Running a business is not an easy task. It involves preparing documents and policies as well as connections with people. Documents and policies allow you to have a system in how you will operate your business. The system ensures that you can keep track of your people, profits, and processes. These systems come in the form of operational strategies and procedures.
Operational strategies include what your business does on a day-to-day basis. Operational strategies align themselves to your business goals and objectives. Meanwhile, procedures refer to the instructions for the activities in a business. These two are essential aspects to manage in running a business. Thus, you will need to review them and update them as needed. Doing so will help your business grow and thrive in an ever-changing economy.
Before diving into the specifics of developing an operational plan, you need to know what a business venture is. A business venture is a planned business that aims or expects profits to come. Take note of the words ‘planned’ and ‘expects profits.’ These show that businesses are not activities you can do on a whim unless you want to fail. You need to plan to gain profits.
Success requires goals and objectives. While goals and objectives may seem interchangeable, they have distinct characteristics. Business goals are achievable outcomes that are usually broad and long-term. On the other hand, business objectives are specific and present how to achieve the goal.
Take for instance a businessperson who owns a coffee shop in Melbourne, Australia. Their goal is to share his passion for coffee while gaining income. One of their objectives is to earn a monthly income of $30,000.00 by selling coffee at an average price of $4.00. As this goal is comprehensive, it requires an operational plan to document how the goal will be achieved.
The operational plan plays an important role in outlining the tasks involved in your business to achieve goals and objectives. This plan has a timeline. The operational plans should align with your business objectives. Alignment of these two ensures that your business is on track to achieving its long-term strategic goals. Successful companies work toward their goal while improving their processes.
Components of an Operational Plan
An operational plan outlines the tasks involved in your business to achieve goals and objectives. There are seven components of an operational plan. These include:
- Goals and objectives and actions
- Business Operations
- Quality standards
- Key Performance Indicators (KPIs)
- Resources
- Risk management plan
- Timelines
Let’s look at each component in more detail.
Goals and objectives and actions
A commonly used method to achieve success is to use the S.M.A.R.T goals approach. The S.M.A.R.T acronym sets out a clear structure that ensures goals and objectives are:
The following table represents each characteristic of S.M.A.R.T goals that will help evaluate and structure your plan in meeting your business goals and objectives.
| SMART | Description |
|---|---|
| Specific | The objective is exact in providing the details of the goal. |
| Measurable | The objective can be described quantitatively or qualitatively. |
| Achievable | The objective is not overambitious and considers factors like time or budget. |
| Relevant | The objective aligns with other goals or types of activity. |
| Time-bound | The objective follows a timeline. |
Watch the following video to get a detailed explanation of how the S.M.A.R.T goals approach can be used.
As you can see, using SMART objectives will help you define a better goal for your business. They can help you realise if your goals are too ambitious for your timeframe or factors like the budget. Remember, running a business requires clear goals. Because without clear goals, your business will have difficulty thriving and improving.
Business operations
The operation of the business refers to the daily tasks that are required to operate the business. Depending on the business, each business will operate differently. Take for instance a coffee shop, the business operations for this type of business may include:
The business operations are the tasks needed to be performed in order to earn a profit in your business. Some have additional steps to consider may include other operational tasks such as marketing campaigns, business meetings and more. The larger the company, the larger the operations tend to be.
Quality standards
Quality standards are a component of the operational plan that helps to determine the benchmarks that the business should strive for. Take for instance a small business that provides fruit and veg direct from local farmers. This business may have the following quality standards for their products and services:
- Freshly picked fruit and veg
- Sustainably farmed
- Delivered straight to your home or business.
The given quality standards are essential and can be achieved even without certifications. However, larger businesses would be better off getting certifications. But this is not to say that small businesses should not strive for certification. Certifications can boost a business’s reputation, especially if they plan to expand.
An example of quality standard certification is ISO 9001. This certification focuses on quality control and management. Watch the following video about Standards Australia, the country’s leading independent, non-governmental, not-for-profit standards organisation.
Key Performance Indicators (KPIs)
As the name suggests, Key Performance Indicators (KPIs) show an individual's or business's performance. Goals and objectives should be measurable, and by setting KPIs for an individual or business is important because it sets the benchmarks that need to be met in order for the business to achieve to succeed.
For example, a small paper company aims to sell 1,000 reams of A4 paper per month in order to be profitable. But the current sales by the end of the month is 800 reams. This example shows that the company failed to meet the KPI. If this occurs, a review of the operations is necessary, where a new strategy or approach must be taken to strive toward meeting the required KPIs.
Resources
Resources refer to the items utilised by the business to conduct operations or provide services.
Examples of resources include:
- finances
- staffing
- tools and equipment
- raw materials etc.
Proper management and use of these resources can make or break the business.
Risk management plan
Risks in the business refer to events that may occur that may change the company's actual gains. These are uncertainties or unforeseen circumstances that impact the achievement of business objectives. Risks are a part of any business that needs to be managed. Thus, business owners need to develop a risk management plan. This minimises the losses that you will incur should the business fail or have mishaps. For example, you can get property insurance for your business location. Supposing that a fire occurs on the premises, you can recover financial losses with the help of insurance.
The following table provides some examples of risks in a business that must be considered:
| Potential risks | Description |
|---|---|
| Strategic | This risk is a result of errors in the strategy implemented in the project. For example, utilising a technology that does not fit the project. |
| Market | This type of risk results from economic factors, such as foreign exchange, commodity markets, and interest rate risks. |
| Legal | This type of risk comes from legal and regulatory obligations. For example, litigations arising from contracts brought against the company. |
| Operational | This type of risk is related to strategic risk. This risk results from poor process and implementation—for example, failure or miscommunications in procurement, production, and distribution of supplies. |
| External | This risk is sometimes referred to as force majeure. This risk pertains to extraordinary circumstances that are beyond the control of the business owner. This includes natural disasters, terrorist strikes, and labour strikes. |
| Financial |
This type of risk refers to the possibility of losing money in an investment or business venture. It is one of the risks that first comes into your mind when starting a business. Assessing this risk involves studying the following:
|
| Cultural | This type of risk refers to miscommunication due to differences in culture. This risk can be internal or external. Internal cultural risks occur among members of the business or organisation. Misunderstandings and miscommunications are possible as a result of their cultural differences. External cultural risks refer to the company failing to adapt to the global or local market. |
Timelines
Timelines refer to the allocated time for business operations. A timeline also referred to as a milestone, can help the business stay on track with its deliverables. This ensures the punctual delivery of products or services. A punctual business will have the edge over its competitors in the industry.
