Thursday, April 21, 2011

Lean in the Office: Assessing Value, Part 2

Executive Summary:
Don’t let the challenge of identifying value-added work in the office environment, or the difficulty of measuring waste stop you from employing Lean in your office space.  Instead, allow yourself to redefine Value in terms of the creation or improvement of information important to your business.  Use history and testimony to measure wasted time.  With these simple allowances you can quickly identify and eliminate waste in the office using Lean methods.

The Rest of the Story:
In Part 1 of this post I proposed that a simple alteration of the definition of Value allows us to observe the difference between value-added work and waste in the office environment.  I proposed that if the work in question creates, improves, or enhances information that will be used to benefit the business or make decisions regarding the business or it’s product, then the work should be treated as if it is value-added work in the Lean methodology.

I provided some examples to help demonstrate how this definition helps us to distinguish work that makes the business or our products or services better, from work that is just not doing anything productive.  We all know that some of the way we spend our time just isn’t productive or valuable.  I offered a definition that allows us to draw a line and put some names to the work that is waste.

I went on to describe a solution for taking the next step in the Lean methodology, to measure the waste.  I suggested that maybe we don’t need to get too fixated on measuring it at all, that we could simply attack the waste that we feel or experience the most.

In Part 2, today’s post, I’ll address how to measure waste in the office when we must, because we can’t always get away with ignoring the precise rank and file of the enemy.  We can do it if we need to, but we do want to make some concessions compared to how we learned to measure waste on the factory floor.

Measuring waste in the office environment can be troublesome for two major reasons.  First, office processes are highly variable.  Qualifying a new supplier might take two days or it might take two weeks, or more.  How do we quantify that?  Second, office processes often take weeks or months to complete.

We don’t want to spend 6 months measuring how long it takes to develop and execute a marketing strategy, make some process changes and then spend several more months measuring it to prove we made a difference.  We’d spend all our time measuring and very little of it improving.  Such is not Lean.

However, if you are leading a Lean program and must demonstrate the value to the business of your program, or if you are a full-time Lean agent, change agent, or Black Belt and your salary, bonus, or future employment depends upon proving you have saved the business a certain amount of money, you need to measure the waste.

I’ve had very good success measuring and proving the value of waste eliminated with the following three axioms.
  • We must define the unit of measure for waste in the office: time
  • We must accept testimony as a way of measuring
  • We must be willing to work with ranges of time, and sometimes averages

It takes some convincing to get your leaders and accountants on board, but if we appeal to common sense and the fact that we all know and experience a bunch of waste we would all like to get rid of, we can usually negotiate a way to assess and calculate the waste.

1.  Measure waste in terms of time:
Time is the only common denominator for work in the office.  If we try to deal with e-mails in inventory or compare work orders to shipping requests, we just drive ourselves silly with nonsense.  Measure all of your value stream map components in terms of time.

For individual, small tasks, use raw time units such as minutes, hours, or days.  For large tasks with multiple steps and participants, or for processes, use man-hours.  This allows us to account for all of the participants.

For example, if you are trying to map and evaluate a production planning process and one of the blocks on your value stream map is a production planning meeting, which is arbitrarily scheduled for 1-hour each day, count up the participants in that meeting and write down 12 man-hours if there are 12 attendees.  This reveals much more about how much is wasted than recording 60-minutes.

2.  Accept testimony as a valid measurement:
We have a choice.  We could spend weeks or months “walking” a process, or we can get our data from history.  Sometimes that history might be captured in a project plan.  Often times, that history exists only in peoples’ memories. 

Yes, memory can be subject to error, but we have already admitted that office processes experience a great deal of variation.  How much is a small amount of error in someone’s memory really going to matter?

Instead of walking processes, do an autopsy of a few recent executions.  Go talk to the people who do the process and challenge the process instructions or process map.  Find out if the instructions are really followed.  Find out what happens that is not mentioned in the instructions (hidden factory).  Build your more truth-representing value-stream map.

Once you have your map, ask those same people, how long it took to do each step.  Ask how long they waited for the previous step.  Ask how long they typically take, or wait, or how often they rework.  The chances of you getting better information by walking the process are slim, unless you want to spend years doing it many times, which we all know is not going to happen.

3.  Work with ranges and averages:
Let’s look at that example of a production planning meeting mentioned above.  Suppose that sometimes there are 12 attendees, but sometimes there are fewer.  We have a choice.  If the meeting generally has 12 attendees and meetings with fewer are rare exceptions, we can reasonably write down 12 man-hours for the meeting.

