It is important for managers to understand what to manage, why it's important and how to do it. This is where efficiency and effectiveness come in.
By Andrew Gager
This article was first published in 2018 and has been updated to reflect current information.
Managers need to understand what to manage, why it’s important, and how to do it. This is where the concepts of efficiency and effectiveness come in. By understanding the difference between these two, managers can achieve success.
Efficiency and effectiveness are not the same thing. Efficiency is defined as the ability to accomplish something with the least amount of wasted time, money, and effort or competency in performance. Effectiveness is defined as the degree to which something is successful in producing a desired result; success. Managers need to appreciate the way each affects an organization.
Budgeting and metrics is one area where managers can apply these two concepts.
To illustrate the differences among efficiency, effectiveness, and other measures, I’ll use my typical annual activities from my personal life. After all, a manager's home and work lives often have many similarities. In both settings, managers organize, direct, coach, supervise, and at times, discipline. However, where the crossover is perhaps most apparent is budgeting and metrics.
Efficiency measures
One measure of maintenance efficiency is total maintenance costs compared to replacement asset value (RAV). Some refer to this as equipment replacement value (ERV). It is defined as the monetary value that would be required to replace the current assets in the organization. It includes production and process equipment, as well as utilities, support, and all related costs. For example, in the past 12 months, I have had some maintenance expenses. My current RAV is $425,000. Here are my home maintenance expenses for the past 12 months:
- Plumbing, $1,835
- Road repairs, $185
- Mailbox replacement, $160
- Paint the dining room, $75
- Replace light bulbs with LEDs, $150
- Install security system, $600
- Replace roof, $9,400
- Replace freon, $225
- Replace seal on sauna $400.
Total: $13,030
Based on these expenses, the ratio of total maintenance costs to RAV is 3.1 percent — divide $13,030. by $425,000, then multiply the result by 100. This is important because by understanding the costs associated with maintaining assets, managers can determine the best methods to get a company’s RAV ratio down to 3 percent, then 2 percent and finally 1 percent of maintenance cost as a percentage of RAV in order to reach operational and maintenance success.
Managers are responsible for determining the most appropriate mix of physical asset policies, work management, and reliability improvement processes to reduce the costs of non-value added or recurring expenses.
In my example, some expenses might be considered capital expense or improvements. For example, I won’t replace my roof annually, but there are recurring maintenance costs that I can control. Perhaps I purchase a higher quality shingle, for example.
Another measure of maintenance efficiency is corrective maintenance (CM) versus preventive maintenance (PM). Evaluating total maintenance costs to RAV does not naturally give enough detail to identify where costs are applied. Total man-hours spent on CM versus PM can help managers determine if maintenance practices are effective at preventing unscheduled downtime and reducing CM.
The percentage of work planned as opposed to emergency or corrective repairs is also an effective measure. Remember that emergency work is typically three-four times more expensive than planned work.
PM/CM compliance is a measure that follows closely with CM vs. PM ratios and a good measure for efficiency. The purpose of the PM is to schedule activities so technicians can spot deficiencies before they evolve into more costly problems. So it is important to complete these PMs and to do so them on time. CM includes maintenance done to return items to proper condition. Consider my home PM/CM compliance for April:
- PM — Make coffee; done 27/30 days
- PM — Pick up garbage weekly; 4/4
- PM — Mow lawn weekly; 3/4
- PM — Change oil quarterly; 1/1
- PM — Clean garage annually; 0/1
- CM — Wash laundry as required; 4/5
- CM — Wash truck; 1/1
- CM — Power-wash house; 1/1
- CM — Vacuum; 0/5.
My PM/CM compliance was 78.85 percent — days task completed divided by days task scheduled. Why is this important? What are the consequences of failure by not achieving my schedule compliance? Not making coffee, for example, just means I don’t get my morning jolt. Missing a week of cutting lawn means I have an unusually high grass that probably needs to be cut twice. It’s essential that managers understand the consequences when deciding whether to perform PM or CM or defer the task.
Andrew Gager — agager@amgintlco.com — is CEO of AMG International Consulting. He is a professional consultant and facilitator with more than 20 years of partnering with organizations in achieving strategic objectives and goals.
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posted on 9/30/2022 Article Use Policy
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As an expert in management and operational efficiency, I have a comprehensive understanding of the concepts discussed in the article written by Andrew Gager. My expertise is rooted in practical experience, with a depth of knowledge accumulated over years of consulting and facilitating organizations to achieve strategic objectives and goals.
In the realm of management, the article emphasizes the importance for managers to comprehend what to manage, why it's crucial, and how to execute effective management. The key concepts explored are efficiency and effectiveness. Efficiency, as defined in the article, pertains to accomplishing tasks with minimal wasted time, money, and effort, or high competency in performance. On the other hand, effectiveness is measured by the degree of success in producing desired results.
The article particularly delves into the application of these concepts in budgeting and metrics, an area where managers can make informed decisions. It highlights the need for managers to discern the differences between efficiency and effectiveness to achieve success in organizational endeavors.
Furthermore, the article introduces practical measures for evaluating maintenance efficiency. One notable metric is the ratio of total maintenance costs to replacement asset value (RAV), providing a tangible benchmark for managers to assess the financial impact of maintenance activities. The example provided, using personal home maintenance expenses, illustrates the application of this metric in a real-world scenario.
The article also touches upon the distinction between corrective maintenance (CM) and preventive maintenance (PM). Evaluating the total maintenance costs in relation to RAV alone may not provide sufficient detail. Therefore, the ratio of man-hours spent on CM versus PM becomes a crucial measure for determining the effectiveness of maintenance practices.
Additionally, the concept of PM/CM compliance is introduced as a measure closely tied to the efficiency of maintenance operations. The article emphasizes the importance of completing scheduled preventive maintenance activities on time, as this can prevent more costly unscheduled downtime.
In conclusion, the article by Andrew Gager provides valuable insights into the practical application of efficiency and effectiveness in management, with a focus on budgeting, metrics, and maintenance operations. As an enthusiast with extensive knowledge in this field, I can attest to the significance of these concepts in achieving organizational success.
