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Efficiency and Effectiveness: Know the Difference

It is important for managers to understand what to manage, why it's important and how to do it. This is where efficiency and effectiveness come in.

By Andrew Gager  

This article was first published in 2018 and has been updated to reflect current information.

Managers need to understand what to manage, why it’s important, and how to do it. This is where the concepts of efficiency and effectiveness come in. By understanding the difference between these two, managers can achieve success.

Efficiency and effectiveness are not the same thing. Efficiency is defined as the ability to accomplish something with the least amount of wasted time, money, and effort or competency in performance. Effectiveness is defined as the degree to which something is successful in producing a desired result; success. Managers need to appreciate the way each affects an organization.

Budgeting and metrics is one area where managers can apply these two concepts.

To illustrate the differences among efficiency, effectiveness, and other measures, I’ll use my typical annual activities from my personal life. After all, a manager's home and work lives often have many similarities. In both settings, managers organize, direct, coach, supervise, and at times, discipline. However, where the crossover is perhaps most apparent is budgeting and metrics.

Efficiency measures

One measure of maintenance efficiency is total maintenance costs compared to replacement asset value (RAV). Some refer to this as equipment replacement value (ERV). It is defined as the monetary value that would be required to replace the current assets in the organization. It includes production and process equipment, as well as utilities, support, and all related costs. For example, in the past 12 months, I have had some maintenance expenses. My current RAV is $425,000. Here are my home maintenance expenses for the past 12 months:

  • Plumbing, $1,835
  • Road repairs, $185
  • Mailbox replacement, $160
  • Paint the dining room, $75
  • Replace light bulbs with LEDs, $150
  • Install security system, $600
  • Replace roof, $9,400
  • Replace freon, $225
  • Replace seal on sauna $400.

Total: $13,030

Based on these expenses, the ratio of total maintenance costs to RAV is 3.1 percent — divide $13,030. by $425,000, then multiply the result by 100. This is important because by understanding the costs associated with maintaining assets, managers can determine the best methods to get a company’s RAV ratio down to 3 percent, then 2 percent and finally 1 percent of maintenance cost as a percentage of RAV in order to reach operational and maintenance success.

Managers are responsible for determining the most appropriate mix of physical asset policies, work management, and reliability improvement processes to reduce the costs of non-value added or recurring expenses.

In my example, some expenses might be considered capital expense or improvements. For example, I won’t replace my roof annually, but there are recurring maintenance costs that I can control. Perhaps I purchase a higher quality shingle, for example.

Another measure of maintenance efficiency is corrective maintenance (CM) versus preventive maintenance (PM). Evaluating total maintenance costs to RAV does not naturally give enough detail to identify where costs are applied. Total man-hours spent on CM versus PM can help managers determine if maintenance practices are effective at preventing unscheduled downtime and reducing CM.

The percentage of work planned as opposed to emergency or corrective repairs is also an effective measure. Remember that emergency work is typically three-four times more expensive than planned work.

PM/CM compliance is a measure that follows closely with CM vs. PM ratios and a good measure for efficiency. The purpose of the PM is to schedule activities so technicians can spot deficiencies before they evolve into more costly problems. So it is important to complete these PMs and to do so them on time. CM includes maintenance done to return items to proper condition. Consider my home PM/CM compliance for April:

  • PM — Make coffee; done 27/30 days
  • PM — Pick up garbage weekly; 4/4
  • PM — Mow lawn weekly; 3/4
  • PM — Change oil quarterly; 1/1
  • PM — Clean garage annually; 0/1
  • CM — Wash laundry as required; 4/5
  • CM — Wash truck; 1/1
  • CM — Power-wash house; 1/1
  • CM — Vacuum; 0/5.

My PM/CM compliance was 78.85 percent — days task completed divided by days task scheduled. Why is this important? What are the consequences of failure by not achieving my schedule compliance? Not making coffee, for example, just means I don’t get my morning jolt. Missing a week of cutting lawn means I have an unusually high grass that probably needs to be cut twice. It’s essential that managers understand the consequences when deciding whether to perform PM or CM or defer the task.

Andrew Gager — agager@amgintlco.com — is CEO of AMG International Consulting. He is a professional consultant and facilitator with more than 20 years of partnering with organizations in achieving strategic objectives and goals.

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  posted on 9/30/2022   Article Use Policy

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