[Post by Chuck Krugh, June 2, 2023]
I like to use some of these blogs to address the questions that I’m asked when I’m out on the deckplates. Writing about them here provides everyone with the same information, which is important.
A popular question is, “How will I know we are doing better?” On the surface, it’s a pretty straightforward question with a pretty straightforward business answer. BUT, it’s not always as straightforward as you think. A lot of the time, workers and leaders have a gut feeling about how the organization is performing way before the numbers show it’s responding. After all, the business is us – the people who work here!
The straight business answer to knowing that we’re doing better is, of course, when the numbers show improvement. For that, you need enough numbers over a period of time to show a positive trend. This is the most fundamental way a business determines its health. The numbers I’m talking about include things like profit, cash flow, net income and Cost Performance Index (CPI). Each of those numbers demonstrate the health of different aspects of our business.
Let’s look at profit as an example. In its most simple form, profit is what is left after you subtract costs and expenses from the revenues. Revenue is the money that comes into the company from our customers – the money we get for building ships. It’s the easier side of the equation.
Costs and expenses are on the other side. Said simply, the money that goes out of the company – our spending – makes up our costs and expenses.
If you think about it like your household, you have a paycheck that represents your revenue. From it, you live your life; you pay all of the bills, or fixed costs (i.e., utilities, rent/mortgage, car payment, etc.), and your expenses (i.e., food, going out to eat, Netflix, clothes, etc.). You want to have at least a little money left after the costs and expenses are subtracted from your paycheck – that’s your “profit.” When your costs and expenses are greater than your paycheck, then you’re in a loss situation. None of us like to be in that situation!
The company operates in a similar way, except it is complex with much larger numbers.
The responsibility for controlling our company’s costs and expenses falls on all of us as we do our daily work. We all have our role to play in keeping costs down no matter what position we hold in the company. One of the biggest contributors to cost that we all can help control is doing the job right the first time. We need to put an end to rework!
Rework is non-discriminatory: it doesn’t care what job title you have or position in the company you hold. It sneaks into your work when you’re not paying attention. The bad thing about rework is that it costs twice the labor – or more – to undo and redo than if the work was done right the first time. That’s what makes it really expensive!
There are obviously many more categories of costs and expenses in the company. It would take many blogs to cover them, but I wanted to provide you with some food for thought as you consider the simple equation that covers both work and home: Profit = Revenues – (Costs + Expenses).
So profit is an important way to tell how we are doing as a company, and reducing expenses, for example, eliminating rework, is a way to help us be more profitable. But what about that “gut feeling” I mentioned earlier in this blog? As I said, people get a gut feeling well before the data comes in.
Some people don’t like measuring a company by the feeling you get walking around, but I do. I like taking a measure of a company using my gut.
Have you ever walked into a store or other business and knew that you didn’t want to deal with them – even before you had your first interaction? On the other hand, perhaps you got such a good feeling when you stepped in, you immediately decided to do business with them. I do this all the time. I make a snap decision based on what I see, feel and hear. I decide quickly whether I want to do business with a company.
The same is true when I walk into a manufacturing plant. You can feel the vibe if it’s operating smoothly. You can see the action happening. You can hear the machines turning. If you doubt me, try it. We have different areas in our company that are in different stages of progress. Some are moving faster than others and feel a little stronger. Our goal is to get our entire company to the same place – where we all feel the same positive vibe.
I believe we are moving in the right direction today because I feel it and I see it.
Improvements are happening all around us. We are doing better. Thank you for what you are doing to help us improve!
See you on the deckplates!
Hmm . . . improvements – sounds like a future blog :- )
Safely Execute High-Quality Work
President, General Dynamics Bath Iron Works
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