BSBMGT402 – Monitor Operational Performance Copy

BSBMGT402 – Monitor Operational Performance Copy


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Element 3: Monitor Operational Performance

Performance Criteria Element 3

3.1 Monitor performance systems and processes to assess progress in achieving profit/productivity plans and targets

3.2 Analyse and use budget and actual financial information to monitor profit/ productivity performance

3.3 Identify unsatisfactory performance and take prompt action to rectify the situation according to organisational policies

3.4 Provide mentoring, coaching and supervision to support individuals and teams to use resources effectively, economically and safely

3.5 Present recommendations for variation to operational plans to the designated persons/groups and gain approval

3.6 Implement systems, procedures and records associated with performance in accordance with organisation’s requirements.

Monitor Operational Performance

Monitor Performance Systems and Processes to Assess Progress in Achieving Profit/Productivity Plans and Targets

Now that we have examined the process of implementing a plan, let’s move on to look at how you can monitor the performance of your plan after it has been implemented.A plan is only effective if it meets the operational guidelines that were set out for it during the planning. If you remember back to the first element of this manual, we examined the process of establishing goals, timelines and objectives.

Monitoring takes this information and uses it as a basis for establishing just how well the plan is performing. If a plan is not performing well, steps need to be taken to find solutions to problems and implement changes to ensure that the plan is running smoothly. Let’s begin this element by looking at the process of establishing a performance management system.

Monitoring is a balancing act – you have to balance what you want to achieve – against any constraints placed against you in terms of budget and timelines.

Performance systems and processes may refer to:

• Informal systems used by frontline managers for the work team in the place of existing organisation-wide systems
• Formal processes within the organisation to measure performance, such as:

○ Feedback arrangements
○ Individual and teamwork plans
○ Specified work outcomes.

The Steps in Performance Management

Just like any system, performance management is a process. There are four key steps that you should take when developing your performance management system.

These key steps are:

1. Establish What Needs to be Monitored

Not everything needs to be monitored – if you were to monitor everything you would over monitor. Over monitoring will result in you spending all day pouring over reports and trying to make sense of huge amounts of data that in the end may not tell you anything about your current level of performance. Instead it is important that you identify and monitor only the activities that will have the greatest impact on your overall plan.

Ask yourself what are the most important aspects of your plan? What would be the impact if my plan did not work as expected? Where would I see problems developing? Where would I see the greatest improvements being made?

By answering these questions you can begin to establish what needs to be monitored. For example if cutting costs is of the greatest importance to you – you can monitor budgets, invoices, and establish costs to see if improvements are being made. Conversely if the most important thing is to improve sales – you could monitor sales data. If improved sales are important, there is very little
use in looking at costs as costs do not impact sales and thus you would be over monitoring!

2. Find Specific Measures

Previously we discussed how to establish what to monitor. Once you have determined what to monitor, you need to find specific measures that will allow you to actually monitor that attribute. You are looking for the answer to exactly what should be monitored. It is no good saying “we should monitor sales”. This is a good starting point, but exactly how do we monitor sales? Cash register receipts? Invoices? Sales are reported in our financial statements?

When thinking about the type of measure to use there are two major types that you should consider. They are:

• Lead indicators

This type of measure allows you to monitor a process while it is actually occurring. If there is a problem with the process, you can immediately look for ways of resolving it – in real time – preventing the problem from causing too many problems. They set out to tell you whether or not the targets of your processes are actually being met.

• Lag indicators

This second type of indicator measures how well the process is working – but the indicator will not show until after the process has completed a cycle. That is, you will not get any results until the process has been completed. This means in most circumstances it is less effective than lead indicators because you need to complete a full cycle before any changes can be made. By that time you may find that costs have already been incurred needlessly. Lag indicators often will not tell you why a process didn’t work – only that it didn’t.

These types of indicators can take many forms – you may have goals, performance standards, quality standards or key performance indicators.

