Metrics Based Management Mark Tomasetti, Sr. Project Manager David Schabel, Sr. Project Manager Allison Malecki, Project Manager

Agenda What Gets Measured Gets Managed Selecting the Right Metrics for Your Business Components of Good Metrics Using Metrics in Your Daily Operations Sample Industry KPIs Tying it All Together

“What gets measured, gets managed.” Peter Drucker Similarly, author Chet Holmes states that “People respect what you inspect”; so if you want to effect positive change, pick 3 – 5 goals to hold people accountable to achieve, and then follow-up!

If You Can’t Measure It, You Can’t Control It… Metrics Based Management is a performance management system that relies on 3 components, each of which must be qualitatively and quantitatively expressed Current State: The baseline measures of your organization’s current performance Desired State: What your organization wants to achieve with regard to current priorities – Goal Planning Action Plan: How you are going to bridge the gaps and move your organization to achieve the desired performance Well-built metrics provide a foundation for your organization to build an action plan that helps you to achieve your goals

Metrics Driving Control Loops

Agenda Selecting the Right Metrics for Your Business What Gets Measured Gets Managed Selecting the Right Metrics for Your Business Components of Good Metrics Using Metrics in Your Daily Operations Sample Industry KPIs Tying it All Together

Getting Started – Establishing Your Baseline Starting is often the most difficult part Take advantage of the measuring systems and reporting capabilities that you already have You will likely need to upgrade your capabilities Takes time and money – you need to grow into it You will learn how to improve your measures and reports by working with them Look back historically Assess the quality of the data you have available Is it a good marker for your operations? Do you have a single version of the truth for quantitative results? Establish trends from the historical data you have, where possible Publish your baseline immediately so that your organization begins to get comfortable with your starting point

Moving Away from “Opinion” Based Management Establish a formal planning process Tie back to long-term business plans and annual operating plans Involve all levels of the organization Executive Level Department Heads / Operational Managers Operational Staff Members Map metrics into the strategic objectives for departments Every department should understand how their specific operations connect to the overall organization’s goals

Selecting the Right Metrics for Your Business Metric Owners (Tiers) Executives Decrease Costs Increase Revenues Improve Driver Retention --- --- Managers Directly impact Executives’ Metrics Increase Driver Satisfaction --- --- Support Staff Directly impact Managers’ Metrics Let’s look into how Selecting the Right Metrics looks across tiers. As an example, let’s use Driver Retention as a timely example. “Shares in Swift Transportation, the largest truckload carrier in North America, were down 14% Friday after management warned it was going to have to invest more to address a driver shortage. The New Jersey-based firm now says it's going to have to spend more on wages and training to hold onto and attract more drivers. ‘...We were constrained in the truckload and (central refrigerated systems)  segments by the challenging driver market. Our driver turnover and unseated truck count were higher than anticipated. Therefore, we sold more trucks in the second quarter to offset the impact of idle equipment, which drove additional gains on sale of equipment this period. After assessing the current and expected environment, we believe the best investment we can make at this time, for all of our stakeholders, is in our drivers. Our goal is to clear the path for our drivers by helping them overcome challenges, eliminate wait times and take home more money.’ It now sees "cost headwinds" going into the second half of the year. The American Trucking Association has warned the country is short 30,000 drivers, and that the gap could climb to 200,000 in the next decade. http://finance.yahoo.com/news/shares-major-us-trucker-crashing-153200421.html

How to Deliver Against Metrics Levers Decrease Costs Driver Retention Improve Driver Retention Driver Satisfaction Dispatch Efficiency Increase Driver Satisfaction Safety Fulfillment Provide examples to show levers to pull and communicating how this is understood and cascaded down the tiers to drive the change Levers: Levers are either sub-metrics that change the way a process is defined and measured OR they may often generate a mini-project to fix a root cause issue. Driver Satisfaction – Understand why they leave and what can be done about it (project). Levers are mini-projects. Pay / benefits Fulfillment / ownership (not micromanaged; on-time performance; career progression) Safety & working conditions (training; holistic scheduling; route planning, etc.) Flexibility

Four Perspectives – Balanced Scorecards Financial Performance Customer Performance Organizational Innovation Internal Operations

Agenda Components of Good Metrics What Gets Measured Gets Managed Selecting the Right Metrics for Your Business Components of Good Metrics Using Metrics in Your Daily Operations Sample Industry KPIs Tying it All Together

Components of Good Metrics: SMART Specific – e.g., shipping will reduce empty miles by 20% by using software and revised business processes within 6 months of implementation; vs. "decrease costs" Measurable – i.e., mechanisms are in place to quantifiably track progress Achievable – i.e., realistic with resources available, though may be aggressive; e.g., if empty miles have been increasing 2% /yr., decreasing by 20% in 6 months may be too aggressive Relevant – i.e., directly supports overall company objectives and worthy of resources. This requires the company to be aligned on 3-5 overarching metrics Time-bound – i.e., a deadline is assigned to gauge success in meeting the objective. This is critical for continuous improvement and proper allocation of resources. The S.M.A.R.T. concept originated with George T. Doran in November 1981 in Management Review. The “Specific” characteristic should answer: Who is involved What will be accomplished Where will it occur (i.e., department; region, etc.) How it will be achieved

