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Operational Performance Analysis

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Business Studies

Operational effectiveness and strategy are both essential to superior performance."

- Michael Porter

Although effectiveness and strategy are important for achieving great operational performance, it is also important to analyse operational performance. Why? To understand how organisations can improve their objectives and strategy to achieve even more efficient operational performance. Organisations can do this by looking at operational data, analysing it and drawing actionable insights.

Analyzing Operational Performance

Operational analysis is a method of assessing the present performance of an operational investment and gauging the performance in contrast to a recognized set of costs, agendas, and performance parameters. It is also related to obtaining information from a working system that is being used to assess the performance and to create forecasts about the forthcoming operations of the system.

Analysing operational performance is important for changing management data gathered from a project into useful information. This information can then be used for making management decisions and informing future actions. It is essential to constantly review the operational performance in order to find ways for improvements, to see if the team is on track, predict future expected outcomes and make plans as a result of the analysis.

The analysis can be regarded as a learning process and particularly a good operational analysis will assist the business to:

  • Evaluate how the projects are performing concerning the project outcomes accomplished and the resources provided.

  • Evaluate the capability of the project to reach its goals in the planned budgets

  • Examine if the major risks have changed and if they are handled efficiently.

  • Classify issues and opportunities in financing activities of the project

  • Evaluate if human capacity is developed as needed

A good analysis process has specific attributes, as it:

  • Integrates operational certainties of the front line with the priority of the leadership.
  • Takes maximum advantage of internal experts and external perspectives
  • Presents a way to have an objective evaluation of the gap in the environment and the typical description of ‘what good seems like.

There are five crucial success factors for analyzing operational performance. They are as follows:

  1. Verify the top-level metrics of performance
  2. Make use of a template that explains the various levels of performance for different functions
  3. Involve the organization from the beginning
  4. Prioritization of opportunities
  5. Define an execution method

Operational analysis tools

Some of the operational analysis tools are as follows:

  • Process flow diagram

Operational analysis tools, Process flow diagram, StudySmarterProcess-flow diagram, Pixabay.com

This diagram is commonly used for continuous improvement. It shows everything happening in a process, and it should be finished before starting the improvement process. This preliminary diagram is essential in order to understand what is done in reality and it provides a document that can be used for communicating the process changes.

  • Histograms

Operational analysis tools, Histogram, StudysmarterHistogram, Pixabay.com

A histogram is a simple method for displaying diagrams. It shows the frequency of various measurements and displays their distribution.

  • Pareto charts

Operational analysis tools, Pareto chart, StudysmarterPareto chart, Flaticon.com

A Pareto chart is a bar and a line graph, in which separate values are displayed in descending order with the help of bars and the cumulative total with the help of the line. This chart immediately identifies the important events that might be the cause of the problems.

Data analysis and performance operational metrics

In the current competitive market, every business is in search of an advantage over its rivals. Teams are moving more rapidly than they ever did, projects are increasingly becoming more complicated, and customers expect to receive more products at low prices. All these factors add up for the managers who are trying to find ways to analyse data, track and enhance their performance. This point is where metrics­, particularly operational metrics have their role. Companies must assess their successes and identify areas that need improvement.

What are operational metrics?

Operational metrics are the main performance indicators that let the company see a project’s present stage in real-time or in more detail by the hour/day/week/month. This is crucial as these operational metrics provide a closer look at whether any team or system is moving forward on the right track and let the company take immediate actions. This will lead to the prevention of smaller problems before they get out of control. Operational metrics support in managing people and processes in order to achieve the full potential of all the teams. Some of the metrics are as follows:

Cost per click

The need to develop particular metrics and trace their effectiveness shows valuable outcomes for a marketing campaign. With a comparison of various campaigns in the cost per click section of the strategy, it will be easy to identify the one that was the least costly and go deeper in order to know the details.

Rate of absenteeism of the employees

This is an essential metric as it focuses on the key workforce actions to be taken to develop a successful human resource strategy i.e., the number of sick employees, missing work, or skipping, which can portray the effect this may have in the long run.

The average time between failures

This is an important operational metric for the software development department. It is measured as the mean time between fixing failures of the product. It is a significant metric to measure the reliability of the product. The higher the time between failures, the greater is the reliability of the product.

