lenhardt & colton, llc process-based management city xxx public utilities february 22, 2001
TRANSCRIPT
Lenhardt & Colton, LLC
Process-Based ManagementProcess-Based Management
City XXX Public Utilities
February 22, 2001
Lenhardt & Colton, LLC Slide 2
February 22, 2001
Today’s ObjectiveToday’s Objective
To Reaffirm:– The Need for Change in the Way XPU
Manages Its Business– The Preference of XPU for
• Process-Based Management• Process-Based Information Tools
– A Path & Timetable That Has Initial Process-Based Solutions Implemented in 2002
Lenhardt & Colton, LLC Slide 3
February 22, 2001
Today’s AgendaToday’s Agenda
The Case for Change at XPU
Why Process-Based?
Insights from a Real Life Project
XPU’s Roadmap
Lenhardt & Colton, LLC Slide 4
February 22, 2001
The Starting Point:The Starting Point:XPU Decides It Must XPU Decides It Must
Change Change 1996 Annual Report: “...an internal transition
designed to prepare staff and the Utility Board to operate the electric utility in an environment of increasing options for our electric customers.”
1997 Annual Report: “XPU’s efforts in the coming years will be to prepare for operating in a competitive market.”
1999 Strategic Plan: “Focus on FINANCIAL AWARENESS at a departmental level to drive us toward competitive rates.”
Lenhardt & Colton, LLC Slide 5
February 22, 2001
Then how do you decide?Then how do you decide?
……what to change?what to change?
. . . what to do differently?. . . what to do differently?
Lenhardt & Colton, LLC Slide 6
February 22, 2001
One Useful ModelOne Useful Model
BusinessIssues
BusinessDecisions
Informationfor
Decisions
InformationTools
BusinessIssues
BusinessDecisions
Informationfor
Decisions
InformationTools
What Needs Changed?
Lenhardt & Colton, LLC Slide 7
February 22, 2001
Identifying Needed ChangesIdentifying Needed Changes
BusinessIssues
BusinessDecisions
Informationfor
Decisions
InformationTools
Changing Business Issues are a Given; the Cause of
XPU’s Dilemma
XPU Wants More Business Decisions To
Be Made by Managers
XPU Needs New & Different Decision
Support Information
XPU Needs New & Different Tools to
Provide That Information
We’ll Look at Each of These in Turn
Lenhardt & Colton, LLC Slide 8
February 22, 2001
Engaging XPU’s ManagersEngaging XPU’s Managers
Role of an XPU Manager ChangeDo Functional Work
Manage the Department• Supervise Work
(Organize,Plan, Monitor, etc.)
• Manage People(Motivate, Discipline, etc.)
• Manage Resources(Workload, Operating Budget)
Participate in XPU Business Mgmt(Collaborative & Communicate Financial Impacts)
Other
Lenhardt & Colton, LLC Slide 9
February 22, 2001
Another Useful ModelAnother Useful Model
Three Time Perspectives of Business
YesterdayResults Perspective
TodayOperations Perspective
TomorrowStrategic Perspective
Lenhardt & Colton, LLC Slide 10
February 22, 2001
TodayOperations Perspective
Three Kinds of Issues & DecisionsThree Kinds of Issues & Decisions
How is XPU doing “today”?Should I invest in
this XPU bond?What should I charge for this new service?
These Require Three Different Kinds of Information
YesterdayResults Perspective
TomorrowStrategic Perspective
How did XPU do
“yesterday”?
How will XPU do “tomorrow”?Where is the best opportunity to
improve our process?
Lenhardt & Colton, LLC Slide 11
February 22, 2001
Three Kinds of Information ToolsThree Kinds of Information Tools
YesterdayResults Perspective Today
Operations Perspective
TomorrowStrategic Perspective
What Tools Does XPU Have in Place Today?
Lenhardt & Colton, LLC Slide 12
February 22, 2001
XPU’s Existing Information ToolsXPU’s Existing Information Tools
YesterdayResults Perspective Today
Operations Perspective
TomorrowStrategic Perspective
SAP Financials
Little or NoInformation Available
Even LessInformation Available
Lenhardt & Colton, LLC Slide 13
February 22, 2001
Review Needed ChangesReview Needed Changes
BusinessIssues
BusinessDecisions
Informationfor
Decisions
InformationTools
XPU Wants More Business Decisions To
Be Made by Managers
XPU Needs New & Different Decision
Support Information
XPU Needs New & Different Tools to
Provide That Information
Lenhardt & Colton, LLC Slide 14
February 22, 2001
Today’s AgendaToday’s Agenda
The Case for Change at XPU
Why Process-Based?
