted on our website for all to see.    The Governor was upset and challenged the numbers.   As a result, his consultants reviewed the numbers and found them to be very good--and they also noticed our statement asking anyone claiming to have better numbers to provide them.   The Governor had no numbers--and dropped his challenge.   The consultants than contacted Iowalive net workers to learn how the numbers were derived--and were satisfied with what they were told, much of which appears below. 

The Governor's behavior is a classical example of a person having no performance measures, falsely assuming he and his organization are performing perfectly, with no room or need for improvement--and attacking anyone suggesting otherwise.   Such a person is justifiably identified as an "obstacle to performance improvement" and must be overcome or removed, before improvement can be realized. 

Before you read further, please be advised that over the past several years, Iowalive has developed an extensive data base and powerful algorithms that render the derivations much more quickly and accurately.  No one has claimed to have better numbers--or algorithms. 

The methods used include, but are not limited to the review or use of:  Comparative analysis, assessment worksheets, observations, parametrics, processes involved—and their complexity, total equivalent head counts, budgets, plans, annual reports, performance reports, experience, intuition, interviews, knowledge of people involved, trends, cycle times (Queue –To- Do ratios), QUICK LOOK (a proprietary assessment tool) , surveys, student test scores, cost per student, state, national and international rankings, job placement and acceptance rates, salary levels, number or percent of students at Iowa grade level, and polls. 

 Individuals can familiarize themselves with the concept of performance and operating efficiency by asking themselves questions such as these at the end of a day’s work:  what results did I accomplish, were they accomplished as expected, what did I complete, what did I decide, what problems did I solve, what did I improve, how much was it improved, how much savings will result from the improvement, what do I expect to accomplish, complete, decide etc. tomorrow?  Additional questions related to organizations are listed below.  Similarly, individuals who know the total hourly price their customers or taxpayers pay (including benefits) for their effort or results produced--are more efficient and productive than other individuals.   The most highly productive individuals often consider if they would pay themselves full price for a day’s work or results they produced.  

 By listening to insiders or workers tell how much of their time is wasted, or the percent of their time and efforts (and that of others) that produce value to those paying for it, provides exceptionally good insight into an organization's operating efficiency level.  Similarly, a manager’s knowledge (or lack of it) of the efficiency level for his or her organization reveals much about the performance of that organization.   Efficiency level is defined as the percent of total time, effort or dollars consumed that produces value--generally to those paying for it.  Time and effort are normally converted to dollars for consistency in determining efficiency levels.

 As a general rule, organizations operating at or below 40% efficiency --continually request more funding, and use lack of funding as an excuse for many problems they have not seriously attempted to analyze or resolve, or that they do not understand.  

 GENERAL RULES

 There are some other general rules related to operating efficiency levels.  For example:  The easier it is to measure inputs and outputs, the more efficient an organization operates (inefficiencies are easier to find and more difficult to hide).  Also, the more comprehensive an organization’s improvement plans are, the greater the operating efficiency of the organization.  Comprehensive improvement plans have measurable objectives, milestones, processes and the process performance measures involved--and name the person in charge, as a minimum.

 Competition generally increases operating efficiency level, as do performance standards, process control limits, use of process and performance improvement specialists, trust, performance tracking, shortage of funding, shortage of employees, incentives, profit sharing, emphasis and use of process performance measures, management focus on performance, comprehensive plans, measurable objectives, continuous performance improvement, zero based budgeting, use of operating efficiency numbers to manage, availability of performance data, recognition of greatly improved process and employee performance, tying salary and promotions to performance etc.

 Not many of these were reported or readily observed in the public sector organizations evaluated to date. 

 SIGNIFICANCE OF EFFICIENCY LEVELS

 The efficiency levels are significant to:

 1.            Determine where the most benefits would likely be produced with improved management and processes.

 2.            Serve as baselines for determining improvement, or the lack of it.

 3.            Create an awareness for operating efficiency levels and performance

 4.            Show that efficiency levels are far less than 100%, the level which is commonly and incorrectly assumed by                 those seeking 'more funding' for whatever reason.

 5.            Identify managers of highly efficient organizations and to give them more responsibility and authority.

ORGANIZATIONAL QUESTIONS

The following questions and their answers can be assessed to determine the approximate operating efficiency level for an organization.  “They” refers to an appropriate person or more in the organization.

1.      Is there a measurable mission statement or purpose?

a.       Is it used to establish priorities, measurable objectives and to prepare plans

b.      Do people fully understand the significance of the mission statement or purpose?

2.      Is the organization a monopoly or is it operating in a competitive environment?

a.      How competitive is the environment?

b.      How successfully is the organization competing?

c.      Is the organization managed like a business or a hobby?

3.      Do they welcome and say thank you for performance improvement suggestions?

a.      Do they become defensive at such suggestions and attack the messenger?

b.      Do they implement few or most of the suggestions, and include the suggester when giving credit for the improvement?

4.      Are there process specialists involved with making process improvements?

a.       Are they aware of Design of Experiments, as documented on pages 14.1 through 14.140 in  Handbook of ‘Statistical Methods for Engineers and Scientists’ by Harrison M. Wadsworth or equivalent?

                               i.      Note: Design of Experiments is the tool of choice for determining the level of significance of various parameters involved with a complex process.

b.      Are process performance measures in use?

c.      Are process control limits in use?

d.      Are the most vital processes to the organization identified and documented?

5.      Who specifically is in charge of and held accountable for improving effectiveness and efficiency?

a.       Are all aware of who is in charge?

b.      Are performance improvement expectations emphasized and fully understood?

c.      Are obstacles to progress identified and removed or overcome?

d.      If “ALL”  are claimed to be in charge, then no one is in charge.

6.      Are there efficiency improvement plans being prepared and implemented?

a.  Have improvement plans been implemented in the past year?

b.   Have any improvement plans ever been successfully completed, with all objectives accomplished?

c.  Do all plans include measurable performance objectives, measurable results expectations and milestones for achieving them?

7.      Are trend charts used to show performance levels—past and expected?

a.  Are these charts emphasized and made available for all to see?

8.      Are the concept and meaning of value-added effort clearly understood?

RECOMMENDATIONS

 It is recommended that you carefully review and think about efficiencies and projected results and how they affect you, your children, friends, and neighbors.   What are the operating efficiency levels of public institutions or where you work?  Are they adequate to support your continued employment, and economic growth of the organization or community in which you serve or reside?  If anyone claims to have better numbers than those derived with the above methods, bring them forward for comparison, evaluation, and discussion.   It would be somewhat disappointing to learn the numbers derived, with the methods herein presented, are the only numbers available--and are therefore the best in the world!!