Components of Good Metrics: SMART Good Goals Good Metrics Reduce Empty Miles Reduce Empty Miles by 10% through Lane-by-Lane Analysis by 12/31/14 Improve Customer Satisfaction Maintain 98% On-time Delivery Performance Improve Driver Retention Increase Driver Retention by 20% Within 2 Quarters

The End Result If this is all done well, then you should achieve… 1. Clear agreement on strategy among senior management 2. Effective communication of strategy throughout the organization 3. Good cooperation and teamwork among management 4. Information is shared within the organization openly and candidly 5. Unit performance measures are linked to strategic organizational measures 6. Individual performance measures are linked to unit measures 7. High levels of self-monitoring by employees

Agenda Using Metrics in Your Daily Operations What Gets Measured Gets Managed Selecting the Right Metrics for Your Business Components of Good Metrics Using Metrics in Your Daily Operations Sample Industry KPIs Tying it All Together

Organizational Perspectives Moving from Metrics to Control is all about people… Continuous communication is essential Assign data owners in each department What does your bulletin board say? What do your HR systems say about your commitment? Moving from Metrics to Control is all about people… Continuous communication is essential Review metrics frequently Weekly staff meetings / Monthly management meetings / Quarterly team meetings Assign data owners in each department Collect data regularly Validate data quality Communicate the findings and recommendations What does your bulletin board say? What do your HR systems say about your commitment? Are metrics tied to performance evaluation? Are metrics tied to compensation?

Best Perspectives Respect: Do not create an administrative burden on your people. Make sure the goals and metrics are easy to report. Use automation where possible. Commitment: Once you’ve set your company and subsequent tier objectives, do not readily deviate from plan; give them time to bear fruit and don’t be changing with the wind Accuracy: Make sure the data is coming from a single source of truth and is not variable Follow-through: Regularly monitor progress and, if the goals are not being achieved, assess the action plan designed to meet the objective before changing the objective itself Incentivize: Most people respond better to sticks (e.g., performance evaluations or components of pay) than carrots (e.g., goodwill, pizza parties) If I’m ahead, analyze how I got ahead, and deliberate actions between reporting cycles: MANAGEMENT Respect: Subtle tie in to ResultsNow Commitment: Subtle tie in to TMW as the system of record

Four Cornerstones Benchmarking & Performance Targets Key Performance Indicators (KPI) Management Dashboards & Alerts Routine Operational & Management Reports

Think about your data… Data Collection Method Data Source Data Scale / Formula / Assessment Method How Often / When / For How Long to Collect Data Who Collects the Data If I’m ahead, analyze how I got ahead, and deliberate actions between reporting cycles: MANAGEMENT Respect: Subtle tie in to ResultsNow Commitment: Subtle tie in to TMW as the system of record

Documentation Tools and Techniques – ResultsNow For Illustrative Purposes Only SAMPLE

Documentation Tools and Techniques – The Dawg For Illustrative Purposes Only SAMPLE

When Done Well… A client was training and working with TMW on Revenue metrics, specifically Line Haul and Unbilled Revenues The Unbilled Revenue report processed 6 months of past transactions The client noticed it had approximately $0.5M in unbilled revenue Upon seeing the data portrayed in ResultsNow, the client: Was made aware of a previously unknown revenue gap Investigated the root causes to determine why certain customers had not been billed Invoiced the unbilled orders To prevent this scenario from repeating, TMW configured a Dawg alert to look for any order that had completed and had not been billed in a predefined number of days

Agenda Sample Industry KPIs What Gets Measured Gets Managed Selecting the Right Metrics for Your Business Components of Good Metrics Using Metrics in Your Daily Operations Sample Industry KPIs Tying it All Together

Sample KPIs – Transportation Orders/Shipments Total number orders Average revenue per order Average margin per order Average volume (measured by either weight, piece count, pallet count, etc.) Customers Total active customer count % new customers % lost customers Average revenue per customer Average margin per customer Average volume per customer

Sample KPIs – Transportation (cont’d) Dispatches Total number of dispatches Average revenue per dispatch Average revenue per mile Average revenue per hour % empty miles Dispatchers Average # of dispatches Average Errors per dispatcher Average revenue per mile by dispatcher Average margin per mile by dispatcher % empty miles by dispatcher

Sample KPIs – Transportation (cont’d) Equipment Average miles per gallon Average cost per mile to operate Count # out of compliance incidents Drivers Average number of trips Average cost per hour Average hours and miles Average OT hours Count incidents (tickets, accidents, damaged freight, out of compliance, etc.) Average cost per incident

Agenda Tying it All Together What Gets Measured Gets Managed Selecting the Right Metrics for Your Business Components of Good Metrics Using Metrics in Your Daily Operations Sample Industry KPIs Tying it All Together

Those who write down, communicate, and regularly monitor goals are, on average, 33% more successful in achieving their stated goals than those who merely think about them Dr. Gail Matthews, Psychology professor Source: http://www.dominican.edu/dominicannews/study-backs-up-strategies-for-achieving-goals

Getting Started Working Session

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T H A N K Y O U Mark Tomasetti Sr. Project Manager, TMW Systems p: 440.721.2265 e: mtomasetti@tmwsystems.com Allison Malecki Project Manager, TMW Systems p: 440.721.2477 e: amalecki@tmwsystems.com M O V I N G Y O U F O R W A R D David Schabel Sr. Project Manager, TMW Systems p: 440.721.2322 e: dschabel@tmwsystems.com T H A N K Y O U

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