3. How Did It Work?

The next stage in the process is to examine how closely the plan meets with the goals that you established for it. It is important to note that you should not expect perfection – as with any plan there may be some variation from expected results. What you are looking for is any significant variance between what you hoped for and what actually occurred. You must be able to decide when a variation is important and when it is not.

4. Take Corrective Action

The aim of this process is to continually improve your processes – thus the next stage of the performance measurement process is to attempt to find ways to improve the process based on the results of your monitoring. There are a range of actions that you can take when attempting to resolve a problem in your processes. You may use:

• Stopgap measures

This form of action attempts to take action that will resolve the issue temporarily while you look for a more permanent solution to the problem. This is a good idea if the problem is significantly affecting performance, but it is important to remember that you need to find a more permanent solution. It’s like the pies on a conveyor belt that you often see on TV – a stop gap solution may be to stop the pies temporarily – but something needs to be done in the long term before they begin to pile up and pile up and pile up!

• Corrective action

In this second form of action that you can take you attempt to remove whatever is having a negative impact on your plan. You get rid of what is causing the problem to bring performance back up to the level it should be. For example poor performance may be caused by a worker taking longer than normal to undertake a task – slowing down the whole process.

• Preventative action

In this form of action you aren’t just removing whatever is having a negative impact – you determine what the cause of the negative impact is and remove that. For example the poor performing worker may be having trouble due to lack of training – so a preventative measure could be to provide training.

• Adaptive action

In this form of action we aren’t looking at changing items in the process, rather we are looking at changing the process itself. Perhaps there have been changes in the economy that have reduced sales – or performance standards need to be changed. These types of action adapt the plan to suit changes in the environment.

• Contingency planning

In this final form of action – you are looking to turn around trends that suggest the plan will continue to perform poorly – or perhaps something has occurred that will adversely affect the entire plan. In these cases you must implement contingency plans (which you examined in the first element of this manual).

Now that we have examined the process of monitoring performance, let’s look at some of the methods that can be used for monitoring performance.

Analyse and Use Budget and Actual Financial Information to Monitor Profit/Productivity Performance

Monitoring Finances

Money makes the world go round – and in operational planning, money is often everything. Often it is financial monitoring that can reveal where major problems lie – and also suggest ways of improving overall performance. We will look at some of the most important tools in monitoring financial performance in this section.

Analyse and Use Budget and Actual Financial Information to Monitor Profit/Productivity Performance

Monitoring Finances

Money makes the world go round – and in operational planning, money is often everything. Often it is financial monitoring that can reveal where major problems lie – and also suggest ways of improving overall performance. We will look at some of the most important tools in monitoring financial performance in this section.


We will begin this discussion with an examination of budgets and how they can be put to use in monitoring performance. Basically a budget is used to collect information on estimated costs of a plan. It will provide estimates of the costs of the various resources and it may also be used to estimate sales and other items. A budget gives a target in dollar terms – and requires that this be met as much as possible.

The key use of a budget is in preparing a variance report. A variation report sets out to compare actual sales and spending against budgeted figures to find a percentage variance. This figure can then be used to find areas where improvements can be made. So, once you have prepared your budget, you need to look for variance – this could be done at the end of each day, week or month depending on the type of budget being prepared. What you are doing is comparing the budget against actuals. This will highlight any positive and negative variation – which can be used for further analysis.

Budgets contain information of your financial goals over extended time periods. They are best guess estimates. As a manager you must try and juggle what you have in order to produce the highest level of performance.
Other Financial Statements

While outside the scope of this manual, there are a wide range of analysis tools that can be applied to the most common financial statements. This can provide valuable information on performance over a long period of time and reveal important trends.You can apply such analysis to:

• Balance sheets

This financial statement takes a snapshot of what the company owns and what they owe on a certain date. This information can be used to provide a look at the financial stability of the organisation.

