Identifying the right place to focus your energies as an operations manager can be challenging. This is especially true if the team reporting up into your organization is highly distributed across many locations, global in nature or includes a cross-functional set of departments.
One method to help you identify where you should focus your attention is to look at where the money is. You can do this quickly through some very rudimentary financial analysis. For example, how many people are focused on which tasks? Because payroll and employee related expenses are usually a relatively high percentage of total spend in an operational P&L[1], finding where the largest percentage of your total expenditure is focused is a logical place to start.
With that said, simply looking at total headcount by department will not be enough. Operations managers will need to complete, or have their management teams complete, a thorough analysis of all of the tasks performed by each team member and the amount of time needed to complete each task. In a physical factory type environment, this can be relatively easy. This is also true in a monolithic department that produces one singular output. Most of those tasks can be measured either as physical output (i.e. “widgets”) or through a single system (i.e. number of records entered into a database). The main idea here is to identify each individual unit of work where a unit of work is a task, or group of tasks, that result in a specific repeatable outcome.
For teams that are “non-production oriented” or where multiple functions are performed by team members an alternative method must be employed. This can take the form of formal or informal surveys, sampling exercises or by logging time into a time management system. In the latter example, the output will be a more complete data set to analyze where you have percent of time spent measured against a listing of possible tasks. In the former methods, you will have a smaller, or less complete, sample set that you can leverage to extrapolate cost breakdowns. Either way, you will need to validate your conclusions through direct engagement with your team.
All of this analysis should be reflected in your P&L. One mistake that many operations managers make is that they use their P&L as a reporting tool instead of as a management tool. What’s the difference? Well, a reporting tool is something that you will update periodically in order to convey information to others, usually your management. A management tool is something that you use to ensure that you are operating within acceptable parameters.
Of course, depending on how your company manages its financials, this may be easy or hard. Usually, unless you are self-employed, your financial statements will be produced by someone in your Finance department. Using the monthly statements as a baseline and then managing a separate tracking spreadsheet to register the incremental costs and realized savings between reporting periods will make it easier for you to monitor those spending areas that are most impactful to your world. In short, you will always have visibility into where you are spending the most money. This can help you identify some areas where your attention is required.
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[1] Profit and Loss statement, or summary of revenues and offsetting expenses. Most operational P&Ls include only costs.