Knowledge Check
Legal Context of Operational Plans
Developing an operational plan has no direct regulation or legislation. However, each operation of your business may have legislations that cover it. The following are some examples of laws that may cover your business operations.
Work Health and Safety (WHS) Act 2011
This law requires PCBUs to have WHS policies and procedures in place in their business.
Environmental Protection and Biodiversity Conservation Act 1999
This law prohibits actions that can cause damage to the environment and biodiversity. This law is stringent on activities that can cause massive disruptions to the environment.
Privacy Act 1988
This law provides provisions for collecting and handling the personal information of citizens. The law states that businesses should be careful how to collect and store customer data.
Food Safety Act 1991
This legislation sets standards for food processing. It covers preparing, packaging, and delivery of perishable goods.
Ensure checking the legislations that relate to your business. You may check the legislative website of the Australian Government for guidance.
Developing an Operational Plan
Operational plans vary per business. There is no one correct answer when developing an operational plan. But at the very least, it should include the components mentioned in the previous section.
See the following steps to develop your own operational plan.
Set and focus on the goals and objectives
Do you recall what the goals and objectives are? Goals are broad and long-term. On the other hand, objectives are specific and present how you achieve your goals. Review your business goals and objectives. Ensure that you will follow them through the development of the operational plan.
Outline the operations
Now that you have your goals, you can prepare an outline of your operations. Your identified operations should always align with your goals and objectives. Doing so ensures that your business has a focus, which prevents wastage of resources. For this task, you can use the industry or competitors as your reference.
Review the resources
Ensure reviewing the resources that you have. Two of the most critical areas that need review are budget and staffing. For budget, it is a good idea to overestimate rather than underestimate it. An underestimated budget will have you looking for finances in a rush. But if you have overestimated the budget, you can keep the excess or reallocate it to other areas that need it. For staffing, ensure that your staff are capable and have good skill sets.
Prepare a risk management plan
Ensure that your business has a plan for the risks discussed earlier. Risk management plans can help you minimise losses or recover more quickly from losses.
To prepare a management plan, you can follow these steps.
Create a reporting system
Reporting systems can be flexible. It can be as simple as creating a presentation or using a business report management system. Examples of these management systems include Xero, Salesforce Cloud, and HubSpot. An advantage of using software for reporting is it can do the hard work of calculating and presenting your data. It reduces the burden on the business owner and makes the report more concise and accurate.
The following case study illustrates how a businessperson named Jo has developed their own operational plan.
Developing the Plan
Jo is a person who has an intense passion for coffee. After saving a considerable sum of money, decided to open a small coffee shop. Jo talked to friends and colleagues who owned a business. After weeks of preparation and paperwork, Jo completed his business plan and is now going to develop the operational plan. Jo followed these steps to develop the plan. First, Jo looked back on the goals and objectives. Jo knew the goal well. Jo wants to earn a living by selling and serving coffee to people. The identified objective is:
'Earn a monthly income of $30,000/month by opening a coffee shop in a busy street in Melbourne. The shop will sell a cup of coffee at an average price of $4.00. The promotion of the shop will be through signages near the shop and use of social media.'
After reviewing the goal, Jo proceeded to outline the business’ operations. Jo identified several activities involved in serving coffee. This includes the following:
- Ordering supply of fresh coffee beans
- Managing the inventory
- Preparing equipment and shop
- Serving coffee
- Clean up and closing
Following the outline, Jo reviewed the shop's resources. The resources identified include the business capital, equipment, human resource, and suppliers. Jo ensured that the business could afford and had access to quality resources.
Jo knows that all businesses have risks and prepared a risk management plan for the business. Jo identified risks, analysed them and identified measures to mitigate them. An example of the risk identified is fire. The shop will use stoves, which are fire hazards. So, noted sprinklers and fire extinguishers would need to be set up for the shop. Property insurance was also included in the budget to ensure a safety net if a fire occurs.
Lastly, Jo noted that he a reporting system is needed to manage the shop's operations. Jo will subscribe to accounting software to help organise and document the business. The system will also help check if the business is on track with its targets and goals.
Watch the following video that explains the elements of an operational plan.
Business owners should be wary of how to manage work health and safety (WHS) as well as environmental issues. There are several government policies for managing these risks. These policies can help business owners create strategies that help deal with these risks.
Legislation
The WHS Act defines the broad policies regarding health and safety standards that promote the welfare, health, and safety of everyone in the workplace. The current WHS Act aims to harmonise the jurisdictional WHS laws so that work health and safety are nationally consistent between States and Territories, as they enact and enforce them under their jurisdiction.
Work Health and Safety Regulation 2011 (WHS Regulations)
The WHS Regulation 2011 is a set of regulatory guidelines stemming from the WHS Act 2011. The regulation sets out specific requirements to be met with regard to a wide range of matters relating to
Work Health and Safety. The Model Work Health and Safety Regulations offer guidance for many of the aspects of working safely within specific work tasks that apply to a variety of industries.
States and Territories of Australia have their own Work Health and Safety legislation based on the model WHS Act and WHS Regulation developed by Safe Work Australia. This aims in creating a consistent WHS standard across the country.
