Principles and Tools for Problem Solving to Improve Business Efficiency

The indicator used to analyze the use of fixed assets is the efficiency of fixed asset use.

- Revenue ratio on fixed asset cost: how much revenue does one dong of fixed asset cost involved in the production process bring?

Revenue

Fixed asset utilization efficiency =

Average original cost of fixed assets

- Fixed asset content: This is the inverse of the fixed asset utilization efficiency index. It shows how many fixed assets the enterprise must use to generate one dong of revenue in the period. The lower this index, the higher the efficiency of fixed asset utilization.

Fixed assets content =

Average original cost of fixed assets during the period

Revenue realized during the period

- Profitability of fixed assets: This indicator shows how much profit one dong of original price of fixed assets participating in the production process generates.

Net profit

Profitability of fixed assets =

⮚ Current assets

Average original cost of fixed assets

- Productivity of current assets: This indicator shows how much revenue is generated per unit of current assets during the period. If this indicator increases over the periods, it proves that the efficiency of using current assets has increased.

Productivity of TSLD =

Revenue

Average current assets during the period

- Profitability of current assets: This indicator shows how much profit one dong of current assets will generate in a period. The higher this indicator is, the better. It shows high efficiency in using current assets.

Net profit

Profitability of TSLD =

Capital efficiency

Average current assets

To conduct any business activity, the first thing is to have a certain minimum amount of capital. Capital is used to invest in purchasing business equipment.

and to ensure that the business process is carried out normally and continuously. Business capital is divided into two parts: fixed capital and working capital.

⮚ Efficiency of fixed capital use

- Fixed capital utilization ratio

Capital utilization coefficient =

Total revenue for the period Average fixed capital

- This indicator reflects how much revenue is earned for one fixed capital invested in business.

- Return on fixed capital:

Return on Equity =

Profit for the period Average fixed capital

This indicator reflects how much profit an average fixed capital unit generates during the period.

⮚ Efficiency of working capital use

- Working capital utilization ratio:

Working capital utilization ratio =

Total revenue for the period Average working capital

This indicator reflects how much revenue is generated from the average working capital invested in business.

- Working capital profitability ratio:

Return on equity =

Profit for the period Average working capital

This indicator reflects how much profit one dong of average working capital generates during the period.

⮚ Efficiency of using business capital

- Operating capital utilization ratio:

Working capital utilization ratio =

Total revenue for the period Average investment

This indicator reflects how much revenue is generated from an average investment capital.

- Return on working capital:

Return on capital employed =

Profit for the period Average investment

This index reflects how much profit is earned from an average investment capital.

Cost effective

Cost efficiency analysis helps business managers see the level of cost management from general to detailed. From there, propose reasonable cost management measures. This group of indicators includes:

⮚ Cost of goods sold ratio over sales revenue

Cost of goods sold

GVHB ratio =

DTT BH&CCDV

x 100%

⮚ Ratio of cost of sales to sales revenue & service revenue

Cost of sales

Cost of sales ratio =

DTT BH&CCDV

x 100%

⮚ Ratio of business management costs to sales revenue and service revenue

Management costs

QLDN cost ratio =

DTT BH&CCDV

x 100%

⮚ Operating expense ratio to total net revenue

The ratio of operating expenses to total net revenue reflects the level of use of cost factors in the production and business process. The indicator shows how much operating expenses the company must spend to earn 100 VND of net revenue.

Operating expense ratio on revenue =

Operating Expenses Total Net Revenue

x 100%

The data base for calculating the index is based on B02-DN; Operating costs include: Cost of goods sold, financial costs, selling costs, and business management costs.

⮚ Financial expense ratio on total net revenue

The ratio of financial expenses to total net revenue reflects the impact of financial expenses on the company's business results.

Financial cost ratio =

Labor efficiency

Financial expenses Total net revenue

x 100%

Labor force is an important factor directly related to labor productivity, the level of use of other resources such as capital, machinery, equipment, raw materials, so it directly affects the efficiency of production and business activities. Nowadays, the content of science and technology crystallized in products is increasingly large, requiring workers to have a certain level of qualifications to meet those requirements, which partly shows the importance of the labor factor.

- Labor productivity index:

Labor productivity index

Total value of production generated during the period

Average total number of employees during the period

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This indicator shows how much production value a worker will create.

- Production results index per salary cost:

1 salary cost =

Production results index above

Product sales revenue during the period

Total payroll costs for the period

This indicator shows how much revenue is generated from 1 dong of salary expense during the period.

- Average profit index calculated for one worker:

per worker =

Average profit margin

Profit for the period

Average total number of employees during the period

1.3. Content to improve business efficiency

1.3.1. Overall business performance

Overall business performance reflects in general and allows conclusions about the business performance of the entire production and business process of an enterprise (or a unit or department of an enterprise) in a specified period.

- Reflects the level of utilizing all resources to achieve the goals of the entire enterprise or each of its parts.

- Due to its nature of reflecting the level of utilization of all resources, the overall business efficiency provides a general assessment and allows conclusions to be drawn about the efficiency of the entire enterprise in a given period.

We can rely on some of the following results to evaluate the overall business performance of the enterprise.

- Revenue efficiency

Revenue is the total value realized from the sale of goods, products, and provision of services to customers. This is an important basis for determining the final financial results for the production and business activities of the enterprise, creating conditions for the enterprise to fulfill its obligations to the State.

