AAOM Handbook

Appendix 1

Contributing to the overall Output Capacity and Unit Costs are several parameters that can vary independently of each other, and that are determined by the choices of Production and Service Strategy for delivering a single set of Performance Targets. For example; Output Capacity (on-spec units per time period) = Utilisation x Input Rate x Process Efficiency x Quality = Operating Time x Units Input x Units Output x Units On-spec Time Period Operating Time Units Input Units Output The same Output Capacity can be achieved with different combinations of these characteristics.

Unit Cost (cost per on spec unit of output) = Total Costs / Units on Spec =

(Fixed Costs + Variable Costs) / Units on Spec

The same Unit Cost can be achieved with different combinations of these characteristics. The Service Work performed on a process has the purpose of ensuring that production can continue in the future, i.e. that it will not be interrupted by predictable/preventable issues. A measure of the Effectiveness of the Service Work is the time between unscheduled interruptions, or interventions, (the reliability of the process). This will often provide a leading indication of effects on process Effectiveness, Sustainability and Efficiency. Hence, for a given set of Effectiveness and Efficiency targets there may be many possible sets of choices of strategy for; • incremental adjustment of technical design parameters • use of time, • throughput rate, • quality (product input/output specification), and • service strategy.

These will in turn affect; • reliability (frequency of disruption to the process), • process efficiency (recovery), • fixed costs, • variable costs,

and that and all of these will ultimately impact on the Effectiveness, Sustainability and Efficiency targets. Variation also occurs in each of these strategy related parameters and hence requires a statistical model for analysis and forecasting. A relatively simple, standard, value driver tree model of how these characteristics combine to define the Output Capacity and Unit Costs can be built for any element of the Business Structure (see example in Appendix 2).

© McAlear Management Consultants 2006

Operational Planning: Set Performance Targets

Updated: August 2018

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