When’s the last time you reviewed your IT department’s day-to-day operations? Are you utilizing assets effectively?
Operational efficiency is all about continuous improvement, maximizing resource utilization, and reducing unnecessary costs.
In this post, we’ll share how to measure operational efficiency and give you tips to help you improve efficiency in your department and across your organization.
What is operational efficiency?
How to measure operational efficiency
Ways to improve operational efficiency
1. Understand the ins and outs of the business
3. Utilize asset management software
4. Benchmark against competitors
What is operational efficiency?
Operational efficiency is a business’s relationship between inputs and outputs. Inputs refer to what the company puts into operating, such as labor, expenses, and time. Outputs can include customer acquisition and retention, product quality, and revenue.
When we talk about operational efficiency, we’re thinking specifically about how well the organization reduces wasted effort, time, and materials. The goal of operational efficiency is to produce the best product possible with the least amount of wasted resources.
Why does it matter?
Wasted time and resources are equal to wasted money. Inefficiencies can drastically cut into your profit margin. It pays to be efficient with business operations. The more efficient the business is, the better. However, don’t take that as permission to cut corners. You don’t want your employees, customers, or the final product to suffer in your efforts to improve efficiency.
For example, one way to streamline operations is to provide employees with as many self-service tools as possible. For example, an IT department can set up a user request portal so that employees can check-in and out equipment when they need it. This improves efficiency by allowing employees to self-service and frees up your IT team’s time to work on more strategic tasks.
How to measure operational efficiency
The primary metrics to look at when gauging your organization’s operational efficiency are operating expenses and total revenue. Once you have those numbers, you can use them to calculate operational efficiency with this formula:
operating expense / total revenue = operational efficiency
This would give you your operational efficiency ratio. For example, let’s say total revenue for the year was $100,000, and your operating expenses were $15,000. Using the formula above, you get .15 as your operational efficiency ratio.
You can turn this ratio into a percentage by multiplying the result by 100. This is how that formula would look:
(operating expense / total revenue) x 100 = operational efficiency rate
Using the same numbers as above, the .15 operational efficiency ratio multiplied by 100 would equal 15%. This means your operational efficiency rate is at 15%. The lower this rate, the more efficient you are at running your business.
Ways to improve operational efficiency
Here are some ways to improve your efficiency if you’re currently not operating as lean as you would like.
1. Understand the ins and outs of the business
It is easy to get tunnel vision and only focus on your specific role in the business. However, there’s something to be said for knowing all parts of your business. This will allow you to better understand your role in the company, and you may be able to spot and fix more inefficiencies firsthand.
2. Conduct an audit
In addition to observing operations firsthand, you can also perform a thorough audit to reveal inefficiencies in your department. For example, auditing your asset log may reveal that you are only using 50% of all of your equipment. Knowing this, instead of going out and buying a new computer for the new hire, you could send them one of the computers that are sitting in your equipment room.
3. Utilize asset management software
There are a lot of software options out there to help you run your business more smoothly. One such type of software is asset management software, like Reftab. This software can be used to tag and track assets across multiple locations, help you maintain maintenance schedules for your assets, create user request portals, run reports, and more.
4. Benchmark against competitors
Look to others in your industry to see how they run efficient operations. Use them as a benchmark to make your efficiency improvement. But don’t just use their operations to measure yours. Use their operation to inspire ideas for implementing operational efficiency in your business.
5. Test different processes
Test, test, and test again. Continuous improvement is the name of the game. You won’t know if an alternative process will help improve operational efficiency until you try it. Be sure to set a fixed time to conduct the test, designate team members, and set a clear tracking framework. This will give you clear variables or numbers to review when determining if the test was a success.
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No matter the size of your team or business, you can always make improvements to your operational efficiency. Remember, the more efficiently you operate, the more you can have a positive impact on your bottom line.
