What’s Important Now?
Last month we discussed Pareto’s Principle which dictates that 80% of value is derived from 20% of the input. Determining where to apply this concept is the next step in utilizing its power. This month we’ll talk about identifying the highest impact issues for your company right now.
As you prepare for 2003, take a moment to analyze your company’s performance over the past year. Regardless of company volume, number of employees or the complexity of the work you do, the all company functions fall into only 5 categories. They are:
Ownership & Transition:
- Primary focus on maintaining company momentum
- Provides for sustainability of the company
- Responsible for planning strategy and delegating tactics
Marketing & Sales:
- Primary focus on working with appropriate clients
- Provides for image/brand of the company
- Responsible for consistent and accurate bidding
Human Resources:
- Primary focus on productivity
- Provides for employee satisfaction
- Responsible for maintaining productive work force
Production:
- Primary focus on structure and controls
- Provides for consistent output
- Responsible for customer satisfaction
Finance and Administration:
- Primary focus on measurement of financial success of company
- Provides for reliable and timely paper flow & financial reporting
- Responsible for maintaining financial viability
Using Pareto’s Principle, determine which one of these 5 areas produced the greatest headaches over the past year. If you’re unsure, answer the following questions to help guide you:
Did you have a steady stream of appropriate leads?
- Were you able to convert them to signed contracts?
- Was your customer satisfaction level high?
- Can your employees define what makes the company successful?
- Are your financial statements accurate and complete?
- Do you review your balance sheet at least monthly?
- Have you paid interest and finance charges on over-due payments to your vendors?
- Is your produced gross profit margin within 2% of the estimated gross profit margin?
- Do you work more than 60 hours a week?
- Are you making a sufficient living from your company?
- Do you have sufficient cash in the bank to allow you to take available discounts?
- Is your company always in crisis?
- Have you paid penalties to the IRS for late or incorrect payments?
To determine where first to focus your critical eye, define what you perceive to be the biggest problem currently confronting your company. This area produces the greatest risk. Then de-construct that problem into component pieces. Finally, anticipate and define patterns which relate to the problem. You can then develop a strategy for controlling the risk.
For example, a company with insufficient net profit could suffer from a number of ailments, including:
Bad estimating
Poor production
High overhead
Low sales
A company producing sufficient net profit can still suffer cash flow problems if any of the following exist:
Poor collection policies
Fraud or embezzlement
Improper payments to vendors and subcontractors
Determining which of the causes contributes the greatest impact to the problem requires some sleuthing, to be sure. But to develop a stable and smooth running company you must spend as much time working on the complex interrelationships between different functions of the company as the Senior Production Manager spends controlling field productivity.
Going back to the 5 primary functions to be managed in any company, review the common indicators of stress under each and determine where to focus your problem solving techniques for the first quarter of the New Year.
Some high-impact problems in each of these areas are:
Ownership & Transition:
- Working more than 60 hours/week
- Doing everything yourself, not delegating well
- Not earning enough to provide for yourself & your family
Marketing, Sales & Estimating:
- Providing free estimates to all callers
- Traveling further & further to find new clients
- Lawsuits and arbitrations
- Consistent failure of jobs to be produced as estimated
Human Resources:
- High employee turnover
- Employee discontent
- Slipping employee field productivity
Production:
- Failure to control the schedule
- Jobs which never end
- Customer dissatisfaction with carpenters
Finance and Administration:
- IRS penalties; interest payments to vendors
- Inaccurate or incomplete financial reporting
- Calls from vendors seeking payments
When that problem has been resolved to your satisfaction, begin work on the next. No matter how long your company has been in business, the supposed strength and sophistication of its systems and the owner’s management strengths, I guarantee another problem will assert itself for your resolution. This process never ends.
So start now:
Identify the problem
Quantify its effects on your company
Strategize potential solutions
Suggest the best and test for a quarter
Standardize that solution and train throughout the company
And then, identify the next most pressing issue. Next month we’ll focus on developing a company plan for the New Year. In the meantime, please send me your questions and comments at jfmiller@remodelservices.com. Thank you!