As an operations manager, you are responsible for overseeing your company’s day-to-day activities to ensure efficiency and productivity. To stay on top of operations and identify areas for improvement, you need to track key performance indicators (KPIs). The right metrics provide visibility into what’s working well and what needs more focus.
In this article, we’ll explore the eight most important metrics for operations managers to monitor. Tracking these KPIs will help you enhance processes, reduce costs, and boost productivity.
1. Employee Productivity
Employee productivity measures how efficiently your team completes work It indicates how well employees manage their time and workload
To calculate productivity, divide the outputs your team delivers by the number of hours worked. For example, you may divide the number of calls handled by call center staff per day by the total number of hours they worked that day.
Aim to optimize productivity by providing resources and removing roadblocks. Low productivity may signal overworked or disengaged employees. Consider adjusting workloads, cross-training staff, updating systems and tools if productivity drops.
2. Quality of Work
The quality of work measures how well the outputs from your department meet requirements and expectations. High-quality work meets or exceeds standards for accuracy, completeness, and timeliness.
Track quality by auditing samples of work and tallying defects or errors. You can measure quality for both internal processes and external deliverables. For customer service teams, this may include auditing recordings of calls for courtesy, issue resolution, and adherence to scripts.
Improving quality requires setting clear expectations, training employees, and inspecting work. Address quality issues through coaching, process changes, or additional quality checks.
3. Quantity of Work
The quantity of work metric examines the overall volume of outputs your department handles during a given timeframe. It demonstrates your capacity to take on work and highlights bottlenecks.
Tally quantity by the number of units completed – for example, calls handled, orders shipped, or transactions processed monthly. Compare your figures over time to spot trends. Sudden drops in quantity may indicate capacity issues.
To boost quantity, add staff, streamline processes, or implement technology like automation. But beware of over-focusing on quantity at the expense of quality.
4. Absenteeism
Absenteeism measures how often employees miss scheduled work time. It calculates the percentage of total work hours lost due to unplanned absences, late arrivals, and early departures.
To determine your absenteeism rate, divide total absent hours by your total scheduled work hours. For example, if your team missed 150 hours last month and was scheduled for 4,000 hours, your absenteeism rate is 3.75%.
High absenteeism reduces productivity and continuity. Try to maintain rates under 3-4%. If absenteeism rises, examine why employees miss work and address morale, burnout, and health issues.
5. Overtime Hours
Monitoring overtime hours shows whether workloads routinely exceed your team’s capacity during regular hours. It also indicates scheduling and workload balancing issues.
Calculate overtime by tallying up any hours worked beyond your organization’s defined regular hours – for example, over 40 hours for salaried staff or 8 hours per day for hourly employees. Compare overtime week-over-week or month-over-month.
Minimize excessive overtime by adding staff, optimizing schedules, sharing workloads, or bumping up deadlines. Overtime should be occasional, not an everyday necessity, to avoid burnout.
6. Staff Time Utilization
Staff utilization examines what percentage of time employees spend actively working compared to time spent waiting for tasks, in meetings, or on breaks.
Utilization = Hours Actively Working / Total Hours on Duty
High utilization above 90% indicates lean operations with minimal downtime. Low utilization under 75% suggests inefficient schedules, workflow issues, or overstaffing.
Boost utilization by smoothing workflow, staggering shifts, cross-training staff, and tightly managing meetings and breaks. But beware of pushing utilization too high, leading to exhaustion.
7. Employee Satisfaction and Turnover
Satisfied, engaged employees are more productive. So track satisfaction levels through annual or quarterly surveys and regular pulse checks. Look for trends in factors like workloads, support, autonomy, and growth opportunities.
Closely monitor turnover, which measures what percentage of staff leave during a given timeframe. High turnover over 25% yearly often signals poor satisfaction. Calculate turnover by dividing terminations by average headcount.
Address satisfaction issues like excessive workloads, lack of support, and limited growth. Also examine compensation, company culture, and management. Lowering turnover boosts productivity.
8. Cost Per Output
Calculating cost per output helps assess workflow efficiency. Tally up all the costs of running your department – salaries, technology, materials, facilities, etc. Then divide the total by outputs like products made, calls handled, or orders shipped.
