By Keith Rushing, PHD, RD, and Shellie Hubbard, MA 2017-11-23 15:23:24
»»» Learn how and why to use KPIs to drive your school nutrition business decisions with the help of a new tool from the Institute of Child Nutrition. School nutrition directors operate in an ever-changing, always-challenging business environment. Thriving in this field requires finely tuned decision-making skills to address a wide variety of potential problems. Some are about managing personnel, while others involve adhering to complex federal regulations for menu planning, procurement, food safety and training. But always, underlying it all, is the bottom line. If the department is operating at a loss, with poor control of food and labor costs and insufficient revenue, then the rest doesn’t matter. Someone is eventually going to lose her or his job. Financial management is an essential skill set of school nutrition directors, who continually confront difficult dilemmas and make tough decisions that are intended to provide the most favorable outcomes for their program. Data-driven decision-making is a logical method to address this challenge. It means collecting critical operational figures, analyzing the numbers in a meaningful way and using them to make decisions that increase program performance. Of course, it’s also important to use the data to communicate the results of your decisions to different stakeholders. It’s one thing to know and agree with the concept of data-driven decision-making, but it’s quite another to figure out exactly what data points you need, how to collect them and then understand how to apply them toward making changes or leaving things be. This is where KPIs, or key performance indicators, come in. KPIs are measures of operational performance in particular areas. They deliver a rigorous, numbers-oriented approach to review, analysis and action, one that offers important objectivity to the process. When using KPIs, you are not making operational decisions based on personal preference, gut instinct, guesstimates or team consensus. The numbers tell the definitive tale of what’s working—and what’s not. KPIs IN SCHOOL NUTRITION KPIs allow users to set standards of expectation, identify troublesome areas and measure progress in correcting these problems. KPIs aren’t applied only to fix what’s broken, but to track the success of new initiatives, such as breakfast in the classroom, salad bars or farm to school partnerships. What are the specific KPIs that are especially useful in managing a school nutrition operation? The Applied Research Division of the Institute of Child Nutrition (ICN) has developed a new, free, downloadable resource called Essential KPIs for School Nutrition Success (see the box on page 26). This resource identifies 12 KPIs and groups them into three general areas: Meal Counts and Participation » KPI: Meal Equivalents (MEQ) » KPI: Average Daily Participation (ADP) Financial and Inventory Management » KPI: Revenues » KPI: Expenditures » KPI: Revenue Per Meal Equivalent » KPI: Cost Per Meal Equivalent » KPI: Cost as a Percentage of Revenue » KPI: Break-Even Point (BEP) » KPI: Inventory Turnover Rate Productivity and Labor » KPI: Meals Per Labor Hour (MPLH) » KPI: Staff Turnover Rate » KPI: Staff Absenteeism PONDERING THE POWER OF THE NUMBERS Essential KPIs for School Nutrition Success features brief discussions on how to use the results of KPI calculations. Benchmarking is defined as comparing one’s performance with that of a similar operation or unit to assist in identifying best practices, as well as areas for improvement efforts. Trend Analysis is a comparison of results over several periods of time. Trends may be used to assess historical data, but they also can be used for forecasting. Milk sales, for example, might trend slightly higher during warmer months, and decline during cooler months. The ability to forecast this trend can allow you to more effectively manage your inventory and associated costs. Data analysis is just one step. Scrutiny of KPIs doesn’t get you very far if you don’t do anything with your findings. Developing action plans is the next step in applying the results of your research. Then, you want to communicate with key stakeholders. ICN offers suggestions of ways to present research results in a concise manner to different target audiences, including the development of easy-to-read charts. The box on page 26 details other ways school nutrition professionals can put the information in this resource to work for them. As further illustration, let’s take a closer look at two specific KPIs used in school nutrition operations: expenditures and inventory turnover. USING THE KPI: EXPENDITURES Expenditures are allowable costs that can be identified specifically as being associated with the production and service of meals to school children. Expenditure categories for a school nutrition program can differ from state to state; you should check with your own state agency for guidance. In general, the major expense categories include: Salaries and Wages: These include regular, extra time and overtime pay, as well as compensation for vacation, severance and holidays. This category also includes substitute pay, administrative salaries and other salaries and wages that are paid from school meal program funds. Employee Benefits: You’ll need to calculate payments that your department makes to Social Security, health/life insurance, Workers’ Compensation and unemployment insurance. If applicable, this section also might include employee meals, job-related medical expenses not covered by insurance, uniform allowances and other similar costs. Purchased Food: This is the amount expended for the purchase of all food sold through the school meals program, as well as for charges for processing USDA Foods from a bulk or raw form into ready-to-use end products. It also includes the cost of USDA Foods delivery to school districts. Some states also may require USDA Foods processing fees here or in the Purchased Services category (right). USDA Foods. You will need to calculate the value of the USDA Foods used in your operation, including food purchased with a commodity letter of