Risk, and in the context of manufacturing
or opinions are a function of fundamental
plants, operational risk exposure, increases
increases. The presence of operational risk becomes evident through variance
The need therefore exists to integrate ele-
ments of cognitive science, data visualisa-
parameters such as production rate, qual-
tion and system improvement. Operational
ity, variable operating cost and the inability
to consistently comply with environmental
through experiential learning. The latter
regulations. The latter is not reflected in
implies that people make use of feedback
financial statements, although it has major
Dr Kobus van der Merwe
implications for current and future / pro-
however, represents a condition where feedback information is received out of
The need therefore exists to quantify the
context. This implies that it is not possible
conditions under which the current operat-
to reliably relate actions and conditions to
Dr. Kobus van der Merwe Industrial Management
to provide insight into aspects that can
Enhancement
improve future financial performance. Vari-
Experiential learning does not only explain
What value does Operational Variance
new insight and understanding are gained.
Management add to the management of
It is common to find people with different
processes and manufacturing companies?
• Trusted responsibility of management to
levels of experience and opinions within
How does it contribute towards growing the
the production environment. Interpretation
economic value of a company? Dr. Kobus
of observations therefore differ which in
van der Merwe of Industrial Management
• Potential value that can be realised by
developing operational staff’s insight and understanding with regard to their
Historically, shareholder wealth is believed
formance variance which, by implication,
to improve with growth in annual earnings
results in unpredictable performance. This
per share and through increases in return
• The need “to do the right things right”.
on equity. Earnings do not reflect changes
plants as record performances are logged
in risk and inflation, nor do they account for
Symptoms
on an ad hoc basis, followed by variable
the cost of additional capital required for
and / or poor performance. In other words,
there’s a general inability to repeat good
The value of companies’ shares will only
facturing conditions that delivered good
increase if management can earn a rate of
performance provides an overall indication
return on new investments greater than the
of efficiency, although this measurement
exist. This results in decision-making that is
rate investors expect to earn by investing in
method lags the real-time decision-making
alternative, equally risky companies.
process. In other words, this reporting provides feedback on the financial impact
of historical plant events, conditions and
tify gaps within existing business process-
es and procedures, quantifying the impact
Lagging performance indicators creates an
of the latter and facilitating the develop-
governed or influenced by the efficiency of
environment in which inconsistent mental
ment of mitigating actions to address inef-
ficiencies. A structured process is followed
Operational Variance Management
challenging orthodoxies, aligning mental
and to devise solutions that eliminate or
facilitating the development of innovative
solutions to sweat existing assets, systems
• Develop people’s knowledge of the plant
process to increase the probability of good
view (i.e. facilitate experiential training). Addressing challenges
that the system remains within a defined
Interpretation of conditions, events and
existing infrastructure – the reasoning is
state (e.g. 45% in an ideal state, 15% in
a transition state and 40% in an unstable
actions. Interpretation is a function of
achieved by utilising existing infrastruc-
state). This information is also used to
determine whether the ‘ideal state’ is sus-
tainable or not. In the context of operational
edge is biased by opinions. Consequently,
by default, eliminate inefficiencies. First
it is common to find that individuals A and
sents the conditions where the chance of
B will differ in their interpretation of the
losses are minimised while minimising the
sion regarding decisions and actions. By
Iteration - PSMs validate mental models
implication, incorrect evaluation of condi-
Operational Variance
and provide insight into system character-
tions increases the operation’s exposure
Management
istics. Feedback provided via the PSMs es-
to potential losses as incorrect actions
tablishes a platform to update and improve
information contained in the Performance
plines of a learning organisation as defined
Driver Matrix. By implication this activity
by Senge [1]: Systemic thinking, aligning
facilitates team and experiential learning,
mated, operational personnel’s interpreta-
mental models, innovation, vision and team
systemic thinking, innovation and creates a
tion and actions play a significant role in
learning. This is achieved by executing the
vision of potential system performance.
plant performance. It is for this reason
that performance indicators are utilised to
Initiatives - Initiatives are launched to Performance Driver Matrix - captur-
exposure to issues, events and conditions
defines the spectrum of aspects on which
that can result in losses. These initiatives
ments can also influence people behaviour
are diverse and aren’t bound to any spe-
tion is contained in a database which is
cific technology. In other words, once the
also serves as a record of experience and
ments aren’t aligned with overall goals
knowledge. Information contained in this
understood, it is possible to mitigate or
and objectives. Consequently, people act
database serves as a training aid and is
resolve them through appropriate improve-
and perform within silos (i.e. per discipline
and per production unit within the process stream). The challenges to be addressed
Process Status Maps – identification and Performance Monitoring - Process Sta-
to visualise different process conditions.
ing the time that the system remains within
PSMs therefore establish the link between
process states and performance metrics –
it is possible to identify the factors that
in other words, PSMs establishes the link
Figure 1 illustrates the three primary ele-
Figure 1 - Structured OVM methodology Benefi ts
derstanding of risk and its implications
insight into an organisation’s operational
• Cultural change, helping operational
• A mechanism to place front line respon-
sibility for operational risk management
ded at all levels of the organisation, with
respect to both day-to-day activities and longer term business decision-making. [1] Senge, P., et al., The Fifth Discipline Fieldbook1994, London: Nicholas Brealey
• Clear and specific ownership of action plans;
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Risk, and in the context of manufacturing
or opinions are a function of fundamental
plants, operational risk exposure, increases
increases. The presence of operational risk becomes evident through variance
The need therefore exists to integrate ele-
ments of cognitive science, data visualisa-
parameters such as production rate, qual-
tion and system improvement. Operational
ity, variable operating cost and the inability
to consistently comply with environmental
through experiential learning. The latter
regulations. The latter is not reflected in
implies that people make use of feedback
financial statements, although it has major
Dr Kobus van der Merwe
Figure 1 - Structured OVM methodology