Posted by: Knightbird | March 1, 2015

Resource Leveling and Budget Experts

I have been frustrated by “Budget Experts” in any organization. They put budgets together, manipulate the budgets when they don’t accomplish what they projected and they control the budget by command. And the games that are played are complex and imaginative. I have thought about his example based on a conversation with my closest colleague. It incorporates a lean view of an organization but is a fictional scenario.

Waste elimination is based on learning to see waste. It’s like any other skill—it can be learned. The infamous Ohno Circle is an example of learning to see, but it worked. You learn to watch and think for yourself. I talk to my colleague about things like this because learning is a collaborative opportunity. We both learn from each other and teach each other. When you understand what waste is, and you can see waste, you are on the way to learning to see. Here is what I see.

Most processes that are not continuously improving (I call them Random and Chaotic—R&S) have incredible amounts of waste in them. But Budget Experts cannot see the waste because they are too focused on the processes involved in preparing and analyzing budgets. A Planner first estimates the number of employees that a budgeted entity needs to accomplish their mission. I assume that the planner says we need 13 employees for an R&C system. The Budget Expert says you have to make do with 10. Each employee will then need both direct and indirect support. For direct support, include all of their benefits, office, computer & supporting machines, Internet, travel and maintenance, software, telephone and any other required work implement. Indirect services include HR, Finance, IT, supervision and any other commonly provided support such as a motor pool (usually supported within the direct budget but requiring Indirect Support as well). So here is what we end up with planned for the system: 13 Employees, 3 in red not allocated.


Now we need to get work done with an R&S System. Assuming every employee is equally productive, we have 87% of the resources requested, and should be able to achieve 87% of the work done.

Now we apply Lean thinking to the work we are doing by Kaizen. If we increase productivity by 20% (x 87%=17.4), we now have capacity for 104% of the original planned work. In essence, assuming the planners were correct, we have absorbed the deficit caused because 3 employees weren’t budgeted for. We should be able to accomplish all of the work left undone—the backlog. Over time, we have 4% of our capacity to whittle down the 13% that couldn’t be done, unless we paid for overtime. A 20% improvement is achievable. Many Kaizen can achieve 50% improvement.

At this point, a Budget Expert will say lean is not working. We are not saving any money. This example explains why. If you want to do the job right and have been given insufficient resources, of course you aren’t saving money. All you have done is achieve expected output with fewer resources than originally forecast. You have achieved the output originally attributed to 13 employees with 10, and have an additional 4% capacity to start eliminating the backlog. Of course, you need to figure that improvement events will take time, but assume that we have made up the time through using the 4% capacity prior to eliminating the backlog. We were just ignoring the backlog anyway because we did not have the resources to do the work initially.

Now lets say we achieve another 20% improvement. We now have 24% extra capacity and any backlog will be eliminated rapidly. If we contract services out, we can now bring those services back in house for additional savings. And we can use the capacity for even more improvement events. In fact, we have done so well, we can loan experience employees out to other improvement events in other departments for even more achievement. Or we can detail the extra capacity to a Kaizen Promotion office to help improvement happen throughout the entire organization.

Here is where my colleague helped me achieve more insight. When we have absorbed any backlog, and created capacity, at some point in time we need to remove that capacity from the department. It serves no purpose there. But staff within the department is extremely valuable. They understand your system of improvement and are trained to continuously improve their workplace. They know what standard work is, and the likelihood is that they are becoming increasing more satisfied with their workplace. We can level our resources by assigning employees to other positions that are needed. We retrain and cross train employees to be even more valuable than when they first started. It’s a winning strategy.

A primary strategy for any organization implementing lean and wanting to retain its employees will be the elimination of non-personnel waste. If 2 employees are reassigned in the example above, 20% of direct support is eliminated from that department along with the 20% cost for staffing. The direct support will follow the staff to their new assignments. But we will be meeting the needs of 2 departments with fewer resources. But we are able to level our resources to achieve greater results throughout the entire organization. Now we are thinking as a system.

Part of thinking as a system is to realize that in addition to improving employee output, we are also reducing other inputs into our services or products. We need less space, very small amounts of inventory, fewer pieces of equipment and other costs related to occupancy and indirect. We can prefer employees to spending on other tangibles. By making this commitment to our employees, we build in loyalty to our Lean Implementation and the organization.

Assuming we are not growing our business, at some point in time, we will have achieved a significant level of improvement and have a real need to reduce staff. We can implement the final stage of the 6 strategies I have been discussing. As employees retire, resign or terminated for valid cause, we don’t need to replace them. We can realize the cost savings as we have achieved systemic improvement and eliminated substantial amounts of waste.

Budget Experts understand very little of what I am writing about. You can see it in our current state administration’s approach to their income crisis. They have announced a small layoff of slightly more than 300 employees, many of them currently vacant. The Commonwealth North’s Fiscal Policy Study displays absolutely none of this insight. It focuses on the wrong issues. And when you read about the response from many other state income dependents like municipalities and school districts, they respond in the same way—negatively. If, instead, our state administration recognized the value of our state employees, and adopted a Lean Government approach, perhaps we would have a different response. If we could achieve the same 40% improvement I wrote about in the fictional department I created, then 24,000 employees eventually become 16,800 employees. Services don’t decline and our budget eventually realizes the savings. What a difference approach makes.

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