• Cash flow statements

This statement examines where cash has come from and where it has gone.

• Profit and loss statements

This type of financial statement attempts to determine whether a profit or loss was made by the organisation.

You can apply variance analysis as well as ratios and formula to these statements to determine where problems lie.

Variances and What They May Mean

Now that we have looked at the various types of financial statements and how they can be used to determine where variations lie – let’s look at the types of variation that may occur and what they may mean. Variations from budget and from previous years may occur in a number of key areas.

Variances can be thought of as a gap between where we are and where we want to be.


Identify Unsatisfactory Performance and Take Prompt Action to Rectify the Situation According to Organisational Policies

The Performance Gap

When examining performance you should concentrate your efforts on overheads, materials and labour.

• Overheads

Overheads are any expense that is not directly attributable to a specific product or service offered by an organisation. For example power, telephone services and office supplies are all integral to keeping an organisation running – but you cannot directly attribute the cost of these to a specific product or service. Changes to your overheads could be the result of many factors – and it is important that you try and determine where the problem lies. For example if telephone costs go up – but you are working the same amount and producing the same quantity – you need to find out why this is the case.

• Materials

Material costs can rise for two major reasons. You can be using more of the materials or the materials can be costing you more. Determining which of these is the major factor is relatively simple. What is more difficult is determining why the factor changes. Material usage can be caused by defects and rejects. This in turn can be caused by poor quality materials, workmanship, damage, theft or
tools not being right for the job. Price variances are normally out of your control as it is the supplier who will dictate the price. However you can bring back some control by attempting to set long term price contracts that allow you to have a set price for an extended period of time.

• Labour

Once again there are two major factors at play here – the cost of labour and the amount that you use. Like materials – there are a range of reasons why you may be using more labour – staff absenteeism, idle time due to delays, poor workmanship, poor materials, equipment breakdowns and such.

Provide Mentoring, Coaching and Supervision to Support Individuals and Teams to Use Resources Effectively, Economically and Safely

Improving the Performance of Your Staff

Up to this point, we have examined the process of improving your plan. However there may be times when it is not your plan that is at fault – rather it is your staff whose performance may be causing the plan to falter. What can you do in these circumstances?

• Coaching

Coaching is a process whereby an employee is provided with feedback – this feedback is of a specific nature and is intended to assist the employee in finding ways of improving their current levels of performance.

• Mentoring

Mentoring is used to help employees who show promise – but that promise is not backed up by performance – this often is due to personal problems, lack of confidence or motivation. The mentor is an individual who is more experienced at the job and who can offer a place to turn to for guidance and assistance.

• Training

If a problem is related to lack of knowledge in a specific skill – training becomes a very important tool. Training is used to improve skills or knowledge in a specific area – but of course if the problem lies elsewhere – for example a lack of motivation – training will not be a great deal of help.

Present Recommendations for Variation to Operational Plans to the Designated Persons/Groups and Gain Approval

There will be times when you can see how a change in the process will allow for improvement. It is your responsibility to communicate and implement these possible changes. You will need to inform those work groups or teams and groups designated in workplace policies and procedures. You will also have to discuss with those who have the authority to make decisions and/or recommendations about operations such as workplace supervisors, other managers.

Before you begin communicating, it is wise to follow a plan that will make it easier for others to understand your motivations and suggestions and to ensure that how you see it is appropriate and useful.

1. Clearly Understand the Current Process

One of the most important questions to ask at this stage is “Why is the process in its current state?” All too often, we see individuals try to drive change without understanding what caused the process to become the way it is. It is a sign of lazy analytics if the change proposer assumes the process is flawed because individuals who designed it were lacking in process design knowledge. Perhaps the changes we seek are only possible because of new technology or change in supplier. Regardless of the reasons, we need to understand the lineage of the process to avoid past mistakes. Additionally, we need a readily communicable model of the current process. If the organisation is ISO-certified and fully compliant, a good documentation of the process should be readily available.