This metric reveals whether you’re spending too much to achieve outputs. Use it to compare processes company-wide and target any with excessive costs per output for improvement.
For example, if Department A spends $100,000 monthly to process 5,000 orders, cost per output is $20. Department B spends $150,000 to ship 8,000 orders, making cost per output $18.75. Department B is more efficient.
Key Takeaways
Monitoring key operations metrics provides tremendous visibility into productivity, efficiency, and capacity. Make tracking the eight KPIs above a regular practice.
Analyze your metrics at least weekly, monthly, quarterly, and annually. Look for positive and negative trends. Present data in charts to spot patterns clearly.
Use your metrics to guide process improvements and strategic decisions. Share results with your team to demonstrate progress and areas needing work. With consistent measurement, you can optimize operations and performance.
Manufacturing Operational Key Performance Indicators
The manufacturing industry has been continually evolving since the industrial revolution. However, most of the KPIs that would have been applicable back when Henry Ford started manufacturing cars are the same ones we apply today. We just track them with higher precision and accuracy using specialized KPI dashboards. Here are some example KPIs for operations managers in the manufacturing industry:
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Throughput
– This is one of the most basic operations KPIs for the manufacturing industry. It measures the rate of production of a machine, line, or plant over a time period. This helps the operations department determine their ability to meet production deadlines.
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First Pass Yield
– Every manager in the manufacturing industry will know this operations metric. It measures the percentage of products that are manufactured to specification, without requiring any rework (or being scrapped) the first time through the manufacturing process.
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Demand Forecasting
– Most people can’t see into the future with a crystal ball, but operations departments will often try to estimate future demand using forecasting. This operations metric is used by companies to estimate the amount of raw materials they will need to meet future customer demand.
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Changeover Time
– As an operations manager, changeover time can represent a number of different operational procedures. However, it fundamentally represents the amount of time required to switch from one task to another. Common examples of this are changing products on a production line, or staff during a shift change.
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Takt Time
– This operational metric represents the maximum amount of time that can be spent manufacturing a product while still meeting the production deadline. Operations managers use this in conjunction with other metrics when determining if they should take on an order.
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Machine Downtime Rate
– Most people associate downtime with a machine requiring repair, however, this operations metric is actually a combination of both scheduled downtime and unscheduled downtime. This metric is often used by the operations department to determine when assets require replacing.
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Cycle Time
– The cycle time performance metric tracks the average amount of time it takes to produce a product. This metric can be applied to a complete product, or each of the individual components for a product. When applying it to the components, this becomes a very powerful tool for streamlining production and increasing efficiency.
You are probably feeling a little overwhelmed with KPIs at this point. That is normal. Most people use specialized dashboards to help them manage their KPIs and data.
Why Your Company Should Be Using Operational Metrics to Stay Competitive
The operations department has the daunting task of increasing company efficiency to bring about the highest possible operating profit. If you are tracking operational metrics by counting the number of trucks leaving your factory each day, or looking at how many employees are milling around, you are probably lagging behind your competitors. Leading companies make use of KPIs and KPI dashboards to measure their efficiency in real time. This allows management to quickly make informed decisions that are backed up by data. This article will discuss which KPIs the operations team should be using to keep tabs on the performance of the following company departments:
Top KPIs for Operations Managers
What are the most important business metrics for operations managers?
The most obvious and important business metrics for operations managers are total revenue, net profit, profit margin, and loss. However, these are just a few of the financial metrics that smart business owners should keep an eye on. The size or goals of your business don’t matter.
Why are financial metrics important for operations managers?
Financial metrics are crucial for operations managers to track because these types of metrics allow managers to evaluate a company’s overall profitability. Several essential financial metrics that are necessary for planning goals for revenue and profits include: Revenue: Revenue reflects the total amount a company earns from doing business.
Why are operational metrics important?
Operational metrics are important for the following reasons: They help you align operational processes with the business strategy. By measuring and tracking the right metrics directly tied to business objectives, you can ensure that business operations support the overall strategy. They increase accountability and ownership among your employees.
What are operational KPIs & metrics?
Operational KPIs and metrics help COOs, heads of operations, and operations managers get a clear understanding of how their operations are performing to ensure their business is on the right track. But which metrics should you be tracking? And most importantly, how should you track them so you can make data-driven decisions at any given moment?