The following table lists the WHS Act and WHS Regulation of the States and Territories of Australia as well as their respective regulatory body for Work Health and Safety. Please note which Acts and Regulations apply to your own State/Territory.
Duty of care requirements
Everyone in the workplace has a responsibility to ensure the health and safety of not only themselves but of others. The WHS law outlines specific responsibilities that apply to all workers while performing relevant work tasks. These workers under WHS law are referred to as Duty Holders and are categorised by their role in the business. The four Duty Holders include the following personnel:
- Employers are also referred to as Person Conduction Business or Undertaking (PCBUs)
- Officers
- Employees
- Other personnel.
Everyone in the workplace needs to be aware of their own job responsibilities and their required duties when performing tasks. Think about the people in a workplace or the jobs that are common in the design industry. What category might you fall into? Can you name a job title that falls into each of these categories? The following will provide more information on each of the duty holders and their responsibilities.
Persons conducting business or undertaking (PCBUs)
Under WHS/OHS legislation, employers must ensure the health, safety and welfare of their employees whilst at work, and any other people whose health or safety may be affected by the employer’s undertaking within the work environment. This is known as the general "duty of care". To meet the duty of care requirements, employers must:
- conduct regular risk assessments to ensure a safe environment for all stakeholders
- provide and maintain safe work systems and a safe work environment
- consult with worker regarding potential work health and safety issues
- monitor workers' health and conditions in the workplace
- provide safety instructions, training and supervision as may be necessary to ensure the employees’ health and safety of themselves and others
- manage hazards by considering the hierarchy of controls and either remove hazards or display warning signs as a control measure (e.g. ‘wet floor’ or ‘hot surface’ sign)
- Ensure that premises (and means of access and exit) are safe and without risks to health.1
All these tasks, employers must undertake in Consultation with their workers. Workers have rights that correspond to each of these things. For instance, workers have the right to receive the adequate and appropriate information, instruction, training and supervision to enable them to perform their work safely as required. Under the relevant Health and Safety Regulation, which offers guidelines to some of the requirements of the Act, employers must implement a risk management process as a means of eliminating or at least controlling all risks in the workplace. The risk management process is implemented to protect the health and safety of employees and other personnel such as contractors, visitors, or others present at the workplace.
Officers
An officer is generally someone who makes, or participates in making, significant decisions that affect the whole, or a substantial part, of the business such as a senior executive. They can have the capacity to significantly affect the business's financial standing. For small businesses, officers are typically the owners or operators of the business (PCBUs).
An officer of a PCBU has the duty to exercise due diligence to ensure a business or undertaking complies with its duties under the model WHS laws. This includes:
- making sure workers and other persons are protected against harm
- making sure the business has suitable safe work systems in place.2
Workers
PCBU’s and officers are not the only ones that have the responsibility to keep the workplace (and personnel within the workplace) safe from hazards, risks and incidents. All workers, including those in the graphic design roles, will have duties that need to comply with the WHS/OHS legislation and align with their workplace policies and procedures. These responsibilities include:
- Workers must be able to perform their work without endangering their own or anyone else’s health or safety
- Workers should not interfere with/misuse anything provided in the interests of health and safety
- Workers need to co-operate with the employer’s efforts to control risks
- Workers need to be responsible for the use of PPE when performing specific work tasks and duties
- Reporting any workplace hazards and incidents to managers and supervisors.
The workplace will have consultative arrangements in place where workers can attend the consultative meetings and collaborate further in controlling risks and preventing incidents from occurring.
Others in the workplace
Any person at a workplace, including customers and visitors, must take reasonable care of their health and safety and that of others who may be affected by their actions or omissions. To achieve this, they will need to comply with any reasonable instruction given by the employer/PCBU and ensure that their actions or omissions do not adversely affect the health and safety of any personnel in the workplace.
WHS hazards
WHS is the management of risks to the health and safety of everyone in the workplace. This includes the owner, the employee, the customer, and the suppliers that come to the workplace.
WHS hazards pose a risk to the health and safety of people in the workplace. The following table describes four types of WHS hazards you may come across in a workplace.
| Hazards | Description |
|---|---|
| Safety hazards | These hazards include risks of slips, falls and equipment failure. These result from improper maintenance of the workplace or overlooking safety measures. |
| Biological and chemical hazards | These hazards refer to exposure to dangerous biological or chemical objects. Biological objects include bacteria and viruses. On the other hand, chemical objects refer to as caustic or corrosive objects. These are commonly observed in biological or chemical laboratories. |
| Ergonomic hazards | These hazards refer to hazards that put a strain on the body of the person. These include manual lifting and posture while working or using the equipment. This is the most common type of hazard but is also challenging to identify. This is because things like posture and lifting techniques are often overlooked in the workplace. |
| Workload hazards | These refer to hazards that put a strain on the person and their work relationships. One of the most common workload hazards is work overload. Excessive workload causes physical, psychological, and emotional stress to a person. These can affect how they communicate and handle professional relationships in the workplace. |
Workplace hazards will always exist in a workplace, however, it is critical in any business to identify these to avoid people from potential injury or harm.
Click on the following headings to learn what to consider for each of the WHS inspection methods.
- Is the equipment in your workplace functioning as intended?
- Does your workplace follow good work and safe design?
- What issues have you observed in the equipment in your workplace?
- Are the members of your work team performing the practices in your workplace as intended?
- Is your work team able to carry out their tasks without risk?
- Which of your work team's tasks is hazardous?
- Has your work team undergone sufficient training to carry out their tasks safely?
- Are the processes in your workplace efficient in maintaining health and safety?
- Who are the relevant persons in performing processes in your workplace?
- Do the processes in your workplace meet organisational and legislative WHS requirements?
- Are the members of your work team informed of the processes in your workplace?
- What are past incidents that have occurred in your workplace?
- Which safety regulators can you consult about health and safety in your workplace?
- Are there any hazards reported in your workplace in the past?