2. Clearly Understand Why a Change in the Process

The typical reason for process change is either cost reduction or variation reduction. For cost-reduction changes, a good cost deployment is essential. For variation reduction, the change agent should know whether random variation or special-cause variation (or both) is to be eliminated. Typically special-cause variation with rifle-shot solutions (turn off the special cause and we turn off the variation) can be erased. For random variation, typically increased capital expenditure (except in the cases of very sloppy processes) is needed to decrease variation.

3. Know Precisely the Change to be Made

Once the current process is found to be deficient in some way, the new process should be articulated clearly and concisely. This may be in the form of a text-based document, a flow chart or other organisation-appropriate form of documentation. Sample testing of the documentation to ensure clarity is important. Can operators look at the document and explain back to you how the new process will work? Do several operators understand the documentation the same way, or do they interpret it differently? Documentation should lead to clear understanding with little to no operator-to-operator interpretation variation.

4. Seek Feedback and Attain Buy-in from All Affected Stakeholders

In a forum of your choice (tail gate meeting, posting with opportunity for anonymous feedback, intranet etc.), the new process should be expressed to  all individuals who are affected by the change. This includes all individuals who provide an input to the process as well as those who receive an output from the process. Will they be affected in a meaningful way? Will the change cause unanticipated results in their portions of the process? Will this process change add value (or eliminate value-destroyers) for the customer?

5. Re validate Process Protocol, Data and Measuring Systems for the Change

At all times, we should be certain that processes are followed, data is reliable and our measuring systems are capable of providing data we can use to make good managerial decisions. That said, once we ‘shine the management light’ on the process we are working to improve, change can occur that makes it necessary to re-validate our behaviours, methods and measurements. Before driving the change in our process, we must ensure that the process that’s in place is adhered to properly. This alone can drive significant reduction in random variation. Once we’re certain of strong process discipline, we should measure the process once again and ensure that we are obtaining reliable data from our measuring systems. If necessary, a good review of rules and regulations should be conducted to ensure quality and reliability of data.

Implement Systems, Procedures and Records Associated with Performance in Accordance with Organisation’s Requirements

Procedures play a crucial role in embedding processes into the day to day operations of your organisation. Providing information, training or mentoring will ensure that all employees understand what is expected of them. Another crucial factor is making sure that the procedures are applied consistently. This requires commitment from employees to apply the procedures and from management to allocate the time and equipment needed.

Gaining the input of staff is essential. They are likely to have good ideas about how to reduce waste and increase efficiency. They are also more likely to follow procedures consistently when they have had a hand in designing them and really understand them.

A full set of Standard Operating Procedures (SOPs) that capture your sustainable practices will help the process become the ‘norm’ with everyone knowing what is  expected of them.

SOPs may include:

• Databases and other recording mechanisms for ensuring records are kept in accordance with organisational requirements
• Individual and team performance plans
• Organisational policies and procedures relative to performance.

Workforce Planning

Workforce planning can help to ensure you have the right people with the right skills who are available where and when you need them. This means analysing your current job roles and available skills and your future needs for specific skills. You can use this comparison to design new job roles and amend existing jobs to meet your needs. You can also use it to plan and budget for recruitment, training and development.

Ideally this is not a one-off or standalone process. To be effective your workforce planning should:

• Be integrated with your business goals
• Incorporate analysis of current and future operations, major projects, culture change
• Be reviewed to align to changes in direction
• Allow time and opportunities for skills development
• Inform the design of your job roles and your recruitment activities.

Retention Strategies

Staff retention is another workforce issue that needs to be considered. High staff turnover can damage your reputation and can make it harder to recruit the right people. Recruiting staff is also costly when you consider advertising costs, time spent culling and interviewing and the time and money invested in training new staff.

Retention strategies are often aligned to workplace issues. You may need to address workplace bullying and discrimination. Or you might be able to improve retention rates by establishing a culture of collaboration and providing structured staff development and progression opportunities.

