optimization

Leadership Macro and Micro-Measures

Adollar is a dollar is a dollar, but the context is what matters when you need to decide what to buy. Math is inexorable, and there are right and wrong answers to math problems.  Leadership and management decisions require thinking in terms of context, not pure math.

Your objective: Develop a series of small/medium/large measures based on what your business or organization produces or sells.

Develop a measure for the profit margin for a unit of what you sell.  How many units do we need to sell to cover this cost? For example, a book might net your business $3 or a consulting session $25/hour profit.  It’s good to know how many bags of seed you have to sell to pay for that purchase.  Translate the cost of an employee or a meeting into units of sale.

Develop a measure of your production capacity.  This manufacturing plant can produce X widgets per month.  We can ship Y packages with our current method in a day.

Develop some cost proxies for people time.  Some large US corporations will estimate that the carrying cost of a full-time employee with benefits is $100,000 annually.  Skilled US contractors can run over $200,000 annually.  A full-time worker might have 2200 hours of work time in a year, depending on the fraction of admin and vacation days.  10 minutes a day translates to about 50 hours in a typical work year.

Develop a both/and approach to looking at financials.  Express large purchases in terms of <$/person/unit of time>.  For example, a new PC purchase price might work out to $0.78/workday over its 3 year lifespan.  I write a check for $140,000, and it works out to $2.67 per unit use over 2 years.  Both dimensions are true and useful.  This employee engagement program will cost X million dollars, so what return should I expect?  That strategy would require all the output from these 3 plants for X amount of time.

Figure out a set of metrics for profit margin/unit, production capacity, and people time.  These will give you communication ‘handles’ to help others think about cost/benefit opportunities.