Why do financial statements do not show some cost reduction opportunities?
Some finance executives pride themselves on maintaining headcount and costs flat while being able to take on additional work with the same resources.
"Although this might convey the idea of a highly productive organization, a closer look at the underlying processes could reveal areas where there is room for significant improvement"
A simple but effective metric to assess finance processes performance, as described in "The Complete Lean Enterprise" (Keyte and Locher - 2004), is the Percentage (of tasks) Complete and Accurate (%C&A).
"It aims at measuring the percentage of time an employee/department can perform a task without correcting, adding, or clarifying information"
It is sufficient to ask each employee/department involved in each process how frequently the transactions they receive pass through without a hiccup. To illustrate the idea, let us suppose the Order Taking to Shipping process has four steps as shown below.
Internal/External Customer - %C&A=50% Step 1 - %C&A= 70% Step 2 - %C&A= 85% Step 3 - %C&A= 15% Step 4 - %C&A= 70%
The %C&A for each step in this process was assessed by the subsequent employee/department downstream to that step; for example, the employee/department involved with step 2 assessed the %C&A of step 1.
The question is how many customer orders were processed correctly the first time around without rework?
This is calculated multiplying the %C&A for each step; that is, 0.031 (3.1%). Therefore, almost 97% of orders in our example needed to be reworked. This non-value added time is high, costly, and probably affected customer satisfaction significantly.
It is worth noting that even the customer was assessed a %C&A; this is because the quality of the information they provide impacts the efficiency of steps 1 to 4 and the product/service they receive later.
"If an order is fraught with errors, there is a greater chance not all of them will be caught and corrected"
As you can see, the %C&A metric can show opportunities for improvement that are not shown in any financial report. Possible solutions to reduce rework could include:
• Performing root cause analysis to identify and remove non-value added work, • Decommissioning legacy systems that increase the number of hand-offs and rework due to interface problems, • Automating routine tasks using RPA (Robotics Process Automation), • Creating and sustaining a culture of continuous improvement using LeanThinking and supported by senior management.
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Note on the Author: Eduardo Chavez is the Founder of ECM Consulting Group.