These days, operational efficiency is more than a goal—it’s a requirement. Between rising costs, talent expansion and complex compliance needs, streamlining your business systems is the only way to stay competitive. Discover how to increase and measure operational efficiency today.
What is operational efficiency?
At its core, operational efficiency refers to optimizing processes, workflows and systems to reduce costs while improving quality and increasing productivity. Increasing operational efficiency can look different across industries, but the general concept always returns to maximizing output with minimal resources.
How can your business increase operational efficiency?
To increase operational efficiency in your business, you’ll need to examine current processes and systems for potential issues. Are there bottlenecks preventing your project from successfully delivering? Are your project time estimates accurately aligned with actual completion times? Are there any areas in your department where miscommunication or insufficient information is delaying an outcome?
Only after you’ve answered these types of questions and performed a historical and comparative business analysis can you identify which areas of your company could benefit from operational efficiency. With the help of an experienced consultant, the next steps are simple.
Different methods of increasing operational efficiency:
- Automating processes
- Leveraging predictive maintenance
- Mapping workflows
- Adopting technologies
- Applying lean methodology
- Hosting employee training sessions
- Monitoring performance
- Strategically outsourcing
- Managing and tracking resources
In what ways does increasing operational efficiency benefit your company?
From a financial perspective, increasing operational efficiency is well worth the investment. By actively working to reduce waste, minimize errors and streamline key processes in your business, you’ll see a decrease in both material and overall operating expenses. With more room in your quarterly budget, you’ll be able to spend more time and energy on working towards strategic growth.
One of the main benefits of operational efficiency is directly tied to improving team morale. Reducing busywork and taking mundane, repetitive tasks off your staff’s plate can boost productivity on the responsibilities they actually care about. Improving team morale leads to higher output, stronger profit margins and greater overall agility.
How is operational efficiency measured?
Increasing operational efficiency isn’t something that happens overnight. To understand how a business is using its resources and identify where it can improve, experts rely on certain metrics.
Most methods of measuring operational efficiency rely on some form of Key Performance Indicators, or KPIs, capable of comparing inputs against outputs. The findings provide valuable insights into your company's financial performance, productivity and quality.
Core process metrics used to measure operational efficiency:
- Cost per unit: Calculates the total cost, including labor, materials and overhead, of producing a single unit to reveal money-saving opportunities.
- Cycle time: Measures the total start-to-finish time of a process, with shorter times indicating higher speed and increased operational efficiency.
- Resource utilization: Tracks what percentage of resources, materials, machinery or staff were actually used in the process, with higher rates indicating less waste.
- Error rate: Studies the frequency of quality issues in a product or service, with lower numbers showing fewer reworks.
- Employee productivity: Examines the output generated on an employee-by-employee basis (or sometimes per hour worked) to measure operational efficiency for labor.
- Downtime: Monitors the time frame a system, process or machine is not operational to minimize future delays.
How to identify your inputs and outputs when increasing operational efficiency
Efficiency cannot be achieved without properly identifying inputs and outputs, but the variables that constitute them vary from industry to industry. Think of it like this: inputs are controllables, while outputs are the measurable goals.
Before you make any changes to your company, map each process to distinguish the resources (inputs and outputs) consumed and the value created (outputs). In general, reducing input costs while maintaining or increasing output will increase operational efficiency.
What types of inputs are used to measure operational efficiency?
- Operational expenditures: Ongoing costs of running said business, including rent, utilities and marketing.
- Capital expenditures: Funds designated to maintain and upgrade fixed assets such as machinery, buildings and IT infrastructure.
- Labor hours and headcount: The total number of people assigned to complete a process or create a product, and how long it takes.
- Raw materials: Any form of material consumed during the manufacturing process.
- Average handling time: Time spent resolving a customer request or issue.
What types of outputs are used to measure operational efficiency?
- Production volume: Total units produced within a specific timeframe.
- Customer satisfaction: Positive reviews, high scores on satisfaction assessments and steady retention rates.
- Quality assurance: A measure of the accuracy and reliability of the “first pass yield” units.
- Market growth: Signs of company growth, including new client acquisitions, increased market share and expanded profit margins.
- Financial success: The monetary value generated from operations, such as gross margin, ROI or revenue per employee.
What is the Operating Expense Ratio (OER)?
The Operating Expense Ratio, typically shortened to OER, is a financial formula used to compare a company’s operating costs to its revenue. It is calculated as “operating expenses” divided by “revenue,” then multiplied by 100 to get a percentage. If the OER is low, fewer resources are consumed during daily operations, and operational efficiency increases.
How can a third-party company help you increase operational efficiency?
Implementing changes and measuring operational efficiency can be a tough challenge to tackle on your own. With the help of a third-party consultant, you don’t have to go through it alone. Consultants bring expertise, access to the most advanced technology and fully scalable resources to the table, enabling your team to focus on core competencies while operational efficiency increases in the background.
Which industries benefit from operational efficiency consulting?
- Healthcare: Optimizes patient-forward care, clinical workflows and administrative tasks.
- Manufacturing: Focuses on improving supply chain flow and reducing waste.
- Financial: Aims to digitally transform services, remain compliant and lower operational risks.
- Retail: Narrows in on inventory management, supply chain speed and enhancing customer service channels.
- Utilities: Prioritizes operational reliability and overall infrastructure maintenance.
Let CGI help increase your operational efficiency today
If it’s sustainable results, elevated performances and operational excellence you want, partnering with the consultants at CGI is what you need. Connect with us to learn more.
