This Slideshare presentation is a partial preview of the full business document. To view and download the full document, please go here: http://flevy.com/browse/business-document/robust-production-management-rpm-module-3-complex-planning-calculations-461 When it comes to managing teams to "get the job" done while also keeping costs under control, supervisors and managers sometimes err on the side of caution when it comes to scheduling - often thinking, "We've got a lot of extra work to do, so I'd better schedule some overtime." But is overtime always the answer? What if there was a simple way to pinpoint resource needs based on quality and productivity levels, and save money at the same even in complex, ever-changing environments? Robust Production Management (RPM) Module 3: "Complex Planning Calculations" can give you an edge as a supervisor or and be a hero at work! "Complex Planning Calculations" is the third module in the Metrilogics RPM management training series - more on the way.

1. Copyright © 2005 Metrilogics, LLC. All rights reserved.
Robust Production Management
Metrilogics
Front-line controls for bottom-line savings.
TM
SM
Module 3:
Complex Planning Calculations
By Lance Latham
Senior Managing Partner

2. Copyright © 2005 Metrilogics, LLC. All rights reserved.
Metrilogics
TM
The Definition of Process Capacity
Task hourly capacity rates are established
by performing a time study.
v The maximum average # of quality output units for a given task…
v …that can be steadily completed…
v …during an uninterrupted and extended period (1 hour or more)
of processing time.
v …by a skilled and motivated subject matter expert…
2
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3. Copyright © 2005 Metrilogics, LLC. All rights reserved.
Metrilogics
TM
Historically, quota rates have been used by the Strategic Management
team to estimate annual resource needs instead of capacity rates.
The Strategic Management team wants to determine the difference
between calculated annual resource needs by running two analyses:
one that assumes direct team members work at the task quota rates,
and one that assumes team members are managed to work at capacity.
The hourly quota rates and capacity rates for all 3 tasks are as follows:
Task A 11.0 15.0
Task B 2.0 3.5
Task C 28.0 40.0
Hourly Quota Rate Hourly Capacity Rate
Example of The Real-World Advantage of
Managing to Capacity vs. Quota (cont.)
5
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4. Copyright © 2005 Metrilogics, LLC. All rights reserved.
Metrilogics
TM
Example of The Real-World Advantage of
Managing to Capacity vs. Quota (cont.)
Planned Annual
Cost of Work
@ Quota and
100% Quality
$796,812.50
Planned Annual
Cost of Work
@ Capacity and
100% Quality
$521,437.50
Difference:
$275,375.00 Planning and
managing to
capacity instead
of to quota saves
the company over
$275K per year
(almost 35%) in
avoidable over-
crewing costs.
8
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5. Copyright © 2005 Metrilogics, LLC. All rights reserved.
Metrilogics
TM
In addition to quality, the number of required Direct Hours is also impacted
by productivity (i.e., the rate at which quality direct work is completed per
capacity standard). Continuing with our simplified example, assume an
average productivity rate of 85%:
Required Direct Hours
@ 90% Quality and
100% Productivity
= 5.56 Hrs.
/ Productivity of 85%
Required Direct Hours
@ 90% Quality and
85% Productivity
= 6.54 Hrs.
Simple Example of
Deriving Direct Hours Requirements (cont.)
In order to complete 5.00
Quality Work Credit Hours
(and assuming 90% quality and
85% productivity) …
…a manager needs to plan for
6.54 Direct Hours of work time
in order to “get the job done.”
11
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6. Copyright © 2005 Metrilogics, LLC. All rights reserved.
Metrilogics
TM
Example of Deriving Direct Hours Requirements
in a Complex Operating Environment (cont.)
Planned Annual
Cost of Work
@ Capacity and
100% Quality
$521,437.50
Planned Annual
Cost of Work
@ 87%
Productivity and
Quality < 100%
$615,536.50
By factoring in
quality and
productivity rates,
managers are
better able to plan
resource work
requirements and
tighten controls on
associated costs.
In this way,
premium overtime
costs can be
minimized.
Difference:
$94,099.00
14
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7. Copyright © 2005 Metrilogics, LLC. All rights reserved.
Metrilogics
TM
Module 3 Summary
v Process capacity rates challenge direct team members to perform at
a higher level than asking them to perform at quota rates.
v When teams perform as close as possible to capacity, they operate at
a much more cost effective level than when they perform at quota
rates.
v The most effective way to plan team resource needs – and avoid
unnecessary overtime costs - is to translate work units into Direct
Hours.
v To refine the team resource planning process, it is necessary to
derive required Direct Hours by factoring in quality and productivity
percentages (either historical or planned values).
17
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