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Establishing Lean Metrics – Using the Four Panel Approach as a Foundation for a Lean Scorecard
When you begin your journey to becoming a lean thinker, it doesn’t take long to develop a data-driven reporting system. The concepts and practices that are collectively known as lean manufacturing are not difficult. In fact, they are often deceptively simple. But given the demands of business management, maintaining momentum over the long haul can be challenging. When your data reporting system supports lean concepts, it will be easier for you to stay consistent with lean principles. A four-panel approach helps develop this reporting system.
Robert S. Kaplan and David P Horton in their white paper “The Balanced Scorecard – Measures That Drive Performance” establish the need for a data based reporting system to manage critical success factors for a business. “No single perspective paints a comprehensive picture of a company’s health. You need an approach that balances multiple perspectives and provides measures that enable you to track performance.” 1
The management reporting system asks you to think about your company’s mission and strategy from four key perspectives:
- How do customers see us?
- What internal processes should we excel at?
- How can we continue to improve and create value?
- How do we view shareholders? 2
1. Establish categories for measurement
We must organize our thinking into a framework that allows managers and employees to easily identify critical success factors for the organization. With this framework established, it becomes easier to identify the metrics we need to use. Many organizations have so many metrics that managing the information becomes disorganized. If you have dozens or hundreds of metrics, you need to step back and revisit your measurement plan, making sure that critical success factors are clearly identified.
Generally construction works use five categories. If you’re just getting started with your data-driven reporting system, you should start by using these five categories. They are field tested and effective, and they cover all four approaches identified by Kaplan and Horton.
- Safety – Maintaining a safe workplace
- People – Developing and retaining people with the skills to deliver to the customer
- Quality – meeting customer, government and internal requirements
- Responsiveness – Are we responding to customer needs?
- Financial performance – are we making money?
2. Develop a vision statement
To ensure that your metrics are actually critical success factors for your business, it’s important to take the time to really think about what they’re accomplishing. If you don’t know what success looks like, you won’t know it when you see it.
It is important that each of the five categories has a vision statement. To develop them, brainstorm phrases that succinctly define the stance you’re taking on the category. Use those phrases to create a statement that clearly communicates the vision to your customers, managers, employees and stockholders. The statement need not be a complete sentence; This will be used to develop goals, measures and strategies for the category. The Vision statement Should be established by the executive team or corporate operations group and should be consistent across all manufacturing operations of the company or division.
3. Establish goals
Pull the operations leadership team together and discuss the key processes that support or drive the vision statement, focusing on the “Vital Few” that really make a difference. Establish goals by determining how processes need to be changed or improved to bring them into alignment with an already agreed-upon vision statement. State the output of each of these critical processes and identify the level you want to achieve.
If your company has multiple facilities, it is important that a leader in each facility is included in the team to establish goals. Without buy-in from local leadership, it’s difficult to implement the system you’re designing.
- OHSA reporting
- Hazard identification
- Ergonomic management
- Near miss detection system
- Skill assessment
- Business management
- Employee Satisfaction System
- Defects per unit (millions)
- supplier quality
- Customer Complaint System
- Rework / Maintenance Management
- Delivery on time
- Customer Request Management System
- Inventory management
- Field Service System
- Warranty cost management
- Investment Management
- Inventory management
4. Define metrics
Determine how performance of the process will be measured for each goal statement. But think about how you collect and manipulate data – a good measure that’s easy to chart is better than a perfect measure that requires a lot of work. The methods used to obtain, measure and calculate data need to be clearly defined as slight differences can significantly alter the reported results.
Metrics should be numerical targets. Absolute numerical targets, ratios or percentages can all be used. Goals can be constant throughout the year, change from month to month, or they can be cumulative. For example, we might set a training goal for a facility at 10 hours per associate for the year. But the training plan does not call for the same number of training hours each month. If goals are not set with this in mind, measures will spiral out of control even when we perform exactly as planned.
Lean Metric Examples
- Reportable incidents
- Days lost time worked without accidents
- Ergonomic management
- Target training hours
- Voluntary turnover
- Production and efficient business ratio
- Quality delivery
- Rework / repair cost
- Customer complaints
- Delivery on time
- Manufacturing lead time
- Inventory Turn
- Margin $
- Construction space used
- Conversion Cost (Labor $/Unit)
Metrics fall into two categories, outcomes and drivers. Driver metrics can have a profound impact on business performance because they provide immediate feedback on how a process is performing. They facilitate immediate correction and provide a tool to allow managers to quickly change behaviors that cause problems. For example, a scrap metric provides the operations team with data on which production lines are producing the most scrap, allowing for direct intervention to drive improvements. Financial metrics, on the other hand, are usually outcomes, as they report after the fact and are difficult to dissect to determine causes.
Keep this in mind when designing metrics. With a slight change in the definition of metrics, they can be transformed from outcomes to drivers. While data based reporting systems have both outcome and driver metrics, the most effective systems have a driver to outcome ratio of 4:1.
5. Plan your strategy
For each goal, establish at least one strategy statement, describing key process changes and improvement efforts. Put some urgency behind strategies by setting deadlines or target dates for implementation.
A data based reporting system will not improve your results. It’s just a tool that can make the difficult task of running a business a little easier. Strategies implemented to drive needed improvements are how real gains are realized. Without a solid strategy to make the necessary changes, it is unlikely that truly significant gains will be achieved or sustained over the long term.
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