+ Performance

The primary objective of an asset management strategy is to achieve and to sustain the MAXIMUM EFFICIENCY from the resources employed in the business. This implies the ability to recognise change and the ability to successfully adapt to it. The quotation above is attributed to Charles Darwin but it applies equally well to business.

Jay Abraham once quoted an associate as saying that there are only two important questions when it comes to business;

What business are you in?
How's business?

The fact is, of course, that in most cases unless you can accurately measure the key activities of your business you won't really be able to answer either of these questions!

In the opening statement above for 'maximum' you should also read 'optimum' and 'safest'. These two factors imply both operational constraints and dependencies in avoiding the downside risk of equipment failure, and 'safest', in particular, as it relates to the workplace, to the public in general and to the environment at large; the TRIPLE BOTTOM LINE.

As a result of these broader environmental factors, the effective life-cycle of assets can only be determined by measuring actual performance in real operational situations in real time against experiential optimum standards of utilisation, rated output and unit cost. Whether you regard this as 'Optimum Operational Efficiency' or 'Overall Operational Effectiveness' is irrelevant. They can all be referred to as 'OOE' and are essentially all one and the same.

Activa lets you MEASURE the OPERATIONAL EFFECTIVENESS, UTILIZATION and OUTPUT of assets against the FIXED COSTS OF OWNERSHIP and the VARIABLE COSTS OF OPERATION to determine overall efficiency against your key performance indicators.

Historically, managing day to day operations and decision-making based on actual measured performance has been subject to a number of perceived barriers, impediments if you like, that can seriously limit a managers' options;

You may recognise one or two of these;

The number of industries where the use of performance data is the norm is probably limited to an enlightened minority; notably petrochemicals, general transport, manufacturing, warehousing, distribution and mining to name just a few of the few.

All businesses employ a set of resources and perform a series of basic processes in the course of their business. By and large, all businesses earn revenue by creating and selling one or more products or services. Generally speaking, business performance is ultimately measured by subtracting the total cost of supply of a product or service from its selling price; i.e. PROFIT. The problem is that this traditional approach does not measure the underlying drivers of the business.

The ACTIVA PERFORMANCE MATRIX is an extension of this view that further considers the operational inputs and outcomes in the context of their optimum operational efficiency.

For the sake of simplicity, all resources can all be regarded as assets, even if they are only a desk, chair, telephone, office and some intangible bits such as intellectual property; rights, knowledge and technical skills.

Assets will always generate two streams of expenditure which we call the COSTS OF OWNERSHIP [fixed costs] and the COSTS OF OPERATION [predominantly variable costs].

Fixed costs are incurred regardless of whether the business performs work or not because they are related to the existence of the resource [you have to finance it, insure it, pay the rent, pay salaries etc].

Variable costs only accrue as work is done and are therefore is business process related. These are generally directly related to consumables. This is a bit simplistic but it is basically true.

These concepts are explained in more detail in a separate paper entitled The Performance Matrix.

Performance based management relies on the collection of relevant key data from operational activities at source. Activa does this dynamically by defining metrics for key resources and combining the collection of performance data for a particular resource with other natural system functions such as invoice processing.

In this context a business RESOURCE may be a single activity, one asset, a group of assets or an entire 'system' such as a manufacturing production line or a commercial investment property. The PERFORMANCE METRICS collected in Activa are automatically impacted onto the actual COSTS OF OWNERSHIP [fixed costs] and the actual COSTS OF OPERATION [predominantly variable costs] from the Fixed Assets Register, Procurement Capex WIP and Opex Requisitions functions as an integral part of the performance matrix.

By way of example, one key metric is UTILISATION; this can be defined as the relationship between the actual hours of operation of a resource in a given period, its PRODUCTIVE TIME, and the maximum number of hours that the resource is available for work in the same period, its THEORETICAL TIME. This is usually recorded in hours and expressed as a simple percentage or decimal value. Obviously factors influencing productive time are downtime due to maintenance and idle time, but lets's not complicate the example just yet.

Another key metric is PRODUCTIVITY or work done [per productive hour]; this is the number of units of a commodity produced by a resource in a given period versus the maximum rated output of the same resource. Recorded in units, this is also expressed as a simple percentage or decimal value. In revenue producing systems 'productivity' may simply the be actual revenue generated in the period versus the maximum possible revenue.

By extension, the EFFICIENCY rating of any business activity is therefore the product of these two metrics, UTILISATION and PRODUCTIVITY.

Metrics can be established for almost any purpose related to performance measurement with simple screens and parameters allocated from stock formats to promote uniformity and consistency of data collection. Most data input screens are triggered automatically by standard system processes.

Activa includes the basic range of metrics relating to the following performance criteria;

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Article last updated : Feb 23 2012 10:45AM