Insights from a Real Life Project
XPU’s Roadmap
Lenhardt & Colton, LLC Slide 15
February 22, 2001
L&C’s Process-Based ApproachL&C’s Process-Based Approach
Promote “Process Thinking” in All Aspects of Business Management
Explicitly Use the Process Model of Business for:– Process-Based Management Techniques– Process-Based Information Tools
Lenhardt & Colton, LLC Slide 16
February 22, 2001
What is the Process Model?What is the Process Model?
Any endeavor can be described in terms of input, activity & output.
Input OutputActivity
Tangible inputs are converted (via the endeavor) to tangible outputs.
Lenhardt & Colton, LLC Slide 17
February 22, 2001
The Process Model & ResourcesThe Process Model & Resources
The cost of people, supplies and assets are viewed as organizational resources that are consumed by the activity.
Resources (Budget)People’s Time ($)
Fuel $Depreciation $
Lenhardt & Colton, LLC Slide 18
February 22, 2001
The Process Model & OutputsThe Process Model & Outputs
Output is expressed in terms of measurable units: – KiloWatt Hours (kWh’s) of electricity
The cost of a measurable unit is the ratio of it’s activity cost and the quantity of the measurable units completed:– Cost per kWh of electricity
Outputs are consumed by products & services, market segments, and so on...
Lenhardt & Colton, LLC Slide 19
February 22, 2001
Process Model SummaryProcess Model Summary
Input OutputActivity
Resource $
CustomersOfferings Segments
End Cost Objectives
Lenhardt & Colton, LLC Slide 20
February 22, 2001
Why “Process-Based”?Why “Process-Based”? The Process Model, Its Tools & Techniques
– Enable Cost Management to be Practiced Throughout the Organization and That’s Good!
• They Describe the Organization in the Language of People Who Do the Work
• They Establish a Real-Life Causal Relationship Between the Work People Do and Cost
– Systematically Integrate Seemingly Independent Functions and Activities and That’s Good!
• They “…remind employees that the activities of disparate departments are interdependent, even if organizational charts… suggest otherwise.”
No Other Cost Management Model Does This
Lenhardt & Colton, LLC Slide 21
February 22, 2001
Today’s AgendaToday’s Agenda
The Case for Change at XPU
Why Process-Based?
Insights from a Real Life Project
XPU’s Roadmap
Lenhardt & Colton, LLC Slide 22
February 22, 2001
Reduce Cycle Time
ReduceCost
ImproveQuality
Increase Levelof
Service
State/DOT’s Challenge … State/DOT’s Challenge …
Lenhardt & Colton, LLC Slide 23
February 22, 2001
The Gov’s Challenge Pool . . .The Gov’s Challenge Pool . . .
• Commissioners “Contribute” to the Commissioners “Contribute” to the Pool via targeted cuts to least valuable Pool via targeted cuts to least valuable programs/servicesprograms/services• Participation in Challenge Pool earns Participation in Challenge Pool earns them the opportunity to obtain NEW them the opportunity to obtain NEW funding, greater than their “pool funding, greater than their “pool contributions”, to add or improve contributions”, to add or improve existing servicesexisting services•Election not to participate in pool Election not to participate in pool earns them automatic budget reductionearns them automatic budget reduction
What to Change?
How?
Lenhardt & Colton, LLC Slide 24
February 22, 2001
Information isData
Endowed withRelevance
andPurpose.
Peter Drucker, 1990
Requirement for “Good” InformationRequirement for “Good” Information
Lenhardt & Colton, LLC Slide 25
February 22, 2001
State/DOT: Start with the End in State/DOT: Start with the End in MindMindState/DOT’s “Purpose”
– Identify CQT– Manage CQT
• Improve Competitiveness• Focus on Continuous Improvement• Deploy Resources Effectively
– Measure CQT
Lenhardt & Colton, LLC Slide 26
February 22, 2001
Q - What’s ABC Used For?
A - Get Relevant Info. To
support strategic decisions,
such as:
– Are we competitive, OR not?
– Are our resources deployed
effectively, OR not?
