The most successful organizations are those that consistently deliver great customer service and high-quality products at a lower cost than their competitors. The core competence of the strongest companies of recent times has been less strategic or financial in nature, but more of a committed focus on operational delivery.
Operational Assessments establish a framework by which management can better understand the basic operations and the major processes critical to the business. The assessment typically tracks all the key processes, how they flow through the business, and their respective impacts on the business. It also establishes appropriate baselines by which a company can measure the results of improvement initiatives, benchmarks their competitive standing within their industry sector, and provides a perspective on performance and potential areas of opportunity.
Profit Miners is a strong believer in benchmarking, and we have performed assessments and evaluations tailored to our client’s particular needs in various industry sectors. There are a number of reasons for performing an assessment of a company’s business operations and a similar variety of assessment and evaluation methodologies.
Aside from gaining an understanding of a business’s competitive standing in its industry sector, other reasons for a business assessment or evaluation might include:
- Identifying how well various areas of the business are performing
- Establishing the value of the business with respect to a sale or merger
- Assessing supply chain and vendor relationships
- Ensuring compliance with regulatory reporting requirements
- Tax, estate, and succession planning activities
- Supporting a financing initiative
- Compliance with certification or customer-related reporting requirements
The Process
We begin all of our assessments by first determining the appropriate type of assessment or evaluation to be performed, and the level of detail required to meet the objectives of the engagement. We then conduct an opening interview with senior management which takes approximately an hour to an hour and one-half. During this meeting, we facilitate an in-depth discussion of the business, its history, its competition, management’s long and short term personal and business goals, and other relevant areas of focus.
On the basis of the information developed during the opening meeting, we then conduct a quantitative and qualitative review of the business, identifying problem areas and appraising their effect on the overall operations and profitability of the business. Examples of the kinds of things that we may review include:
Operations: How often does management receive operating statements? What key information is tracked, and how is it utilized to monitor productivity and performance? How are the company’s goals and objectives communicated?
Administration: Are policies and procedures appropriate? Are they documented, communicated, and understood? What types of reports are generated, and how is performance tracked, and are the measures and metrics appropriate? Do administrative systems meet current requirements? How are employees measured and held accountable in their performance of their jobs?
Material Cost: What effects do waste and rejects have on material costs and how do these affect margin contribution? Who is responsible for negotiating material contracts, managing costs and overrun controls? How is the supply chain managed?
Labor Cost: How does labor cost fluctuation affect production scheduling? How does the company compensate for work center loading? What effect does overtime have on profitability and how does this factor in the decision to add or maintain personnel?
Overhead: How is overhead application accounted for in the pricing matrix? What methodology is used to track and measure overhead costs? How are the implications of adding overhead costs to cash flow requirements and profitability assessed? Are inventory turns, WIP, inventory levels appropriate?
Energy: Is there an established energy management system in place? How efficiently is energy utilized within the business?
Incentives: Is there a productivity-based incentive plan? If not, how are employees rewarded? How is the effectiveness of those rewards measured in profit and productivity?
Productivity: Are there established quantifiable productivity standards and are they appropriate? What is the level of equipment / process down-time? Is there an established preventative maintenance program? How does the company handle training and employee skills development? Has the company adopted Lean practices?
Quality: Is there an appropriate quality system in place? Are scrap and rework levels reasonable? How often are products shipped on-time? What is the level of customer satisfaction?
Cost Controls: Are costs measured and compared to predetermined standards? What systems or procedures are in place to control costs and quantify results?
Material Flow: How is material throughput analyzed and what effect does it have on productivity and waste? Does a perpetual inventory record for raw materials, supplies, work-in-progress and finished goods exist and how is it maintained?
Break-even Utilization: Is there a break-even analysis by product group, sales, personnel, or service offering? How are break-even calculations made? How are they utilized for bidding, pricing, and market strategies?
Cash Flow Management: Is there a system in place to forecast and manage payables and receivables to maximize current assets and increase vendor leverage?
Financials: Does the balance sheet, income statement, and related documents appropriately reflecting the company’s operations? How are they utilized by management?
Tax Planning: Is after tax income maximized with proper planning? Is the owner’s estate plan structured to minimize estate taxes? Is there a succession plan in place?
Organization Re-engineering: Is the company set up on a functional basis and do all employees have a clear understanding of their role in the success of the business?
Sales and Marketing: Is management able to determine margin contribution and operating profit by salesperson, product, product line, and territory? Does the company get a reasonable return on advertising and promotion investments? How is the return quantified?
Any Other Unique Concerns: What other issues impede the company’s ability to service its customers and create a good quality of life for its employees?
Based on the data collected over the course of the assessment, we develop a comprehensive and exhaustive business review, both from the perspective of how the business is performing in relation to prior years, and how it is performing in relation to other companies of a similar type and size.
From this comparative review, company management is able to clearly understand the obstacles standing in the way of achieving the business’ maximum potential. More importantly, we help management understand what methods, systems, procedures, controls, and incentives are needed in order to reach their goals and objectives.