Reduce Risk factors
Reducing the risk of a hazard is imperative. Click on the following headings to learn how you can reduce WHS risks in the workplace.
- Replace materials that pose the greatest threat to everyone (if applicable)
- Send defective equipment for repair
Use a less hazardous material or equipment for the operations (if applicable)
Isolate equipment that may pose threat to people. For example, fire hazards should not be placed in hot areas.
Send people for training or get a trainer for your personnel. For example, you can train people on how to manage ergonomics in the workplace.
Provide necessary equipment that reduces the risk of harm to people. For example, people working in laboratories should have laboratory protective gears.
Risk management principles
Businesses will often follow the following principles in order to thoroughly manage any risks present in the premises.
- Communicate and consult:This involves communicating with all stakeholders of the business to ensure they ae all committed to the process.
- Establish context: This involves establishing internal and external environment of the business to define the scope of the process and set criteria for risks to be assessed in the risk management process.
- Identify risks:This part of the process is first step in risk assessment. It involves identifying a list of possible risks business is exposed to that could affect the business outcomes.
- Analyse risks: Analysing (potential) risks is the second step in risk assessment and involves understanding the qualitative and quantitative impact risks may have, so that steps can be implemented.
- Evaluate risks/Risk assessment:Evaluating (potential) risks is the third step of risk assessment where risk analysis outcomes are compared with risk criteria and risk context to decide on appropriate steps to take.
- Treat risks:This involves developing a risk mitigation plan to eliminate or minimise risks or likelihood of them occurring.
- Monitor and review:Regular reviews and monitoring the process is essential to ensure risk management is working and risk impacts are being minimized.
- Record and report:All risk management processes and results need to be recorded and reported to relevant superiors in the business.
- Risk Management: It is the overarching term used to define the process of identifying, assessing and eliminating risks to prevent business loss.
Manage hazards and risks in a business
In accordance with Safe Work Australia, businesses must manage hazards and risks in the following ways.
- Consult with workers about safety, hazards, and risk control
- Implement a safety management system and a risk management process that are regularly reviewed
- Maintain the workplace and facilities in a safe condition
- Provide appropriate training to employees
- Provide first aid equipment and prepare, implement and practice emergency plans for evacuations in emergencies
- Implement appropriate procedures for workers who work in remote or isolated worksites
- Consult, cooperate and coordinate with any other duty holders who have a responsibility for health and safety.
Environmental Issues
Environmental issues are problems that affect Earth and its inhabitants. These issues are often categorised as air, soil, water, and ecology. While environmental issues can occur naturally, it is often attributed to humankind's activities.
Businesses can cause environmental problems and can also be affected by them.
Identifying Environmental Issues
Identifying your business’s impact on the environment is important for compliance. This prevents you from violating environmental laws, which will incur penalties or sanctions. You can identify environmental issues associated with your business through the following:
Reviewing your business operations
Reviewing includes checking the materials and by-products of your operations. To be specific, you will be checking for the following:
- Where do you get your raw materials?
- What are the by-products or waste produced by your operations?
- How do you deal with the waste your business operations produce?
Environmental audit
This involves consulting with experts to gauge your business’s impact on the environment. The results of the audit also help you prioritise environmental management activities. You can use the initial audit result as the benchmark of future audits.
Some businesses offer environmental auditing services. Before using these services, ensure that they comply with rules or requirements. These may include certifications or permits from your state government.
Managing environmental issues and risk factors
There are a lot of environmental issues regarding businesses. The most common include sustainability and waste disposal. Let’s look at each of these environmental issues and ways to minimise their risk factors.
Sustainability
Sustainability in business refers to carrying out activities without compromising the environment. This means minimising or eliminating your business’s impact on the environment. Many businesses are striving to make minimal impacts on the environment and strive to be sustainable. This is a key marketing point also as many customers are drawn to companies that share their similar values.
How can you make your business sustainable? There are many ways to make your business sustainable. These include the following:
Reduce, reuse, recycle
These three reduce the amount of waste your business produces. Ensure utilising them whenever applicable in your business operations. For example, you can reduce waste by streamlining your business operations. You can offer reusable utensils or materials in your business. For recycling, you can put a recyclables garbage bin in your store.
Work with sustainable suppliers or businesses
Get your raw materials from businesses that apply sustainable principles. Doing so encourages other suppliers to apply sustainable principles as well to compete.
Rethink your packaging
Use sustainable packaging. These include recycled paper or cardboard. These materials are biodegradable and do not last in landfills as long.
Be efficient in using power and water
Implement energy and water-saving procedures and practices in your business. This helps reduce the demand for electricity and water. You can also use technology that is efficient in using both.
Waste Disposal
Councils play an important role in waste disposal. They are responsible for regulating individual waste disposal through the creation and enforcement of local laws to control waste disposal.
There are over 564 councils in Australia. Each council may have different rules and regulations on waste disposal. The following table shows the standard regulations of councils regarding waste management.
| Disposal of pollutants | Pollutants refer to materials that can damage the quality of the environment (e.g. air, water, soil). Disposal of pollutants is directed to specific organisations that can process them. |
|---|---|
| Domestic wastewater | Households and businesses must maintain a proper sewage system. A functional sewage system prevents spillover of wastewater to water tables and reservoirs. |
| Waste collection areas | These refer to areas where local waste management organisations collect the disposed waste. |
| Waste segregation | Waste should be segregated to enable proper actions for the waste (e.g. recovery, repair, recycling). |
You can check your council’s specific rules on waste disposal for more information.
Principles of Risk Management
With proper risk management, you can reduce the impact of risks on your business when they occur. Aside from reducing the impact, risk management also helps your business recover. Hence, proper risk management is essential.
Different businesses deal with risks differently. However, there are common principles that they follow when managing risks. The International Organisation for Standards (ISO) has a set of principles for risk management.3 Many businesses abide by this. The standard referred to here is the ISO 31000 standard. According to this standard, risk management should:
Involve all stakeholders through communication and consultation
Risk management becomes more effective if you cooperate with your team. Ensure discussion and establishment of the financial and strategic objectives first. Then, integrate these into the risk management process. Alternatively, you can consult with experts to help mitigate risks.