– Should we invest in ABM to
support the Challenge Pool
requirements, OR not?
What is the annual cost of Construction Management?
What is the cost of a “typical” bridge design?
How much does it cost to prepare a “complex” PS&E package?
Activity Based ManagementActivity Based Management
How well are we meeting our objectives?
Activity Based Performance
Measures
How can we institutionalize improvements?
Activity Based Budgeting
How do we know what to improve?
Activity Based Continuous
Improvement
How can we better manage
capital projects?
Activity Based Project/Resource
Management
Activity Based SolutionsActivity Based SolutionsProblem? Solution!
How much does it really cost?
Activity Based Costing
ActivitiesActivities
Activities Outputs
Resources
Activity Analysis
Inputs
Lenhardt & Colton, LLC Slide 27
February 22, 2001
Program SupportProgram Support
I. Develop Activity-based ModelsII. Institutionalize the Process III. Roll-out Additional Activity-based
Tools• Focus on Activity-based Continuous
Improvement, and• Integrate with Business Planning
Lenhardt & Colton, LLC Slide 28
February 22, 2001
Level 1 Process Info: Process MapLevel 1 Process Info: Process Map
Activity 1 Activity 2 Activity 3 Activity “n”
Task “n”Task 1 Task 2 Task 3
Activity Name • Descriptive Text:•
Task 4 Task 5 Task 6
Procedu
re
Task 2
Procedu
re
Task 4
Procedu
re
Task n
1
2
3
4
Lenhardt & Colton, LLC Slide 29
February 22, 2001
Level 2 Process Info: Activity DictionaryLevel 2 Process Info: Activity Dictionary
Activity 1 Activity 2 CLICK HERE! Activity “n”
Task “n”Task 1 Task 2 Task 3
Activity Name • Descriptive Text:•
Task 4 Task 5 Task 6
Procedu
re
Task 2
Procedu
re
Task 4
Procedu
re
Task n
1
2
3
4
Lenhardt & Colton, LLC Slide 30
February 22, 2001
More Level 2 Info: Resource UsageMore Level 2 Info: Resource Usage
Activity 1 Activity 2 CLICK HERE! Activity “n”
Task “n”Task 1 Task 2 Task 3
Activity Name • Descriptive Text:•
Task 4 Task 5 Task 6
Procedu
re
Task 2
Procedu
re
Task 4
Procedu
re
Task n
1
2
3
4
Lenhardt & Colton, LLC Slide 31
February 22, 2001
Example of Results: An “80/20” AnalysisExample of Results: An “80/20” Analysis
Lenhardt & Colton, LLC Slide 32
February 22, 2001
Example: Cost/Unit of Primary OutputsExample: Cost/Unit of Primary Outputs
Lenhardt & Colton, LLC Slide 33
February 22, 2001
Example: Secondary ActivitiesExample: Secondary Activities
Lenhardt & Colton, LLC Slide 34
February 22, 2001
Example: Hours/UnitExample: Hours/Unit
Lenhardt & Colton, LLC Slide 35
February 22, 2001
Activity “5”—A Closer LookActivity “5”—A Closer Look
Lenhardt & Colton, LLC Slide 36
February 22, 2001
EC5—Repair Electronic EquipmentEC5—Repair Electronic Equipment
Normalization Criteria
Lenhardt & Colton, LLC Slide 37
February 22, 2001
Normalization Factors X = 2.8
EC5—Repair Electronic EquipmentEC5—Repair Electronic Equipment
Lenhardt & Colton, LLC Slide 38
February 22, 2001
Hours Per Output Type
EC5—Repair Electronic EquipmentEC5—Repair Electronic Equipment
1.0X
1.0 FactorX
2.8 hrs./ (n) unit
Lenhardt & Colton, LLC Slide 39
February 22, 2001
Dollars Per Output Type
EC5—Repair Electronic EquipmentEC5—Repair Electronic Equipment
1.0X
Lenhardt & Colton, LLC Slide 40
February 22, 2001
EC5—Repair Electronic EquipmentEC5—Repair Electronic Equipment
Actual Quantities per Output Type
5028 1025 201 0 0 0
858 663 150 81 80 2
660 111 24 14 13 0
8910
Lenhardt & Colton, LLC Slide 41
February 22, 2001
Projected Quantities per Output Type
EC5—What if Demand Increases?EC5—What if Demand Increases?