Average time for repairing

The average time for repairing is the meantime it may take the company to repair its system. This operational metric comprises the repair time and the testing time that might take for getting the project to fully function again. These metrics can be useful to keep the team moving fast and in an efficient manner.

Average time to respond

This metric is the average time it may take in recovering from a failure and is measured from the point when the issue was first notified. This metric may particularly be beneficial when it comes to security concerning the product or the customer’s information. It is valuable to measure the response time and the success of the team to react to any possible threats.

Data analysis and performance operational metrics, Flowchart of operational metrics, StudySmarterFlowchart of Operational Metrics, StudySmarter

Use of data in decision making and planning

Handling the operations of an organisation needs the management of extensive resources such as human, financial and physical and to use them as efficiently as possible in order to accomplish the objectives of the organisation. Hence, it is required to develop methods to determine the efficiency of resource utilization. Organisations use data to help them in decision-making. So as to get the highest use of available resources, it may be essential that from time-to-time resources are diverted from/to a project in order to obtain the maximum advantage.

Data types

Decision making

Participation data

The data collected from customers or members will help managers to decide if not so popular programs and events should be stopped and allocate those resources to activities that may be highly popular.

Physical resource data

The data collected on the utilisation of physical resources will help the manager to decide if there is any need to upgrade, renovate, repair, and improve the resources like equipment and machinery, and facilities.

Quality data

It is highly significant for managers to know the customer satisfaction levels so that decisions are made to improve or even change products/services accordingly. Lower than the desired level would mean employing extra resources or redeploying resources to another activity.

Human resource data

This data will facilitate the decision of the manager if there is enough number and capability of workers to execute operational plans. Data should be stored for the qualifications, skills, and knowledge and their everyday work contribution as well.

The table above shows how different forms of data help in decision-making.

Operational Performance Analysis - Key takeaways

  • Operational analysis is a method of assessing the present performance of an operational investment and gauging the performance in contrast to a recognized set of costs, agendas, and performance parameters.

  • Analyzing operational performance is important for changing management data gathered from a project into useful information.

  • It is essential to constantly review the operational performance in order to find ways for improvements, to see if the team is on track, predict future expected outcomes and make plans as a result of the analysis.

  • Some of the operational analysis tools are Process flow diagrams, Histograms, and Pareto charts.

  • Operational metrics are the main performance indicators that let the company see a project’s present stage in real-time or in more detail by the hour/day/week/month.

  • Some of the operational metrics include cost per click, rate of absenteeism of employees, the average time between failures, the average time to respond, the average time to repair, etc.

  • Some of the different types of data that help in decision-making include participation data, HR data, quality data, and physical resource data.

Operational Performance Analysis

Operational analysis views financial and resource investments thoroughly, and concludes if there are any adjustments that should be made in order to meet the strategic goal of the company in a proficient and cost-efficient manner.

Customer satisfaction, productivity, cost-efficiency, time, and return on investment.

Operational analysis is important because it will help in determining the efficiency of different aspects of operations in an organisation.

  •  Verify the top-level metrics of performance

  • Make use of a template that explains the various levels of performance for different functions

  •  Involve the organization from the beginning

  • Prioritization of opportunities and defining an execution method

Operational performance metrics are measures that will assess the effectiveness and efficiency of a production process as a whole. This is essential for every organization to remove inefficiencies and improve profits.

Final Operational Performance Analysis Quiz

Question

 What does a data-driven approach do?

Show answer

Answer

This approach allows businesses to assess and systematize their data with the aim to better serve their customers.

Show question

Question

Define big data.


Show answer

Answer

Big data is defined as a dynamic, big and distinct volume of data generated by people, tools and machines.

Show question

Question

In what ways has big data changed businesses?

Show answer

Answer

It has improved business intelligence, improved target market, reduced cost and customer satisfaction.

Show question

Question

What is operational data?


Show answer

Answer

Operational data is a form of strategic data that captures information on the internal functions and processes of a business.

Show question

Question

What are the different types of operational data?


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Answer

Business operational data, IT operational data, and Integrated business-IT operational data.

Show question

Question

What is transactional operational data?


Show answer

Answer

Transactional data is the data that is captured from business-related transactions and has the potential to explain certain events.

Show question

Question

What signifies when a business implements a data-driven approach?


Show answer

Answer

This denotes that it makes strategic decisions on the basis of data analysis and its interpretation

Show question

Question

Define labour productivity.


