the_benefit_cost_of_vdt_highlighting.pdf

PERFORMANCE MANAGEMENT

CONSULTING

Churchill Consulting Churchill Consulting is a boutique consultancy

integrated project team to develop business

specialising in organisational performance

solutions within the context of current and

improvement. Established in 2003, Churchill

emerging issues.

Consulting focuses on the needs of Asia Pacific businesses seeking high-level strategic counsel.

As part of the broader Churchill Capital Group, Churchill Consulting is also able to provide its

Integral to our business approach is the quality

clients with access to property and corporate

of our consultants. Our principal consultants

advisory services.

have the experience and expertise to deliver  critical business improvements that drive sustained performance benefits for our clients. We demand both intellectual and service excellence from every member of our team. In addition to the calibre of our consultants, Churchill Consulting distinguishes itself by utilising rigorous methodologies that are applied to business critical issues. This incorporates the review of current business performance as well as the development, implementation and management of core performance improvement initiatives. Churchill Consulting is committed to working in partnership with clients. We establish an

“Checking the results of a decision against its expectations shows executives what their strengths are, where they need to improve, and where they lack knowledge or information”. Peter Drucker 

PERFORMANCE MANAGEMENT

Performance Management Organisational success comes from regularly ensuring the alignment between strategic objectives and the changing organisational environment. Organisations must ensure they have robust measurement and monitoring systems to assess the performance against strategy.

BUSINESS STRATEGY

CUSTOMER RELATIONSHIP MANAGEMENT

LEADING CHANGE

Performance management is the discipline of aligning employee accountabilities and behaviours with business objectives. If done well it is a key contributor to sustained business success. Key components of a performance management system include: • Business strategy development – clear articulation of business key result areas, objectives and performance measures. • Divisional business planning – setting divisional measures and targets, alignment of strategic initiatives.

PERFORMANCE IMPROVEMENT

INFORMATION TECHNOLOGY STRATEGY

PERFORMANCE MANAGEMENT

PROJECT MANAGEMENT

• Performance reporting – balanced scorecards, report regularity, performance review meetings. • Performance review – rewards, discipline, role clarity, performance assessment.

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PERFORMANCE MANAGEMENT

Linking key business activities to the bottom line Churchill Consulting has found that our clients often have trouble ensuring that the key measures (KPI's) they have set for their people will actually drive business success. This is usually because those accountable for KPI's don't have a tool to allow them to see this link. Our experience highlights the importance of the overall approach, not just to defining the valued outcomes but also to ensure these are realised.

We have found Value Driver Trees (VDTs) are a useful mechanism to determine the affect of business activities on the overall value (eg. “if I improve X, will it affect our value?”). This visual-based helps people understand the complexity of and the relationships between different key business activities. It also can prioritise the many things we have to do and drive accountability for achieving desired outcomes. Selected key points from our approach are outlined below:

Defining Valued Outcomes • Identify the main overarching value of the organisation (eg. “we provide... or our goal is to be...), or highest level economic outcome (ROI). • Next, determine the key business functional areas (economic drivers) that deliver that overall value. • Finally, determine the business activity drivers and their measures that make up the key business functions. • Consider different perspectives of Value - cost vs profit, customer vs business unit, etc. This process is illustrated in the diagram on Page 3.

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PERFORMANCE MANAGEMENT

Value Driver Tree (mineral producer example) M a in overa rchin g v a lue of the or ga nis a tion

Key function a l a re a s or economic drivers

Sub-Functiona l a re a s or drivers

Fi n a nc i a l Mine Oper a tions People Resources S a fe a nd cost effective delivery of Me t a l X to customer specific a tions

People/Te a m Environment

Activities

Equipment oper a ti n g  time (hrs)

Pl a n vs a ctu a l

Productivity (bcm/hr)

Pl a n vs a ctu a l

Skill buildin g

Tra inin g  hrs

Utilis a tion of a v a il a bility

Equipment runnin g

Non-conform a nc e

Trouble Reports: closed vs open trend

PS millin g efficiency

Customer co a l use me a sure

Cost Customer Specific a tions

Product Performa nc e

Metric

On Time Growth

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PERFORMANCE MANAGEMENT

Realising the valued outcomes While careful construction of VDT's is an important strategic exercise to hone in on business value, it is the timely measurement and management of the identified economic drivers that will improve the valued outcomes.