Establish the unique risk context that applies to the business
This defines the scope of the risk management process and the setting of criteria for the risks. In this process, you will study the internal and external environment of the business. This helps you make a proper judgment of which risks apply to your business.
Undertake the process of risk assessment
This step includes identifying and analysing the risks and evaluating their potential impact. Click on the following headings to see the process when undertaking risk assessment. Risk identification In this step, you will make a comprehensive list of all possible risks your business is exposed to. Remember, risks can affect how you achieve your business goals and objectives. Risk analysis This stage analyses the qualitative and quantitative impact of the risk. This helps you take the appropriate measures to address the risk. Risk evaluation Evaluation involves a comparison of risk impact to the risk criteria. This helps you decide if you need additional steps to manage the risk.
Watch the following video that uses the Risk Matrix as a tool to help further assess risks, evaluate them and define mitigation strategies.
Formulate a plan for treatment of risk
After the assessment, the next step is to develop a risk treatment plan or risk mitigation plan. This aims to eliminate or minimise the likelihood of occurrence and the impact of that risk.
Monitor, review, record and report the risk management process
Constant monitoring and review of the processes are essential in risk management. Proper documentation in preparation and management of the risk. Ensure that your members report to you about the risks in your business.
The following case study presents how a business can manage risks.
Managing the Grounds
Jo's cafe has a steadily growing customer base. This means that there's also more coffee ground waste that the shop puts out. Managing this waste is essential to help the environment as well as avoid penalties.
Jo's shop disposes of coffee grounds every two days. The team at the cafe disposes of an average of four boxes of coffee grounds every disposal day. This situation poses both WHS and an environmental issue. Here is how Jo addressed both.
Four boxes of coffee grounds can be heavy, and thus can pose a safety risk to the employee. Jo consulted with the team to resolve this issue. They came up with two things:
Reminders on proper lifting posture and ergonomics
They posted an infographic of proper lifting posture in the storage room. The shop's policy requires the employees to observe this when working in the storage room.
Lifting equipment and ladders
Jo purchased carts to aid in moving around heavy items and also purchased ladders to reach things that are high up on the shelves.
For the environmental issue, Jo's cafe ensures the segregation of coffee ground waste.
The compliance risks were avoided by foreseeing penalties for improper disposal of waste.
Jo partnered with a recycling organisation to manage the coffee grounds. The organisation picks up the grounds every two days.
Jo is confident that the coffee grounds will not end up in landfills and cause environmental problems.
Have you ever bought a product and thought that its quality is top-notch? You may have felt that it was worth the money you spent on it. The same goes for business ventures. It is not enough to establish the business. You should strive the achieve top quality and maintain it.
Quality assurance (QA) refers to the prevention of mistakes or defects in a product or service. Both consumers and PCBUs want quality assurance. Consumers want quality assurance because they want to get their money’s worth. People do not want to spend money on defective things. This may cause them to go to other manufacturers or service provides in the industry.
On the other hand, PCBUs want the quality assurance to ensure that they can compete in the market. Releasing a defective product will give the business a bad name. This may result in losses or expenses (e.g. dealing with lawsuits due to faulty products).
Several factors may affect quality assurance. These include:
- complexity of the product or service
- processes that the product or service undergoes
- complexity or level of precision required in the processes.
Nature of Quality Assurance
Quality assurance (QA) is the process of preventing defects or mistakes in a service or product. The key term here is the process. This process ensures that the product or service meets the specified requirements.
QA helps improve customer confidence and boost the business’s reputation in the industry. How? Companies that have excellent QA processes can ensure providing quality products or services. Their products and services meet the requirements and expectations of customers. This, in turn, makes customers happy and loyal to the business.
The following are principle in QA.
Fit for purpose
This means that the product or service produced matches its purpose. The product or service should meet the demands or requirements of the consumer. For example, a bulb should provide ample light to illuminate a room. If it is too dim or burns out after a few uses, it fails the QA.
Right first time
This principle focuses on developing a defect-free product upon creation. This principle is also known as the zero-defect approach. This approach lessens time and money spent correcting defects on the product. This does not necessarily mean a perfect production process. Instead, this points out that all processes should be done right the first time and every time.
Customer focus
Customer focus is the process of identifying and meeting your customer’s wants and needs. When applied as part of Quality Assurance, the customer is the priority and seeking their feedback to ensure you are providing the highest quality to exceed their expectations.
Leadership
Leadership is pivotal in developing, guiding and driving the business to maintain the Quality Assurance System. A strong leader directs by example and ensures all aspects of the Quality Assurance system are being met for the business.
Approaches for Quality Assurance
There are several approaches for QA. These include the plan-do-check-act and product test life cycles.
The Plan-Do-Check-Act (PDCA) cycle is a continuous loop for the improvement of QA. It is simple and systematic, leading many businesses to adopt this approach for their QA. See the following explanations of each step of the PDCA cycle.
Plan
Objectives and processes for manufacturing a product or providing services should be clear. A clear objective and process can help in distinguishing a good product from a poor one.
Do
Work on the processes established. The processes may change as you work on the product. Testing of the product also occurs here.
Check
Observe how the process goes. Check if it aligns with the objective and if it follows the established processes.
Act
Personnel called testers should check if the processes need improvement. They will also recommend and implement necessary actions to improve the process.
Another approach for QA is the Product Test Life Cycle (PTLC). This approach is commonly used in software and computer applications. It focuses on meeting the requirements while ensuring the reliability and utility of the product.
Analyse the requirement
At this stage, you will identify the requirements set for the product. This also includes identifying the risks and opportunities for the product. If the requirements are precise, then it will be easier to meet them.
