Operational Analysis and Measuring Employee Effectiveness
At the core of every business is a set of steady-state assets that keep the whole operation running. These assets include everything from employees to equipment.
These assets take a fixed amount of money from your profits every month, and ensuring these assets are necessary and beneficial is crucial.
Operational analysis is the process of measuring the performance of a steady-state or operational asset against an established set of metrics, usually a set of costs, performance parameters, and schedule.
Conducting operational analysis allows you to determine if the employees you hire, the equipment you buy, or the spaces you rent are contributing to your business goals.
Why it's important
Operational analysis has a multitude of benefits that help a business operate to its fullest capacity by uncovering any harmful business practices.
Operational Analysis allows a business to:
Optimize efficiency of employees - by identifying employees strengths and weaknesses
In a small business, employees have to perform a variety of different jobs. By analyzing each employee’s skill set and finding their strengths and weaknesses, you can delegate tasks in such a way that each employee is working on a task they are best suited for, allowing for work to be completed in an efficient manner.
Unify the organization with defined rules/organization
By creating an organizational structure with designated team leaders, the business will be able to function efficiently as employees will better understand what their responsibilities entail. Additionally, with a team leader, different departments can communicate with each other in an organized manner as each leader will have a comprehensive view of what their department is working on.
Find strengths and weaknesses of business operations - see where you can make changes
An operational analysis can also help detect any inefficiencies that could be wasting company time. This can lead to corrective measures that help optimize the way the business operates so that no superfluous tasks unnecessarily waste the energy of employees. Instead, the company can focus on doing things that help the business function and meet its goals.
Detect sources of financial waste
In every organization, resources are scarce and there is always a need to reduce as much waste as possible. It’s important to weed out any unnecessary costs to ensure a good financial state of the business.
Conducting an Operational Analysis
An operational analysis can help you identify unproductive investments and processes and nip them in the bud before they prove detrimental to the business.
We at Arizona Microcredit have written this guide to teach you how to conduct an operational analysis.
First, we explain four metrics of measurement. Then, we describe a checklist for the process, complete with examples.
A good operational analysis should measure your assets against the following measures:
Customer Results: This measure focuses on whether the asset is meeting customers’ needs. For example, if you are conducting an analysis on new employees, measuring customer satisfaction and worker efficiency against wages and hiring costs would be an ideal model.
Strategic and Business Results: This measure focuses on whether the investment is aiding the realization of your business goals and values. For example, if you have yearly growth targets, measuring how much each employee and/or machine contributes to sales and production growth would be a good place to start.
Financial Performance: This measure is an extremely quantitative one that focuses on measuring current financial performance against an established baseline. For example, compare your business’s finances for this fiscal year against the last to find points of improvement.
Innovation: This measure encapsulates the previous three and tries to find ways to change business operations to improve efficiency and profitability. For example, if your analysis found that there were too few employees on the front end serving customers and thus slowing sales, you would begin the process of hiring more employees as an innovation measure.
Conducting an operational analysis may seem like a formidable task. However, it breaks down to a series of manageable steps. We can use the example of the hypothetical company Joe’s Bagels, LLC to explain the process
Step 1: Establish a Timeline
This timeline should establish what assets are being analyzed, what data is collected, and how long it will be collected for. Joe sits down and chooses to analyze if his 2 cashiers and 2 cooks are delivering the best returns on investment. The data he chooses to collect is the number of customers served, customer satisfaction, and bagels made and sold. He plans to collect data over a one month period to mitigate the impact of any particularly bad or good days.
Step 2: Begin Data Collection Process
The second step is to begin the data collection process. This can take many forms. Joe creates customer surveys that ask about wait time, bagel quality, and ease of ordering. These surveys are given out with each purchase, and returning one earns you a $5 credit with the store. He gives all employees a survey that asks about their satisfaction with their responsibilities. Lastly, he takes the data on bagel sales and production and stores it on a massive excel sheet.
Step 3: Gap Analysis