AAOM Handbook

ST.03 Obtain Historical Performance

Context

The stakeholders in a business (shareholders, employees, community and government) collectively define the expectations that the business must meet in order for them to continue to support its operation. These expectations typically encompass safety, environmental, social and economic dimensions and translate into three distinct characteristic. These are; • Effectiveness (units output per time period), • Efficiency (a ratio between resources used and units of output) • Sustainability (the material and social requirements for ongoing effectiveness). The performance of a process over any period of time is not a single value, but rather it is a range of values with differing probabilities of occurrence (i.e. as can be represented in a capability histogram). An essential input to the process of Setting Performance Targets is the historical performance of each element of the Business Structure. This historical performance can be used to calibrate a statistical model of the Business Structure performance. The calibration process will define the characteristics of the performance distributions for each element of the model, i.e. the range and shape of the performance histogram, as well establishing key input parameters for the model There are four factors to be considered when gathering historical data for calibration of a performance model; • Process stability - by definition, if a process is not stable then it is not performing in a consistent way. Consequently, modelling the performance of an unstable process generally produces unreliable results. Only stable periods of operation should be used to calibrate the model • Operating level - the performance of a process will differ depending on the operating range within its performance/effort curve. Viz since process performance curves typically follow the law of diminishing returns, performance probability distributions tend to be different at the bottom and top of the performance curve - see figure 1 below. Hence the Business Structure Performance model should be calibrated using historical data appropriate to the targeted operating range. • Sample size - the more data that is available to calibrate the model the better the calibration will be. Small data sets tend to under represent the range of variation that can be expected from the process, hence allowance will need to be made in the calibration process for the data set size. • Data Independence - the data used for calibration of the model must include only the independent variation (i.e. arising wholly from causes

© McAlear Management Consultants 2006

Operational Planning: Set Performance Targets

Updated: August 2018

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