Plan the test
Plan your tests according to the requirements that you would like to meet. Take into consideration the risks that you have identified in the first step. Ensure that you have plans to mitigate or eliminate the threat.
Develop the test
At this stage, you will develop the tests that you have planned. You can set scenarios or daily use testing for the products. For example, a recipe for a brew of coffee should have a consistent taste. Thus, the test should involve preparing and tasting the coffee several times.
Prepare the test
Prepare the personnel and materials for the testing. The required personnel for testing should know of the process involved in the testing and the desired outcome of the testing. Ensure briefing the personnel about the importance of the tests.
Conduct the test
Execute the test that you have planned and designed with the team. Ensure proper documentation of all steps associated with the tests. Doing so will help you check if you have met the requirements or desired outcomes. The documentation can also tell you if you need to improve the processes.
Review and conclusion
At this stage, you will analyse the testing you conducted. This stage is where you will also use the documentation the most. It is important to have tangible metrics for the review. These will help you take the appropriate steps for improvement.
Methods for Quality Assurance
There are many ways to achieve quality assurance. But the following three are among the most notable ones on the long list of methods:4
Benchmarking
Benchmarking is a process that involves measuring the performance of your business against a competitor in the same market. This will give you a better understanding of your business performance and potential.
Kaizen
This is also known as continuous improvement. This principle focuses on improving the process little by little—members of the business or organisation practising Kaizen work collaboratively.
ISO Accreditation/ISO 9000 and ISO 9001
The ISO or International Organization for Standardisation develops the international standards for organisations. ISO accreditation ensures that a business's products and services are safe, reliable and of good quality.
ISO 9000:2015 describes the fundamental concepts and principles of quality management which are universally applicable to the following:
- organisations seeking sustained success through the implementation of a quality management system.
- customers seeking confidence in an organisation's ability to consistently provide products and services conforming to their requirements.
- organisations seeking confidence in their supply chain that their product and service requirements will be met.
- organisations and interested parties seeking to improve communication through a common understanding of the vocabulary used in quality management.5
You may have heard of ISO 9001, which is the standard for quality management. ISO itself does not certify organisations for their standards. Instead, external bodies conduct quality assurance and management reviews based on ISO 9001.
Many organisations aim to get the certification for the following reasons.
- ISO 9001 standard gets reviewed and updated every five years. Thus, ensuring that quality management processes are relevant and up to date
- ISO 9001 is globally recognised, which can help boost an organisation's credibility
- ISO 9001's quality management principles are tested and proven in the industry.
Further reading
ISO 9000:2015 specifies the terms and definitions that apply to all quality management and quality management system standards.
Access the following link to read about the seven quality management principles.
The acceptable quality level (AQL) is a measure applied to products and defined in ISO 2859-1 as the “quality level that is the worst tolerable.” The AQL tells you how many defective components are considered acceptable during random sampling quality inspections. It is usually expressed as a percentage or ratio of the number of defects compared to the total quantity.
Read more about AQL
ISO 9001 is not legally required. But it does have its benefits, so large and even small businesses aim to get one given a chance. Access the following link to learn more about ISO 9001.
Cost-benefit analysis (CBA)
A cost-benefit analysis is a systematic process that businesses use to measure the benefits of a decision or taking action minus the costs associated with taking that action.
Develop quality assurance policy and procedures
Developing quality assurance policy and procedures as a method ensures the business complies with regulatory policies for quality and assures that the steps and actions to take following the procedures are the same for everyone in the business. This way the level of quality is assured and maintained and can also be improved.
Standard Operating Procedures (SOP)
Refer to the recurring series of steps that are relevant to the business operation. SOPs can vary depending on the operation done. There can be an SOP in production, quality assurance, and quality control (QC). You can think of SOP as a recipe to make a product or provide a service.
If SOPs need an update, members of the organisation or business should be notified. If members are not informed, they may do the outdated procedures, leading to errors in QA and QC.
Developing Quality Assurance Processes
As stated earlier, QA boosts the confidence of the customer and the business’s reputation. Thus, each company should develop its QA processes. There are three steps in developing a process.
Develop business goals and objectives related to quality
Define what quality is. Base your definition on the requirements or expectations of the customer. As for the objectives, ensure that it aligns with your business goals and objectives. The alignment ensures that your QA processes are still on track to achieve your goals.
Identify roles and responsibilities of personnel
Ensure that the roles and responsibilities of involved personnel are clear. Clarity on these aspects ensures a smooth process and avoids redundancy in QA. The personnel you will assign should also have the necessary skill set for the tasks. Remember, you want to ensure quality. Therefore, you should delegate the correct personnel for the task.
Develop the QA process and policies and procedures
Developing quality assurance policy and procedures as a method ensures the business complies with regulatory policies for quality and assures that the steps and actions to take following the procedures are the same for everyone in the business. This is why choosing the appropriate personnel is vital in Step 2. They ensure that the processes are correct and you are using the right tools or metrics. The following graphic some essential things you need to consider when developing your QA process.
Evaluating and Reviewing Quality Assurance Processes
QA processes should strive for continuous improvement. Improvements can help streamline the process and make it more efficient. Thus, it is crucial to evaluate and review your QA processes. Evaluation allows you to check how the performance of your QA processes. On the other hand, review involves studying the results and making decisions based on them. These two should come hand-in-hand when improving the QA process. To improve your QA process, you can implement the following steps.
Review industry and legal standards
These are important to ensure you are avoiding compliance risks while ensuring quality. Remember, different laws apply to various business operations. These legislations have different compliance requirements for business operations. The following list is examples of legislation that you can associate with your QA processes.
Food Safety Act 1991 (Food Standards Australia New Zealand Act 1991)
This legislation mandates businesses to serve food that is safe for consumption. It also aims to make consumers more informed through food labels.
Australian Consumer Law
This law protects the consumer from unfair business practices. Goods and services that businesses provide should always be of acceptable quality. The Australian government may order recalls if products are unsafe or have unacceptable quality.
