Quantify Opportunities For Financial Improvement - Take Action1 Sep, 2012 By: Ken Staubitz, Strategy Development imageSource
Many service leaders struggle to link the various operational and service metrics to the financial results (positive or negative) when managing to these type of benchmarks. Often, there is a disconnect between business owners and their service management staff due to communication styles and the lack of data provided when discussing opportunities of both financial and operational improvement.
Generally speaking, business owners are more concerned about managing expenses to improve profits, evaluating their ROI and ensuring they are expanding market share; while service leaders are (should be) focused on driving efficiencies, controlling expenses, developing their people and ensuring customer satisfaction. Unfortunately many service leaders struggle in communicating with upper management because they fail to quantify the financial impact of their area of responsibility and struggle with presenting a sound business case based on actual data for any future departmental plans.
The most effective service leaders have an owner’s mind set when managing the service business and incorporate financial results into the planning processes to better support their plan.
I have worked with many extremely competent service leaders who are ineffective at creating and communicating their business plans to upper management. They struggle to explain the financial impact their future, plans or activities, have on the organization. There is nothing wrong with “tooting your own horn” on the progress made or identifying areas of opportunity. However, it is important to be able to communicate those ideas in ways that appeal to your audience.
Most service leaders are managing to some form of service metrics and business goals but often struggle quantifying the opportunity for improvement, or quantifying the result of their hard work, for the organization. Let me illustrate my point:
Assume your service activity & metrics are:
- Total techs – 10
- Avg. Gross calls/tech – 5
- Avg. net calls/tech – 4.1
- Incompletes (parts, needs assistance, out of time) – 20%
- Callbacks – 10%
- First Call Effectiveness (FCE) – 70%
- Avg. Productive time – 5.5 hours
- Revenue/tech - $200K
- Average salary - $30K
Given this information, what would be the impact to the organization if you were able to improve your incomplete rate from 20% to the industry benchmark of 10%? A common response might be, “Our FCE would improve from 70% to 80%.” Although true, think about the financial impact. How can you quantify your improvement to your ownership? How much money could you save the organization with this improvement? How much additional business could your team support by improving your current incomplete rate?
In this scenario this service team is completing 1,100 [(10 X 5) X 22 days/month] service calls for a 22-day work month, of which 20% or 220 (1,100 X 20%) of those calls were incompletes. By reducing the incomplete rate to 10%, you would be able to reduce your total calls by 110 [220 – (1,100X10%) etc.]. These 110 calls equal one work load, (10 techs X 5 gross calls/day; X 22 days/month). In other words one could support the same amount of work with one less tech, saving the organization $30K/year, or one could support an additional $200K in revenue by freeing up a technician to support additional business.
If you were the service leader, how would you present this improvement to your ownership? As a business owner, would your service leader capture your attention if the value proposition to their plan was that he/she told you they could save the organization $30K, or that they could absorb an additional $200K/year in additional revenue by improving their department? For number crunchers, imagine the impact if one improved the FCE to 82% and improved the average productive time to 6.8.
Another scenario particularly common for organizations that continue to organically grow their business through MPS, is determining additional staffing to support the growing service demand. To do so service leaders have to analyze the various service metrics, benchmarks, workload demand, etc., in order to determine current and future staffing needs. It is also critical for service leaders to present a sound business case for such a scenario, otherwise they risk losing upper management support to move forward in hiring additional staff, causing customer service levels to suffer. If you find yourself in this scenario and the service team has consistently obtained the various service activity industry benchmarks, consider incorporating the following information into a business case to support your argument - before approaching upper management.
- How has the workload increased over time? Provide information explaining this trend.
- Has the workload of your traditional break/fix business declined? If so can you reallocate some of these resources to support your MPS initiative?
- Can you quantify the types of calls performed due to the growth of your initiative? (i.e., are you now supporting an increased number of printers prior to your MPS launch? If so, how much?)
- Has your FCE been effected by the surge in MPS business? If so, is there a correlation between your increased call load and a drop in your FCE? Explain the change.
- What is the trend of your response time?
- What is the investment of an additional staff member and how would this addition affect your service salaries as a percentage of service revenue?
- Should you add additional staff at the current growth rate in revenue? How soon will your salary expenses be back in line w/ the financial model?
- How has the change in service revenue per technician increased after supporting this initiative?
- Does your sales pipeline support a continued increase in revenue and additional workload?
The answers to all of these questions will provide quantifiable information to support your argument. As you dive into the data to answer these questions you may also realize that you can continue to support this initiative by reallocating resources, assuming that you are experiencing a decline in traditional break/fix business. Whatever the issue, you will be able to support your business case with information rather than assumptions.
As you develop plans to improve your service operation, dive into the details to quantify your plan, but keep your message simple. Explain how your plan is going to financially impact the organization and improve the service provided to your clients.