Suppose, however, that the meeting frequently has fewer than 12 attendees.  In this case, I like to ask, “what is typically the lowest number of attendees?  Not the rare exception, but a frequent low number.”  Suppose the answer is 8.  Then I ask, “What is the typical maximum number?”  Suppose the answer is 12.  Last, I ask, “What is the most likely number of attendees?”  Suppose the number is 11.

Now we have a best-case, worst-case, and most-likely-case for the number of man-hours invested in the production planning meeting.  If you tally up all of these ranges you can report your process times and your waste in the same terms.

You can say that the process typically takes anywhere from 3 hours to 3 days, and the waste in the process is typically 1 to 47 hours.  Most often the waste is about 23 hours and that is what we propose to remove.

In some extreme cases, I’ve resorted to Monte-Carlo simulations that built a best-fit distribution based on my best-worst-most-likely triangular distributions.  From the best-fit distribution I found the 20% and 80% and central tendency points.  I then proposed to the leadership that I was 80% probable to remove more than X man-hours of waste from the process, most likely the waste removed would be Y.  I would also say that there is a 20% chance that the waste removed and the money saved would be as high as Z.

The latter method is a bit extreme and verges on over-analyzing the opportunity, but it is very effective at getting leaders’ attention and I’ve succeeded several times in getting my proposals approved with such presentations of the opportunity.  Unfortunately, when it comes time to get credit, we find ourselves negotiating between the central tendency and bottom ¼ of the curve, depending upon how conservative our accountant is feeling.

That last comment leads to my final piece of advice.  It regards how accountants who are trained and expected to treat business dollars in terms of taxable assets will view your waste elimination effort and how they frequently determine the dollar value of your improvement.

In both of the last two corporations for which I performed numerous process improvement initiatives on office processes, I ran into a phenomenon where the accounting practices awarded differently for “hard” savings and “soft” savings.  For example, if I reduced the work in a process by 60 man-hours, but head count or capital equipment didn’t reduce, I would only get partial credit for the waste removed.  It would be called a “soft” savings.

The problem is this.  The accountants are trained to report business savings in terms of how much money is going to hit the balance sheet at the end of the quarter or the end of the year.  If we reduce the work for 30 employees, but those employees are still employed, then their salaries and overhead still hit the balance sheet, even if they are getting more work done in the mean time.

If you find yourself fighting this battle when it comes time to report your savings to the business, then I have a recommendation.  Whenever you can get away with it, report two numbers.  Report the quantity and value of the waste eliminated, and report the balance sheet savings to the business.

Here is what I mean.  Suppose that we eliminated 60 man-hours of waste from a supplier qualification process.  We got Human Resources to tell us that the average burdened rate for each man-hour of the personnel affected is $56 an hour.  That’s $3,360 dollars per execution of the process.  If the process is executed 20 times in a year, that’s $67,200 of waste eliminated from one year’s worth of the process.

Suppose the accountant gave us credit for $13,440 because the extra 60 man-hours of time saved meant we could now perform the process 4 more times in a single year with the same employee salaries, we now get $13,440 more work out of the same number on the balance sheet.  (The raw man-hours saved rarely equate exactly to that much more execution of the process in practical terms.)

What we can do is report both numbers to our leadership.  We can say that we have saved (or earned) the business $13,440 with our process improvement and we eliminated approximately 1200 (60 X 20) man-hours of waste worth $67,200 for the year.  Oh yes, it will generate questions and conversation and many raised eyebrows.

Both statements are true.  We can now get a certain number of more process executions with the same personnel.  We are also no longer paying out a certain amount of money for work that didn’t produce any benefit.  It’s a shame the two numbers don’t match, but it’s a bigger shame to withhold the information.

It’s the unfortunate price to pay to have an opportunity to paint a truthful picture for our leaders.  Some will chose to accept the balance sheet version of the savings/earnings.  Others will chose to take the waste-eliminated number and skip away happy.  The point is that we gave them a choice and created an opportunity to explain the full scope of the change we made.

It is most certainly an adjustment to apply the Lean methodology to the office environment, but there is a great deal of waste to be removed from that environment as well.  Make the adjustment by allowing for a slightly different definition of Value, based on the creation of information instead of product. 

If you must measure the waste, use time as your measuring stick, use testimony and historical information instead of walking the process, and learn to deal in ranges instead of absolutes.  Once you get the hang of these adjustments, you will find it both practical and potent to use the Lean tools and methodology in the office.

There is a lot of waste to be found in the typical office.  Take some of my suggestions to heart and spend a day or a week assessing and estimating the waste that you alone experience.  You might be surprised by how much there is, and how plausible it is to quantify it.

Stay wise, friends.

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