You might identify other benefits of value to your staff, for example, improvements to lunch rooms and recreational areas or improved transport and parking options.

Recognising and rewarding the contribution of staff can be a powerful retention strategy. You might want to establish training programs and award nationally recognised qualifications as a way of rewarding staff as well as building their skills and knowledge. You might also build on your continuous improvement systems and ensure that useful staff suggestions are recognised and put into practice.

Workplace Culture

Managing your workplace culture can encourage your team to work together to achieve your business goals. Defining the organisation’s values so that they are aligned to your process goals is the first step. Making sure these values are reflected in decision making, management practices and operating procedures will help to establish a workplace culture of shared values and clear expectations of attitudes and behaviours.

Clear expectations for acceptable practice will encourage individuals to apply procedures such as turning off lights and can encourage suggestions for further improvements. A culture that respects and values the different views, experiences and cultures of employees and that actively encourages their participation in the organisation will support your commitment to the change and can encourage staff commitment and loyalty.

You may be in a position to make minor changes that will support a better workplace culture. You might use performance reviews and goal setting to encourage consistent behaviours and procedures. You could set up a reward system for employee suggestions that are implemented or teams that achieve sustainability targets. Reinforcing your values and expectations in team meetings, toolbox talks and newsletters will also help to embed your desired culture.

Some culture improvements may be more challenging and you may need to use a structured change management approach. Over time this can be effective in shifting attitudes and transitioning individuals,  teams or organisations to a desired state. The organisation may even want to consider employing a specialist in this area.

Note that the term ‘change management’ is also used in project management where it refers to a formal process for approving changes to the scope of a project.

Managers and business owners have the most influence as role models, but everyone in the business can play a part in demonstrating the organisation’s values and acceptable behaviours.

If you want your workplace to be based on respect and collaboration there are practical things you can do. You can make sure you give constructive feedback that is based on the work rather than the person and give people the opportunity and support to get it right. Listen to suggestions from all employees and show how you have used their input. You can also learn how to respond to conflict using negotiation and listening skills.

Operational Procedures

Improving your process does not mean you have to create a whole set of new procedures. It’s often about identifying the areas that need updating and planning how to incorporate your improvement focus into existing procedures.

You might decide to update your standard operations procedures to specify practices and equipment optimisations. Or it might mean spelling out new requirements for purchasing materials or contracting suppliers. You might be aware of areas where you are falling short – this might be in terms of compliance requirements, community expectations or customer value. You may want to focus on Work Health and Safety (WHS) so that you reduce the risk of incidents and the associated costs. In this instance you may need to document and communicate new procedures; but you might also need to plan for appropriate WHS training and examine whether your management practices or workplace culture contribute to unsafe practices.

You might want to minimise waiting time and reduce the movement of work or workersto be more cost effective and reduce energy consumption. You will need to plan your stakeholder consultations to include the right input (shop floor workers, equipment manufacturers). You will also need to plan how to allocate the personnel and time to develop, trial and refine the new systems.

You may not be in a position to make decisions that impact on the whole business however you may already be aware of small changes that can be made in your area. You may know that by simply moving a piece of equipment or the storage location of frequently accessed items the amount of time it takes to collect those items will be reduced – instantly increasing efficiency. Perhaps you and your team can be the champions who show the rest of the organisation how small changes to procedures can have an impact across the whole organisation.

Improving in your organisation does not have to mean making big, expensive changes to your SOPs it can simply mean ‘working smarter’.

Key points

• Monitoring a process involves implementing a performance management system.

• A performance management system involves assessing the progress a process or plan is making towards its targets.

• Budgeting and financial information can be used to monitor profitability and sales performance.

• Wherever you have noticed unsatisfactory performance, you must take prompt corrective action to resolve any issues that exist.

• Mentoring and coaching can be used to improve performance of staff members.