Have you recently reviewed how your IT department is operating?
When talking about operational efficiency, we are looking at continual improvement, maximizing the utilization of resources, and reducing unnecessary costs.
Let's take a look at operating efficiency, and share some tips on how to improve this in your department and throughout the organization.
What is Operational Efficiency?
Operational efficiency is the way in which business handle their inputs and outputs. Inputs include anything that the business puts into its operations. This can include items such as time, labor, and expenses. Outputs on the other hand can include things such as product quality, revenue acquisitions, and retention.
In this article, we will be talking specifically about how a business reduces wasted effort, time, and materials. The goal when talking about operational efficiency is to produce the best possible product while having the least amount of waste resources.
Why is it important?
Operational efficiency is important because wasted time and resources mean you are wasting money. This severely cuts your profit margins. Due to this, the more efficient a company is, the better. This does not mean that you are able to cut corners, as this typically leads to your employees, customers, and the end product suffering.
One of the most common ways to streamline your operations is to provide your employees with as many self-service tools as possible. One example of this is the IT department using a self-service user interface that allows the employees to check devices in or out as they need. This allows for time for your IT department to be freed up to perform another strategic task.
How do you measure Operational Efficiency?
When we are looking at the metrics for operational efficiency, the main determinants that we look at are operating expenses and total revenue. Using these two numbers, you are able to calculate the operational efficiency using the following formula.
Operating expense/total revenue = operational efficiency
Once you have used this formula, you will then have your operational efficiency ratio. For example, if you have a total revenue of $200,000 and an expense of $20,000 then your operational efficiency ratio is 0.10. Now you multiply this number by 100 to get a percentage.
(operating expense/total revenue) x 100 = operational efficiency ratio
Using the same example as above, the 0.10 operating efficiency ratio multiplied by 100 equals 10%. The lower this number is, the more efficient your business is operating.
Steps to Improve Operational Efficiency
Know the ins and outs of your business
When operating a business, it is easy to get tunnel vision. This is a plus side to knowing the ins and outs of your business. This will help you to better understand your role, and fix more inefficiencies.
Conduct an Audit
Audits are a great way to help reveal inefficiencies rather than going around and observing operations firsthand. An example of this could the the IT department auditing its assets and finding out that only 50% of them are being used. This will allow you to hand out an asset you already have instead of ordering a new one when a new person is hired.
Take advantage of Asset Management Software
There are numerous software options available to help businesses run more efficiently. Asset management systems, like AssetRemix can be used to track assets across multiple locations, maintain your maintenance schedules, run reports, and more.
Benchmark against your competitors
Use other businesses in your sector to see how they run an efficient operation. Take this information as a benchmark to help with your efficiency improvements. Make sure that you also use this opportunity to inspire ideas for operational efficiency in your business.
Test out different processes.
When looking at improving your efficiency, you can almost never test enough. This is because continually improving is what you are after. Have set times and team members to conduct these tests, while having designated parameters. This will give you actionable numbers and variables to review when determining the success of your tests.