Electricity Act 1945 (Western Australia)
This law states that businesses can only sell appliances approved by regulatory bodies. This ensures the quality of the appliance and the safety of the consumer from electrocution.
These are only some of the laws that may affect your QA processes. Ensure checking your operations to identify laws and standards that may affect your QA process.
The following links provide more information about each.
As for industry standards, these usually relate to or comply with the law. These standards refer to set criteria to be agreed upon by the industry. They ensure quality in services and products. Ensure to look into your industry leaders or organisations for these standards. Organisations may include the following:
- Skill Services Organisations (SSO)
- Industry Reference Committees (IRC)
Analyse the results of your QA
Evaluate the results of your processes. Ensure to check the metrics when evaluating your QA processes. It would be best to check your company's business culture as well. This culture refers to a set of practices, values, and expectations in your business. Put it simply, it is the culmination of traits observed in your company. Ensure to include this in your review. Doing so will help you cultivate a strong culture of QA in your operations.
After that, proceed to the review. Identify which processes require changes or improvements and what you can retain.
Adapt as necessary
You must take this step if you find inconsistencies or errors in the previous step. This allows you to improve and make the process more efficient. Implement the changes needed and test them again. You can repeat this step until you can no longer find inconsistencies or gaps in the processes.
Communicate the results with the team
After finalising the process, ensure to communicate it with the team. This will help them apply the QA process when developing the product. Failure to do so will result in poor quality of products due to outdated QA processes.
KPIs are quantifiable objectives that your business aims to achieve. Operational KPIs are specific to the daily operations of your business. It tells you the effectiveness of your business’s daily activities.
Operational KPIs depend on the team or department of your business. For example, KPIs for each team may differ:
- Marketing team
- Finance and accounting team
- HR or staffing team
- Manufacturing team
- Logistics or distribution team.
Operational KPIs should align with the business plan. Recall that the business plan presents the business operations and objectives. Aligning these two ensures practical evaluation or measure of the business's success. Thus, a clear business plan is a requirement for an effective operational KPI.
Performance Measures
Business owners need a metric to know if their business is successful or not. Without a metric, they will be clueless about how their business is performing. That type of management puts the company at severe risk.
This is where performance measures and performance indicators or KPIs come in. A performance measure is a metric of a performance’s outcome or results. KPI is an example of a performance measure. Some examples of performance measures include productivity and quality. Productivity refers to the amount of work done over a specific timeframe, whereas quality refers to meeting the standards and requirements. Both are broad and can refer to various aspects of the operations. On the other hand, KPIs are specific. They relate to the performance that directly affects how you can achieve your objectives.
But how does a KPI do this? It does so by comparing your results to a set of targets, objectives, or competitors. Comparison is necessary to ensure that you have a target or standard that you want to reach or overcome.
Operational Key Performance Indicators
KPIs are not limited to sales and other external affairs. You can also use it to gauge the financial and non-financial performance of your operations. These are the operational KPIs. Their primary purpose is to evaluate the efficiency of your daily operations.
Why do companies need to measure operational KPIs? The answer is competitiveness. For a business to stay competitive, its operational performance should be excellent. You cannot provide services or products with low operational performance.
Operational KPIs depend on the type of tasks conducted in a specific team or department. It is essential to use the correct KPI for each, or you risk measuring wrong performance levels. The following list are the operations team and examples associated KPIs with them.
Human resources
This team manages staff in the workplace. It recruits, trains, and ensures the satisfaction of staff.
- Attendance or absenteeism measures the number of days the employees come in for work.
- Turnover rate aims to measure the number of employees that leave the company.
- Employee satisfaction measures how happy the employees are working for or with the business.
Marketing
This team promotes the business. It develops advertisements and converts potential customers to paying customers.
- Lead conversion ratio aims to measure the punctuality of the delivery service of the business.
- Return on advertising spend measures the revenue gained as a direct result of promoting the business.
Logistics
This team handles the delivery and management of inventory in the workplace. It ensures safe delivery and receiving of goods for the business.
- Delivery time aims to measure the punctuality of the delivery service of the business.
- Packaging rate aims to measure the rate of preparing packages for delivery to customers.
- Space usage aims to measure the efficiency of managing the space in the warehouse.
Development of performance measures
The development of performance measures like KPIs has no legal standards or regulations. However, all industries develop performance measures that you can place under these categories:
Output measures
This category measures the amount of work done by an individual or team. For example:
- number of cups of coffee served
- number of tables cleaned.
Efficiency
This category measures the rate between the amount of work done and the resources used. The resources include time, materials, and money. For example:
- cost per cup of coffee
- cost per slice of cake.
Effectiveness
This category reflects the quality of work done by an individual or team. This is closely tied with quality assurance. For example:
- number of correctly served orders
- number of properly cleaned cutlery.
Productivity
This category combines efficiency and effectiveness. It relates to the amount of work done, its quality, and the resources used. For example:
- cost per cup of correctly served orders.
Developing Key Performance Indicators that Align to Business Plan
The development of KPIs varies from one PCBU to another. However, aligning to business
objectives and the plan is their common denominator. Remember, KPI evaluates performance; thus, it should align with your business objectives.
Before developing KPIs, try asking yourself these questions:
- What does it mean to be successful in this operation?
- How does this process relate to my business objectives?
- How can I measure the success or failure of this operation?
- How can I collect data from this operation?
These questions will give you an idea of what you should measure and how you should measure the KPI. Most importantly, it allows you to see if the business process aligns with the objectives.
Your answers to these questions can help you in developing your KPIs.
There are seven steps to developing KPIs. These include the following:
Create objectives
As mentioned earlier, KPIs require clear objectives. The objectives of your KPI are based on your business plans. Ensure writing objectives in a SMART format. This will help you create meaningful, measurable, and understandable KPIs.