Increasing revenue is increasing the amount of money of the business and increasing the amount of goods sold to the market when accepted by the market. Total revenue is directly proportional to total profit. If the revenue of the business increases, the profit of the business also increases accordingly. Based on revenue, it is possible to evaluate a part of the business situation of the business over the years through revenue according to the market.

- Cost effective

Business costs are the monetary expression of the use of elements of the business process through which a business creates and implements products on the market. To know whether a business uses costs effectively or not, we must consider the profit margin on the total cost of the business. If this indicator is high and increases over the years, it proves that the level of resource use of the business is getting higher and higher.

- Profit efficiency

The profit of an enterprise is the monetary expression of the surplus production part resulting from human labor. Profit is a comprehensive quality indicator expressing the results of the production and business process. It fully reflects the quantity and quality of the enterprise's activities. To know whether the enterprise is operating effectively or not, we can rely on the profit margin on revenue and the profit margin on total cost to compare between years and evaluate the current efficiency of the enterprise. If this indicator is high and increases over the years, it can be concluded that the business efficiency of the enterprise is higher.

1.3.2. Divisional business performance

Divisional business efficiency is the business efficiency only considered in each specific field of operation (use of capital, labor, machinery, equipment, raw materials, ...) of the enterprise. Divisional business efficiency only reflects the efficiency in each field of operation of the enterprise and does not reflect the efficiency of the enterprise.

- Reflects the level of exploitation of a specific resource according to the defined goal.

- Efficiency in each field does not represent the efficiency of the enterprise, it only reflects the efficiency of using a specific individual resource.

- Analyze and supplement synthetic indicators.

- Check and confirm more clearly the conclusions drawn from the summary indicators.

- Analyze the efficiency of each aspect of operation and the efficiency of using each production factor to find the causes and solutions to maximize the overall business efficiency index.

- The relationship between overall business performance and performance in each department is not always positive.

- Only synthetic indicators can comprehensively evaluate business performance accurately.

body

- The indicators of the field of operation only reflect the effectiveness of each aspect, clarifying the factors.

affect.

Within the scope of this topic, the author analyzes and evaluates the business performance of the department through the following areas:

 Asset utilization efficiency

 Capital efficiency

 Cost effectiveness

 Labor efficiency

Conclusion : Thus, there is a dialectical relationship between overall business performance and departmental business performance. Overall business performance at the enterprise level reflects the performance of all specific areas of operation of the enterprise. However, in many cases, there may be a contradiction between overall business performance and departmental business performance, in which case only overall business performance reflects the business performance of the enterprise, and business performance expenditures are not reflected.

A business division can only be effective in certain areas of operation and parts of the business.

1.4. Principles and tools for solving problems to improve business efficiency

1.4.1. Principles for evaluating business efficiency improvement issues

To improve business efficiency, enterprises must proactively and creatively apply a combination of measures from improving management and operational capacity to improving operations and adapting to the environment... These measures are very diverse, suitable for the specific characteristics of each enterprise, but in general, enterprises should strengthen management activities such as: business strategy; choosing effective production and business decisions; developing the workforce; managing and organizing production; developing technical technology; expanding the relationship between enterprises and society... But in general, to improve business efficiency, enterprises must do so based on the principle of increasing profits and reducing costs on the basis of finding cheaper input sources without having to reduce standards.

1.4.2. Tools to improve business efficiency

Planning tools

Planning is the process of defining goals and selecting courses of action to achieve them. Planning is to cope with uncertainty and change; to exploit and use the organization's resources effectively, to improve the organization's competitive position in the operating environment; to unify the interactions between departments in the organization; planning makes control easier. Planning tools include the following steps:

- Environmental analysis

The purpose of environmental analysis is to identify strengths and weaknesses and to seek opportunities and uncover threats facing the organization.

- Define goals

Objectives should define the results to be achieved and indicate the end points of the work to be done. Objectives should be time-bound and quantified to the highest possible level.

The organization's objective system should be classified based on the following criteria:

+ Priority of the target

+ Time: Short-term, medium-term and long-term goals

+ Different departments and groups in the organization: Including shareholders' goals, board of directors' goals, employees' goals...

- Build plans

In this step, it is necessary to find and study the action options to choose from. Each option includes:

+ Plan solutions: help answer the question what to do to achieve the goal?

+ Tools to achieve goals: help answer the question of how to achieve goals

What?

- Evaluate and select the optimal solution

Once you have found a solution considering their strengths and weaknesses, the next step is to

The next step is to find a way to evaluate the options according to standards that are appropriate to the goals and most faithful to the established premises. When options are put forward for consideration and evaluation, the following criteria should be considered:

+ Which option achieves the goal and has the strongest impact on the goal?

pepper.

+ Which option effectively uses the organization's resources?

+ Which option has low cost?

+ Which plan creates support from managers and implementers?

+ Which option best reflects the selected standard system?

- Decide on the plan

The choice of course of action is the moment when the plan is accepted, the moment when the decision is actually made.

Sometimes analysis and evaluation of alternatives shows that there are two or more suitable alternatives and the manager may decide to implement several alternatives rather than just the best one.

At this point, a decision must also be made to allocate people and other organizational resources to implement the plan. At the time the decision is made, planning is not complete and additional plans are needed to support it.

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