Determining the Economic Drivers The Value Driver Tree approach Things to consider when determining the drivers are: • Drivers must be Mutually Exclusive and Collectively Exhaustive (MECE). • Pareto applies - focus on key economic drivers that link directly to the Valued Outcome. • What is controllable in terms of the drivers? A role in the organisation must be able to manage the driver. • Measurable - can the data be collected (eg. manually, ERP)? How often will it need to be updated? Is it mathematically logical? • Is there a “best demonstrated performance” yardstick that can be used to highlight priority areas for improving performance. • What is the appropriate time frame to measure and report the drivers?

Using VDT’s Referring to the example VDT on page 5 we see there is powerful information managers and their  teams can use to improve the business and communicate to their teams what the key things are to drive business improvement. • Use “traffic light” colours to ensure focus on what is actionable (red requires explanation for  a variance). • Action meetings review trends and highlight need to develop improvement projects to eliminate root causes. • Focus on drivers that determine Value drives role accountability and a performance oriented organisation. • Assign each VDT measure to an accountable role in the organisation, i.e. a VDT turned 90 degrees should resemble the organisational chart.

We construct the driver tree working from left (our Valued Outcome) and map out the drivers to the right until there is either no measure available or the detail is not useful (see page 5).

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PERFORMANCE MANAGEMENT

Value Driver Tree (open cut mine haulage example)

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PERFORMANCE MANAGEMENT

Benefits A well constructed and managed VDT will give your business managers a simple but powerful tool to keep their staff focussed on the key economic drivers to deliver  business value. The VDT makes clear role accountability, provides a trigger for business variance identification and directs people to where improvement projects should be focussed. Key benefit measures can be communicated quickly and clearly up to Board and out to all employees. Automation of data collection keeps focus on managing improvements – not on “checking the numbers”.

Examples of recent client engagements: Wesfarmers Premier Coal Change management of major cross business transformation project including use of VDT's to link front line process changes with overall improvement KPI's Zinifex Century Mine Design and implementation of VDT's for mine (contractor alliance) and process plant OceanaGold (NZ) Design and implementation of VDT's across mine and processing operations Pasminco Smelters Design and implementation of VDT's for Port Pirie smelting operations

“With the help of Churchill Consulting, Zinifex Century Mine implemented a Driver Tree project that provided us with a deeper understanding of what drives value in our business. The project has allowed more effective tracking and reporting of key performance indicators that are relevant to each of our work groups”. Jeff Innes, Deputy General Manager  Zinifex Century Mine

For Further information on Value Driver Trees by Churchill please contact: Craig Hook on +61 (0)8 6311 7011 or [email protected]

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PERFORMANCE MANAGEMENT

Craig Hook  Craig is a leading practitioner in the design and implementation of business strategy and organisational capability systems. With a strong technical and leadership background, Craig has a proven record in the implementation of systems that drive an improvement culture of increased profitability and teamwork. Before working for Churchill Consulting, Craig has held operational and strategic management roles with Rio Tinto, BHP-Billiton and Oceana Gold.

Professional Qualifications MBA (Melbourne Business School) B.Eng (University of Queensland) Skills Summary • Craig has significant experience in Project and Programme Management including technical feasibility studies, design and implementation of business improvement systems and improvement projects. • Design of implementation framework for business improvement projects, evaluation of cost saving opportunities, design and implementation of business improvement systems. • Design and implementation of integrated cultural and systemic systems and tools to affect change. • Mentoring of senior managers in change and delivery of leadership training.

Contact Details Telephone: (08) 6311 7011 E-mail: [email protected] Key Clients Rio Tinto, BHP Billiton, OceanaGold, AngloGoldAshanti Zinifex, Wesfarmers Premier Coal

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