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Answer

Labour productivity is a measure of the output per employee in a certain time period.

Show question

Question

What is the formula for labour productivity?


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Answer

Labour productivity = Output per period/ Number of employees per period.

Show question

Question

 List two ways in which an increase in labour productivity benefits the organization.


Show answer

Answer

It will boost output without changing costs. It will also lower costs without changing output.

Show question

Question

What is the formula for the unit cost (Average cost)?


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Answer

Unit cost = Total cost/ units of output

Show question

Question

Define capacity utilization.


Show answer

Answer

Capacity utilisation measures the level to which the maximum potential output is being reached.

Show question

Question

What is the formula for capacity utilization?


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Answer

Capacity utilization = Actual output per annum (month)/ maximum potential output per annum (month) x 100

Show question

Question

On what factors is ultimate capacity based?


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Answer

  • The level of demand for the product
  • Flexibility in production
  • Seasonality of the output and demand
  • Consequences of failure to meet demand
  • Opportunities for outsourced production.

Show question

Question

While enhancements to labour productivity are attractive, what are some of the factors an organization should be careful about?


Show answer

Answer

There will be costs associated with boosting labour productivity and this may also be in conflict with other objectives.

Show question

Question

Operational analysis is a method of assessing the present performance of an operational investment and gauging the performance in contrast to a recognized set of costs, agendas, and performance parameters.

Show answer

Answer

True 

Show question

Question

Why analyzing operational performance is important? 

Show answer

Answer

For changing management data gathered from a project into useful information.

Show question

Question

Why is it important to constantly review operational performance? 

Show answer

Answer

To find ways for improvements, to see if the team is on track, predict future expected outcomes, and make plans as a result of the analysis.


Show question

Question

Why process flow diagram is used? 

Show answer

Answer

It is used as it shows continuous improvement in the operational process. 

Show question

Question

What does a histogram show? 

Show answer

Answer

 It shows the frequency of various measurements and displays their distribution. 

Show question

Question

Why are Pareto charts important? 

Show answer

Answer

This chart immediately identifies the important events that might be the cause of the problems. 

Show question

Question

Operational metrics are the main performance indicators that let the company see a project’s present stage in real-time or in more detail by the hour/day/week/month.


Show answer

Answer

True 

Show question

Question

Integration of operational certainties of the front line with the priority of the leadership is an attribute of a good analysis. 

Show answer

Answer

True

Show question

Question

How many success factors are there for analyzing operational performance? 

Show answer

Answer

5

Show question

Question

A histogram is an operational analysis tool. 

Show answer

Answer

True 

Show question

Question

What is business operational data?

Show answer

Answer

Data that describes organizational processes and user experience. 

Show question

Question

What is IT operational data?

Show answer

Answer

Data that is linked to technology and digital services which facilitate managers in looking at the insights of their business. 

Show question

Question

What is Integrated business-IT operational data?

Show answer

Answer

It is a mixture of both business and IT operational data and offers insights and assists in making business decisions about where to invest the organization's resources. 

Show question

Question

What are some typical activities that produce transactional data?

Show answer

Answer

Purchasing products from suppliers, sale of products, location of sale, delivery of items to customer sites, recruitment of employees.

Show question

Question

Why are performance indicators used?

Show answer

Answer

Performance indicators are used to measure and evaluate how successful a business is at achieving its goals. 

Show question

Question

What is the meaning of data-driven approach in business?

Show answer

Answer

It means that businesses make strategic decisions on the basis of data analysis and its interpretation. 

Show question

Question

If 350 units of output was produced by 7 workers, find the labour productivity.

Show answer

Answer

Labour productivity = 50

Show question

Question

The maximum amount a business can produce in a certain period with its available resources is called ________.

Show answer

Answer

capacity

Show question

Question

Fill in the missing factors ultimate capacity depends on:


  • _____________

  • _____________

  • Seasonality of the output and demand.

  • Opportunities for outsourced production.

Show answer

Answer

  • The level of demand for the product.

  • Flexibility in production.

Show question

Question

Capacity utilization measures ________.

Show answer

Answer

the level to which the maximum potential output is being reached.  

Show question

Question

Big Data helps anticipate customer needs.


Show answer

Answer

True 

Show question

Question

Capacity utilization is expressed in %.


Show answer

Answer

True

Show question

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