Day to day operations of a business are what drive the week to week and year to year profits. The most valuable asset that companies sometimes overlook is time. Proficient allocation of time is a business behavior that can spark enormous gains in profit. Inefficient allocation will quietly erode profit and spur mysterious efficiency losses. The adage, “time is money,” can quickly be seen in this example: if a company has just 25 employees making an average of $25 an hour each. With only 15 minutes of lost time a day, the company would have a loss of approximately $40,000 in the year. And that is based strictly on wages and not the total burden rate of the employees. The fastest route for any manager to assure that they are proficiently allocating time is to establish standards of operation. Merriam-Webster defines a standard as a level of quality or attainment, an idea or thing used as a measure, norm, or model in comparative evaluations. When applied to business operations, they become procedures. These SOPs, Standard Operating Procedures, are a proactive practice for any business that is trying to establish adequate operational controls, accurate representations of their key measurables, streamline root cause analysis, and build an environment that lessens the likelihood of miscommunication.
A manager has many tools in their toolbox to help increase productivity, decrease costs, ensure schedule attainment, or schedule adherence. What all these tools do is introduce controls into processes. Controls are a manager’s best friend. The more comradery a manager has with their controls, the easier it will be for them to swiftly affect the KPIs and key metrics that reside under their purview. When establishing these effective controls, it is paramount that the standards of operation also add as much value and remove non-value-added time as possible. Let’s look at a simple linear manufacturing process. A product goes straight from point A to point G. Numerically, that would be seven stops for the product until the product is ready to ship.
Let us also say that there are three different shifts of employees, and each stop had one employee associated with constructing the product. That would be 21 different people touching the product a day! Standards of operation at each step that correctly outline what happens before, during, and after the product is at a station allow for predictability in when a product will be finished, the quality level of the product, any costs associated with the production of the product. Assuring that every person that touches that product does the same actions will increase performance over time as the people touching that product repeat the standards of operation time and time again. Very similar to a basketball player learning to shoot. The more they shoot, the more likely their accuracy and effectiveness will increase. The efficient movement of the product from point to point will also imply that there are close to zero wasted movements or wasted time. No wasted time also indicates a slight cost reduction over an annualized time frame. In general, standard operating procedures help to establish effective operational controls by increasing the depth and breadth of predictability in the day to day operations.
Predictability is extremely valuable. There is an entire pseudo-science and industry dedicated to making “predictions” about what will happen in a person’s daily life. It is innately human to want to know what is coming around the corner. As a manager, it helps ease day to day operations if there is accuracy in how those day to day operations collect data and measure key actions. Once a unit of measurement has been established from well-designed standards of operation, then projections are more accurate, and the variance analysis step of the plan, actual, variance, becomes a lot closer to 0% variance. Accurate representations of key measurables have a ripple effect throughout an organization that taps into the principles of integrity. If all the people in an organization are operating on data-driven integrities, then true meritocracies can emerge, and operations will be driven by the people wanting to meet their daily goals. Plans will meet actuals, and day to day operations become accurately predictable. Standards Operating Procedures assure accuracy and predictability because the standardized process will guarantee the same outcome from the precise amounts of time, cost, and energy put into the full procedure. Let’s leverage the same example from earlier. In total: one product, seven steps, and seven people. Observations executed by the management team have produced SOPs that assure the team producing the product will complete one every 5 minutes. And there it is! The standard of operation ultimately sets the expectation that 12 products an hour will be produced. Comfort in well-established expectations will breed higher performance from the manager’s team. The team expects to be led toward attainable goals; the manager expects the team to understand and meet them. The SOPs are designed to build the bridge with accuracy as the precedent. Key measurables now become a center of daily conversation, driving performance through predictability.
A saying as old as time, “Communication rules the nation.” This couldn’t be a better mantra for the difference between an operation that runs well and one that does not whether the communication is intended to move vertically or horizontally within an organization. The more effectively and accurately information moves between key players of an organization, the less wasted time, the better the quality, and most likely, the higher the profit. Peter Drucker, an Austrian born American management consultant, once said, “The most important thing in communication is hearing what isn’t said.” When effective SOPs are in place, it will provide the manager with a stethoscope to use on their operations to hear what is not said. A failure to adhere to the SOPs will most likely cause a breakdown or extreme variance from the day’s plan. The severity of the variance will tell the manager, without needing for it to be said, exactly where to begin his or her root cause analysis. The severity of the variance will glean precisely where the breakdown in the process took place. In essence, troubleshooting will take far less time, increasing efficiency, and eventually profits as well. These may seem like very long leaps to go from breakdown to troubleshooting, efficiency gains, to profits; however, strong communication passes the right information to the right people at the right times. And, when the SOPs are designed methodically, any breakdowns in a process will have escalation policies outlined to ensure the correct information goes to the right people at the right times. Miscommunication within an organization will decline tremendously when members of the organization know who to speak with and how to escalate breakdowns.
Standards are a means to establish expectations and manage behaviors to get as close to an expected outcome as possible. Whether the behavior is a repeated task, on the order of hundreds of times a day, or the behavior is a weekly task, a standard of operation will establish an understanding of who is to do what, how, and when. As a bonus, repetition can allow a ‘why’ to emerge by executing the standard operating procedure. If any manager wishes to have a proactive approach to their leadership style by establishing effective operational controls, accurate representations of the key measurables, and increase the speed and effectiveness of communication within their area, then methodically creating well-designed Standard Operating Procedures, or SOPs should be high on their action item list.
At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information: