Process Improvement to Eliminate/Contain Non-Value Added Costs in the Services Industry

Process improvement is undertaken for a multitude of reasons which include – improve customer satisfaction, mitigate risk, improve employee satisfaction, eliminate/contain non-value added costs.

A non-value added cost is an expense that is incurred, but does not add to the value or perceived value of your product or service.  Simply stated, it is a cost your customers will not want to pay.  Instead you will assume the cost out of your profits.  During periods of low margin, company owners should attempt to protect their profit margins by eliminating or containing non-value added costs.

There are many examples of non-value added costs in the manufacturing industry.   My goal is to point out potential non-value added costs in the services industry which create delay, require rework, and re-focus resources off of providing the services your business offers.   All of the examples presented have parallels in manufacturing.

Non-Value Added Costs in the Services Industry
Area Issue
Distribution Transportation problems
Human Resources Employee – absenteeism, attrition, lack of training
Information Technology Data unavailable or hard to find
Management Constant reactionary state, i.e. focus on fighting fighers; and lack of employee empowerment requiring manager sign-off/approval
Planning & Analysis Re-work associated with bad planning
Operations Unreliable suppliers, defects in supplies

How does your company compare?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

The CFO Analyst

The CFO office should function as a source of process improvement ideas; as well as business development recommendations.  It is in this location where production data meets financial data.  It is expected that your CFO will perform the necessary analysis to understand why actual results differ from Plan results.  But the analytical process does not stop there.

By comparing actual results between you and your competitors (benchmarking) or comparing activities within different regions of a company, you should be able to identify variations in revenues and expenses.  There may be perfectly good reasons for the disparities, but the questions must be asked.  More often than not, differences will be explainable.  But if not, you may have found a process that needs improvement to save the company real dollars.

This analytical discipline is also needed when considering new products and services, or expanding the distribution of current products and services.  The initial concept review is performed by the CFO – analysis, modeling, and planning.  Once approval is provided by the CEO, the CFO will pull in the affected departments, to implement the plan, i.e. HR, IT, Compliance, Legal, Sales…

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

The Value Embedded in Tele-Commuting

As communication technology advances and tools become more pervasive, the traditional office blurs, i.e. geography and time zone.  Organizations are more-and-more giving up traditional brick and mortar, in exchange for the online office.  High speed internet is now available in many places.  Business can be conducted at home or at the local coffee establishment.  The term telecommuting includes all remote working and work from home arrangements.

The trend is growing —

“In a recent Accountemps survey, one-third (33 percent) of chief financial officers (CFOs) interviewed said remote work arrangements, such as telecommuting and working from satellite offices, have increased at their companies in the last three years.” (PR Newswire 09.14.2011)

“TechCast, a virtual think tank based at George Washington University, forecasts that 30% of the employees in industrialized nations will telework  2–3 days a week by the year 2019. What’s more, they estimate the market for related products and services at $400 billion a year.”  (TeleworkResearchNetwork.com / Kate Lister / May 2010)

Benefits to these arrangements include –

  • Benefits to Employer – “Half-time home-based work among those with compatible jobs could save employers over $10,000 per employee per year—the result of increased productivity, reduced facility costs, lowered absenteeism, and reduced turnover. The cumulative benefit to U.S. companies would exceed $400 billion a year.”  (TeleworkResearchNetwork.com / Kate Lister / May 2010)
  • Benefits to Employee – “Overall, researchers have found that virtual workers are slightly more satisfied than their in-office counterparts. In general, virtual work leads to higher satisfaction, lower absenteeism and higher retention. Additionally, because the majority of virtual assignments result from the employees’ expressed desire, organizations usually observe little to no decrease in production or performance. On the contrary, productivity often increases (Erskine, 2009; Mulki, Bardhi, Lassk & Nanavaty-Dahl, 2009).”  (Cornell University study Remote Work: An Examination of Current Trends and Emerging Issues Spring 2011)
  • Benefits to Society – Online Office arrangements provide the opportunity for those with disabilities to more efficiently participate in and/or transition into the workforce, i.e. an online arrangement may allow individuals on maternity leave to transition back to the work force more easily.

Benefits to date have been experienced by employers and employees, using a combination of various technology tools.  Top 10 technologies that companies provide to support remote workers include – Laptop 62%, Virtual Private Network (VPN) 40%, Instant Messaging 29%, Outlook Web App (OWA) 28%, On-line Meeting 27%, SmartPhone Mobile Computing 25%, Desktop 21%, Remote Desktop 18%, Collaboration/On-line Workspace 17%, Video Conference 17%. (Microsoft 2010 US Remote Working Research Summary National Survey Findings).

However, as you would expect with changes in business methods, come unforeseen issues, i.e. innovation creates disruption –

  • Issue 1 – Employee Exclusion – “Employees in virtual environments may develop perceptions of exclusion or isolation due to their need to rely on technology to communicate with others; common forms of communication technology (e.g., email) do not provide a high level of information richness and can inhibit social exchange (Marshall, Michaels, & Mulki, 2007).” (Cornell University study Remote Work: An Examination of Current Trends and Emerging Issues Spring 2011)
  • Issue 2 – Remote Responsiveness – “Some remote employees struggle when attempting to coordinate their work with their managers and other employees or when attempting to receive timely feedback.”  (Cornell University study Remote Work: An Examination of Current Trends and Emerging Issues Spring 2011)

More and more companies are figuring out the proper way to reap these benefits, while addressing the issues.

Where is your company in this process?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Do you manage risk or react to it?

In its quest to achieve its strategic goals, a company naturally assumes risk, and must wrestle with the risk-reward trade-off.  Individual risks assumed, as a result of a product or a service may be minimal.  However, when you look at the entire organization as a whole, are you taking on more risk than you thought?

Risks include, but are not limited to – financial, operational, and regulatory.

Enterprise Risk Management (ERM) is an established framework, developed to assist the Board of Directors and Senior Managers of a company to identify, assess, respond, control, communicate and monitor Risk.

Most companies have incorporated some of the framework items, but not all.  Which items are you  missing?

  1. Review company product lines and service lines and identify areas of risk.
  2. Establish metric(s) for each risk with corresponding tolerance range(s).
  3. Adjust policies and procedures, as necessary, to ensure risks are controlled:
    1. Approvals and Authorizations
    2. Top level performance reviews (actual vs. budget/ forecast/ prior period)
    3. Track major initiatives
    4. Physical Controls (inventories/ equipment/ cash/ other assets)
    5. Information Processing
    6. Segregation of Duties
    7. Develop a company-wide Board established “Risk policy” which identifies acceptable levels of risk.
    8. Communicate that policy to all employees, i.e. creating a culture of awareness.
    9. Monitor periodically adherence to the level of Risk established, i.e. metrics and tolerances
      1. Scorecards
      2. Internal and external audits
      3. Planning sessions
      4. Process improvement

Going forward all actions undertaken to assist the organization in reaching its strategic goals will take into account the Board established “Risk Policy.”

For more information, please review www.coso.org Committee of Sponsoring Organizations of the Treadway Commission.

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Communicating and Monitoring Success at Reaching Strategic Goals

Scorecards present Key Performance Indicators (KPI’s) that the company/department deems is appropriate to gauge success at achieving strategic goals.  These reports are metric centric.   As a general rule, KPI’s provide information which gives the reader a quick glance of success from a financial, operational, and risk perspective.  A successful scorecard will assist the company drive profitability, reduce costs and provide insight into risk.

Qualities of the basic scorecard include –

  • Simple, intuitive and easy to read
  • Department/business specific metrics – metrics impacted by team activities.
  • Tolerance ranges displayed and highlighted when breached
  • Nine to twelve key metrics to grade performance
  • Benchmarking to gauge how the company’s performance measures up to its competitors and peers (external data).

How to start – Identify nine important activities the team accomplishes, that contribute to the strategic objectives or compliance obligations of your business.  Build metrics that measure activity success.

Note – data presented rates how the company is faring based on established targets, i.e. based on your annual plan.  This type of report does not do a good job at presenting trend data.

What is your experience?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

Should your CFO be a CPA?

It only makes sense for my first blog post to be an issue that is controversial.

The correct answer to the question…not necessarily.

A CFO is a well-rounded management executive, whose primary role is “advisor” to the CEO, regarding strategy and direction of the company. He/she is a finance expert that must interact with internal groups (HR, IT, Accounting, Sales) and represent the company with external groups (banks, investors, reporting agencies, auditors).

I am in no way dismissing the knowledge and experience gained in public accounting, by a CPA. However, a CPA would be a Subject Matter Expert in only one area that requires attention from a CFO.

While the CFO need not be a CPA; he/she must certainly be able to understand the issues and ramifications of decisions. He/she needs a strong understanding of GAAP; and be skilled in financial statements, the general ledger, and the day-to-day technical skills.

Experience is the primary requirement for a company’s top Finance post. A CFO with hands-on experience and exposure to different situations and complex challenges enables them to quickly analyze and assess any situation.

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.