5028 1025 201 0 0 0
858 663 150 > 250 81 80 2
660 111 24 14 13 0
Suppose projected demand is for +100 more Repairs of the variety indicated above, in red. Assuming no other changes, resource requirements would increase by approximately (100 qty * $317/ea = $32 K).
Lenhardt & Colton, LLC Slide 42
February 22, 2001
EC5—Kinds of Resources per (n) OutputEC5—Kinds of Resources per (n) Output
Lenhardt & Colton, LLC Slide 43
February 22, 2001
Status of “Develop Activity-based Models”Status of “Develop Activity-based Models”
ES TS CC LM BS BO MR TE AT IM EC CM MDS
1 Pre-Kickoff Conference2 Office Kickoff Meeting
Office Process Analysis3 Identify Office Demands (Outputs)
4 Identify Office Activities
5 Define Output Normalization Criteria
6 Identify Office Resources & Utilization
7 Define Office Data RequirementsCollect Office Data
8 Collect Output Quantities
9 Validate Office Org Structure
10 Complete Crosswalk Tables
Project Task
Program Support Offices
Build the Model in NetProphet11 Draw the Initial Model Schematic
12 Hold Initial Office Modeling Meeting
13 Input Initial Model Boxes & Links
14 Input the Initial Model Factors
15 Identify & Resolve Modeling Issues
16 Import Dollar Data from Crosswalks17 Validate the Model18 Prepare Office Summary
Lenhardt & Colton, LLC Slide 44
February 22, 2001
ABM Rollout in Program SupportABM Rollout in Program Support
Major Milestones
FOR MORE INFO...
State/DOT deployment of Activity-based models nearing completion. Institutionalization of model-building process and usage is ongoing. ABM Cycle 1 is in early planning stage.
Jan Feb Mar Apr May Jun July Aug Oct Nov Dec
Complete AB ModelsComplete AB Models
InstitutionalizeInstitutionalize
Do ABM Cycle 1Do ABM Cycle 1
Institutionalize ABMInstitutionalize ABM
Sep Jan Feb Mar Apr May Jun2001 2002
Lenhardt & Colton, LLC Slide 45
February 22, 2001
ABM - A Systematic Process ABM - A Systematic Process
Identify improvement opportunities
Develop action plans
Implement & Evaluate
Improve Processes
Cost, Quality, Time (CQT)
Evaluate Performance
Input OutputActivity
Resource $Assign Resources
to achieve Performance
Budgeting
PL
AN
DO
CH
EC
K
ACT
AC
T
Lenhardt & Colton, LLC Slide 46
February 22, 2001
A New A New FocusFocus
Lenhardt & Colton, LLC Slide 47
February 22, 2001
Today’s AgendaToday’s Agenda
The Case for Change at XPU
Why Process-Based?
Insights from a Real Life Project
XPU’s Roadmap
Lenhardt & Colton, LLC Slide 48
February 22, 2001
Summary of 2002 ProjectSummary of 2002 Project
Phase 1, Cost Center Process Analysis Interlude— Collect Cost Center Data Phase 2, Modeling
– Cost Center Models– Total Utility Models
Phase 3, Training & Sustenance– Teach XPU How to Maintain Models– Teach XPU How to Do Workload Analysis w/Models– Teach XPU to Use Process Models in Budgeting– Teach XPU to Use Models to “Cost Something”
Lenhardt & Colton, LLC Slide 49
February 22, 2001
The Overall RoadmapThe Overall Roadmap
Addressed to Date
Addressed By Project
Develop action plans
Identify improvement opportunities
Develop process controls
Non-financial process reports
ABC info for strategic decisions
Project Status Reports
Reduce NVA Improve VA
Identify Activities Identify
outputs and CPO
Trace costs
Process Controls
Strategic Information
Process Improvements
Resource Controls
Cost, Quality, Time (CQT)
Activity Based Planning &
Analysis
Evaluate Performance
Develop ABC Information
Lenhardt & Colton, LLC Slide 50
February 22, 2001
Preparing for 2002Preparing for 2002
Exec. Mgt. Discovery Sessions– Helps Exec. Mgt. to understand and
internalize Process-Based thinking– Helps Exec. Mgt. to knowledgably
advocate Process-Based solutions to their organizations
Some sort of “all hands” communication / training session in 3rd or 4th quarter…