Operational efficiency: what it is and how important it is

If someone asks you what the major goals of a company are, there is no doubt that at some point you will be talking about operational efficiency.

It may not necessarily be considering these two words. But it will for sure be something related to having more and better results with fewer costs.

Indiscriminate cost-cutting, however, such as reducing investments and manpower, can have the opposite effect. In other words, although it may seem so, this is not always the most appropriate way to improve results.

In fact, analyzing, reviewing, or remodeling internal processes, following their evolution over time, that’s what results in better outcomes. This is what focusing on operational efficiency means.

Defining operational efficiency

Operational efficiency, in a very practical way, is about finding the best output in operational processes. In this sense, it means being more competent and productive by considerably reducing errors and failures.

In a business environment, operational efficiency is directly linked to better use of resources, avoiding all kinds of waste.

Still, in this environment, efficiency is about how workers are employing their time and efforts. Likewise, it analyzes where the money is being invested.

In fact, operational efficiency means producing or offering services at the lowest possible cost, without reducing or compromising the quality of what will be delivered to the customer.

Would you be surprised if we said that great results can be achieved with little investment?

Operational efficiency can be achieved by analyzing and improving your teams and process management. In fact, great outcomes are achieved with a detailed analysis and reorganization of your workflow.

But how do you know if it is time to invest in operational efficiency?

How to measure operational efficiency

In fact, there is no right time to measure operational efficiency. This concern and analysis must be constant.

In this sense, to measure results, it is necessary to have a meaningful metric able to calculate the degree of operational efficiency. So, the most practical way is to identify the value of inputs and outputs.

So, list all the costs of your production (resources, labor, among others), and the revenue (production volume, revenue, product quality) generated by your products or services.

This way, operational efficiency will be the value obtained by dividing the total expenses by the total revenue. If you want the value in percentage, multiply the result by 100.

In short, the lower the final result, the better. It may seem counterintuitive, but the lower the rate, the greater the operational efficiency and sustainability of the enterprise.

Thus, the better the operational efficiency is, the lower the costs to generate the same or more revenue.

Of course, this ratio must be measured periodically, generating a better perception of how your business is evolving.

Therefore, whenever there are modifications in the processes, after a certain period, recalculate the efficiency rate to ensure the effectiveness of these changes.

Why I should care about operational efficiency

Companies that seek a successful story as healthy and continuous enterprises need to worry about improving operational efficiency, so they can save resources and increase performance.

In addition, companies that investigate and improve their processes achieve numerous benefits, including:

• Cost reduction;
• Savings in the short, medium, and long terms;
• Waste reduction;
• Increased productivity;
• Prevention of errors;
• Standardization;
• Improved communication.

Actions to increase operational efficiency

In summary, improving operational efficiency implicates identifying the expenses that can be avoided, and how to replace them to improve processes.

In this regard, an in-depth analysis will be required to determine the problems’ root causes.  It may sound complex, but some practical actions can help with that:

Set objectives and goals

Before thinking about operational efficiency itself, consider analyzing in detail how you are performing currently and what results you want to achieve in the future.

By doing so, everything will be planned with well-stated goals and objectives in mind. Efficiency will be a factor in drawing up the action plan focused on achieving specific, measurable, and attainable goals.

Map the processes

Process mapping allows you to understand and provides transparency as to how tasks are executed.

In fact, it makes it possible to observe the strengths, failures, and bottlenecks that cause inefficiency. Moreover, monitoring how activities are performed makes it easier for you to identify where the costs or unnecessary expenses are.

With this analysis and understanding, a new and better way of executing them is enabled.

Remodeling

Mapping provides documentation so that, once flaws were identified, new methods to optimize results can be planned.

In this sense, redesign consists in recreating the activity flow in a way that is more consistent and efficient for your business.

Obviously, restructuring with standardization does not have to be executed in its entirety; you can start tackling one problem at a time.

Standardization

When considering redesigning processes, think about their standardization. Standardization makes sure that processes are always executed in the same way.

In this sense, conducting frequent audits ensures that processes are actually being performed as mapped and described.

Following-up results and continuous improvement

It is completely normal for operational efficiency to change over time. New costs may arise, as well as new process improvement strategies. So always analyze the results you got to see if they match your business expectations.

BPMS tools, which enable automation, usually generate efficiency reports to track your performance.

Likewise, continuous process improvement is something that should be encouraged and always present within your company.

Investing in technology

As we mentioned, reducing investments is not always what will bring more operational efficiency.

Investing in technology, especially when it comes to process automation, allows you to create more efficient and transparent process flows.

In fact, despite the initial investment cost, new technologies are capable of bringing great returns over time. You can even calculate the cost of acquiring a process automation tool with our free calculator.

Adopting a BPMS tool allows you to automate processes by favoring process and document management. In addition, advanced platforms, such as Fusion, provide several reports for analysis and process evolution and performance monitoring.

Fusion Platform can literally transform your company, bringing the results you’ve always wanted, favoring an increase in operational efficiency.

Try Fusion Platform free for 15 days, or talk to one of our consultants.

Do you have any questions? Use the comments field and write to us!