Describe results
KPIs are quantifiable. If your KPI cannot clearly define your results, you need to revise it. For example, you are trying to measure your marketing team’s reach. Remember to indicate the specific number and your milestone date for it.
Identify KPIs
This step means identifying what you need to measure for your operations. Recall the first question earlier ‘What does it mean to be successful in this operation?’
There are also two types of KPIs you need to keep in mind. These are the following:
- Leading KPI: Leading KPI is indicative of the future performance of the business. It focuses more on the processes that may lead to the success of the operations.
- Lagging KPI: The lagging KPI is a result of the process. It represents the current status of your operations. For example, in a warehouse, the leading KPI is the number of people who have undergone WHS training. The lagging KPI is the number of days since the last WHS incident.
Define thresholds
Set a threshold for your KPI. This will help you calculate how much of your KPI you have reached in percentage. For example, in terms of selling products, you should set a target amount that you would like to reach. Business X aims to sell 500 boxes of tissue paper in a month. But they only sold 350 boxes by the end of the month. This means that Business X only reached 70% of their KPI for tissue paper sales.
Measure
Measure and evaluate the KPIs. You can create a scorecard structure to make measurements more accurate. The following table shows a scorecard structure to evaluate various KPIs for customer service. The scorecard shows the target, the current status, and the value required to match the target.
| KPI | Target | Current | To Target |
|---|---|---|---|
| Increase active subscribers | 3000 | 2500 | -16% |
| Increase customer signup | 500 | 600 | +20% |
| Customer retention | 150 | 150 | 0 |
| Customer satisfaction | 85% | 85% | 0 |
Instead of relying on raw data, you can simplify the results and make them easy to understand. Stakeholders or members of your team should be able to know how to interpret KPIs. Failure to relay meaningful KPIs may lead to misunderstanding about the business performance.
Interpret results
Collate the results from Step 5 and present them in a data dashboard. A data dashboard is a centralised and interactive means of presenting data. Data dashboards utilise charts, graphs and tables to showcase data. These graphics make it easy to interpret results and even compare them to historical data.
Take action
If business operations fail to meet targets for the KPI, an operation or KPI review may be necessary. There are two ways to address KPI issues. 1. Remedial activity Assign personnel to study and address the issue with the KPI. Addressing the problems is a short-term activity and communicating the results is essential. 2. Strategic initiatives These initiatives may lead to change in organisational changes. Businesses conduct strategic initiatives to cover long-term goals. Companies use it to bridge gaps between the target and current performance. For example, if a PCBU wants to expand sales to e-commerce, then they may need to do the following:
- Look for e-commerce websites to post their products
- Hire a web developer and designer to design their website
- Research about search engine optimisation to increase web traffic.6
The case study below illustrates how Jo developed KPIs and performance measures for the café in Melbourne.
Measuring the Performance is Important
Jo is a data-oriented person and likes any implemented actions supported by data. This also shows how Jo handles the business. Jo diligently works on collecting data to check for improvements. To have a good measure of improvement, Jo developed operational KPIs.
Jo created SMART objectives. Since deciding to deal with data, Jo ensured the development of SMART objectives. One of these is ‘Earn a monthly income of $30,000/month by opening a coffee shop in a busy street in Melbourne. The coffee will be sold at an average price of $4.00. The promotion of the shop will be through signages near the shop and use of social media.’
Jo was confident in describing the desired results due to the objectives created.
Jo's objective contains the timeframe as well as the target revenue.
Further reading:
These articles will help you developing financial and non-financial KPIs:
Knowledge Check
The industry is a competitive world. More often than not, your business is not the only one of its kind in the industry. This is why business strategies exist. A business strategy is a plan to secure the business’s place in the market.
You can think of business strategy as your way to gain an edge in the market. For example, you can improve the customer service to retain and even attract more customers. Implementing features like follow-ups or fast responses can help maintain and attract customers.
Like KPIs, business strategies align themselves with business objectives. The alignment ensures that the strategies help in achieving the business goals. But can business strategies align with KPIs? The answer is yes. This alignment ensures that you can gauge if your strategies are effective.
How to effectively align KPIs to business strategies
Let’s take a look at the five steps in aligning your KPIs to business strategies.
Define the KPIs
In the previous sections, you learned how to develop and define your KPIs. Always ensure that your KPIs follow the SMART objectives.
Use technology to optimise business performance, if applicable
Use technology to streamline processes in your business. This can range from gathering data to providing the service or product.
For gathering data:
- use online forms to collect data on customer feedback or suggestions
- use chatbots for customer support to ensure 100% uptime of customer service.
For operations and services:
- use a biometric system to monitor absenteeism among employees
- use accounting systems like Xero and MYOB to track your stocks and sales. You can also use this to manage your taxes and payroll.
Communicate KPI to stakeholders or members
As mentioned in the previous section, stakeholders and members should know and understand the KPIs. You can also consult them to check the alignment of KPIs. They can give you insights on how to evaluate the processes or strategies.
Ensure the whole organisation takes the KPI seriously
Each member should work toward meeting the KPIs. If a member or a team fails to meet the KPI, you should consult with them. They may have problems in the processes or may have other needs. Ensure that you can provide support to these members or teams.
Review and update KPI regularly
Ensure to review your KPI regularly. This is important, especially if there are changes in your business goals and objectives. If your KPI is not synchronised with your goals and objectives, you will misinterpret your business performance.
Knowledge Check
Remember, KPIs are indicators of your business performance. These are not just targets that you need to achieve. The following video provides more information on KPI development and alignment.
Use the following questions to check your knowledge:
An operational plan lays down the tasks involved in your business to achieve goals and objectives
The fit-for-purpose principle means developed products should perform as indicated. They should be able to meet the demands or requirements of the customer.
All members of the business have a responsibility in WHS in the workplace.
KPI stands for key performance indicators.
ISO does not provide certifications. Instead, external auditing companies conduct reviews for certifications of businesses.
