Many organizations compare operational activities to established benchmarks to spot variances, either as percentages or values, to create a plan for remediation or to reward areas of success. These comparative counterparts come in the form of Budgets, Targets, and Goals. By viewing the differences between actuals and these measures multiple times per day, Leadership, Operations, and Front Line Managers can spot inefficiencies and work that has been injected into their areas of the business.
Let’s interrogate the types of comparative data that your organization tracks to stay in-line with company-wide goals.
A budget lays out the plan for what a business wants to achieve. Think of this as an action plan for achieving strategic business objectives, a representation of future financial position and cash flow. Typically, budgets are set once per year and are compared to actual results to make remedial changes to bring actual and budget values in line.
Budgets primarily relate to financial data in the balance sheet and income statements. From the monetary budget, organizations determine budgets for Revenue, Sales, Cost of Goods Sold, and Gross Margin. Management teams then derive operational budgets to support the financial plan for items like units produced, labor hours, and FTE headcount.
As an example, Acme Inc. has budgeted $5,000,000 in revenue, 1,000,000 in units and 200,000 in labor hours for the year 2020.
A target is a value set by an external entity that other organizations try to attain. Many times, ‘benchmark’ is used interchangeably with target and is the object of attention or focus. Sometimes, targets are set higher than budgets as it is the bullseye for ultimate success, a desired level of performance.
Think how often you’ve heard remarks like “the target has moved” or “the target changes every day”. These comments are usually due to targets being an output of that external group re-evaluating the current labor pool, machine downtime, raw materials on hand, or market fluctuations. Many times, targets are a mechanism used to measure operational activity that directly impact organization-wide budgets.
As an example, Acme Inc. has productivity targets by production line ranging from 78% to 85%, target dates for the delivery of goods (8/10/2020), and quarterly sales targets for certain products from $50,000 to $300,000.
Goals are set by internal group leaders who want their team to achieve certain levels of success and may be aspirational. It’s important to note that a goal is not a planned value and may exceed budgets or targets that are set by the larger organization. Goals are usually specific to a smaller group within the organization and is the “What” that group wants to do to support day-to-day success and improvement of their team.
As an example, Acme Inc. has personal, professional, and operational goals within their Anvil production team. The labor pool has a goal of 100% of required training certifications completed per quarter, the individuals on the team have career progression goals every 6 months, and the team has a safety goal of 0 accidents per week.
How to make the most of your comparative data
Aligning your input, in-progress, and output data to the right type of comparative data allows leaders to make the necessary operational adjustments to increase the viability of the organization, resulting in democratization of operational decision making and one source of truth.
As you evaluate existing budgets, target, and goals or if you’re crafting these comparative metrics for the first time, be sure to keep the levels of granularity and dimensions in mind, like, Locations, Customers, Job Titles, or Shifts. If tracking individual worker productivity by line and by shift to then compare to a target or goal, that target or goal must be planned at a daily grain, by FTE or job title, and by product line and shift. Your variances can only be as specific as the data and comparative values that are planned and tracked.