Proven Acid Test for Validating of Incentive Value
- To use or not to use?
- Are they effective?
- Are they achieving the desired effect?
Results across multiple industries suggest a wide mixture of results with questions surrounding the effectiveness of incentives trouble managers.
Articles and white papers add to the confusion with equal numbers in support and opposition.
- So who’s right?
- How do you know if your incentive program is a blessing or a curse?
The answer is surprising simple by asking a single question.
What has been the impact on unit cost since the implementation of the incentive program?
If a decline in the unit cost can be linked to improvements in productivity and quality due to the incentive program, your incentive program is on track.
If the unit cost has remained the same or increased your incentive program is most likely nothing more than an additional expense.
The primary goal isn’t to make the staff feel better. The purpose of an incentive program is to improve the factors that impact productivity – attendance, concentration, skills, individual production, quality, time utilization, etc. – so the business will benefit.
The purpose of an incentive program is to improve the factors that impact productivity so the business will benefit.
- Individual production
- Time utilization
Few operations and line managers know the effectiveness of their incentive program nor how to evaluate it.
They simply don’t know the impact of the incentive program on the unit production cost.
Many lack a working knowledge of unit cost and the metrics necessary to evaluate the impact of incentives on it.
The unit cost of an operation is THE measurement of processing effectiveness and a manager’s performance. Organizations with this understanding realize that successful management of unit cost is a distinct competitive business advantage.
I have been teaching unit cost management concepts to operations and line managers both domestically and internationally since 1986 via my Managing Operations workshops.
A principal lesson is that monitoring unit cost is the best way to evaluate the impact of decisions and identify performance improvement opportunities.
If you are challenged in evaluating the effectiveness of our incentive program and would like to learn more about unit cost and other fundamental operations management tools and skills, contact me.