credit or cash in lieu of USDA Foods. Paper Goods and Cleaning Supplies. This category includes the cost of disposable paper goods and supplies, as well as expenses related to a dishmachine and chemicals used for cleaning areas involved in the production and service of food. Those are the major areas of expenses. But a school nutrition operation has other expenditure categories, as well. Typical examples of these include the following: General Operating Supplies. These are the cost of all general supplies—including office equipment and supplies—that are needed to operate the program. Purchased Services. These are fees for professional and technical services, including accounting, legal advice and training. Architects, consultants, computer specialists, foodservice management fees and other services also should be included here. Maintenance. This not only includes payments for repairs and maintenance of equipment, but also covers energy costs and other expenses related to the upkeep of the facility. Note that these expenses can be considered a direct cost or an indirect cost, but not both. Capital Assets. This category encompasses the purchase of fixed assets, such as equipment, technology hardware and software and vehicles. Unit cost (capitalization threshold) and useful life also may be specified here. Non-Capitalized Assets. These typically refer to equipment that falls under the capital threshold, such as small wares. Indirect Costs: Some districts divide the costs of general overhead across different departments, including the school nutrition operation. Fund Transfer-Out. These are funds that are transferred to another district fund and/or the repayment of loans to the district. Miscellaneous. Did you write checks for items or services that don’t fit the above categories? You don’t want to disregard these, so consider them in this catch-all category. Why should you track all these costs? Calculating expenditures provides valuable information. For example, significant changes in these expenditure categories or deviations from budget goals can serve as a red flag, indicating that you should more closely monitor the spending activity in a specific category. Other reasons to track expenditures are to identify transaction/accounting errors and discrepancies, as well as discern monthly and annual trends. To calculate this KPI, which you should do monthly, information should be collected from a revenue-and-expenditures statement and a balance sheet. The revenue-and-expenditures statement is a report that is usually prepared at the end of each month by the school nutrition or school business office. The balance sheet is a financial statement prepared at the end of each accounting period to reflect the financial position of the school nutrition operation. The balance sheet contains critical information about the program’s assets, liabilities and the fund balance. Comparing the revenue-and-expenditure statement with the balance sheet should reveal whether the operation is generating enough revenue to offset expenditures. Ideally, once calculated, the Expenditures KPI allows for each individual expenditure line to be monitored for the current period, the previous period and the year-to-date. Comparing these figures can reveal trends and directions for improvement, so that effective financial decisions can be made. Total school nutrition program revenues should meet or exceed total expenditures, thus making a program self-supporting. ICN’s resource identifies the following industry standards in this area: » Food costs = 38% of total cost » Labor costs = 46% of total cost » Other costs = 16% of total cost If you see problems or areas to improve, then the next step is to develop an action plan using goals that are SMART (specific, measurable, achievable, realistic and time-bound). Consider the following steps in developing your action plan and use the template found on page 28: » Outline the actions or steps that need to occur. » Identify the person(s) who will be responsible for implementing the steps. » List indicators of completion or progress. » Set a target date for achieving each step. » Specify the resources that will be required, such as staff, money or materials. In this KPI, there are a number of factors that may have influence on expenses that are too high—or serve to highlight areas you should consider for cost-cutting action. These include: » wages, salaries and benefits costs » food costs » supply costs » centralized vs. decentralized production » scratch prep vs. speed-scratch vs. convenience production » self-operation vs. contract management » indirect costs » market conditions » food waste » purchasing practices » absenteeism rate You don’t need to go it alone when using KPIs to make decisions about operational changes. Share data with team members and stakeholders. Encourage dialogue to ensure that everyone understands the data and shares ideas on applying it toward improvements. Involve others in the specifics of your action plan. USING THE KPI: INVENTORY TURNOVER RATE Calculating expenditures certainly is a fundamental KPI for a school nutrition operation. But there are other KPIs that may be less obvious, but no less important. Consider the Inventory Turnover Rate. Why is it important to know this? Inventory turnover is a measure of inventory efficiency. Specifically, it is the number of times inventory is used in a particular period. Calculating this KPI is important to any foodservice operation as a way to control “investments” in food and supplies. Allocating too much of your revenue into food items that are seldom used or over-ordering certain food items can both lead to food waste and can tie up funds that could be used in other areas. This KPI can be used to determine if an operation is holding too much inventory. It’s an exercise that should be conducted monthly and annually in order to establish benchmarks. Data for calculating inventory turnover rate may be captured from several areas. The revenue-and-expenditure report will display monthly purchases. Your point-of-sale inventory system is another excellent source for finding target data. Inventory records from the beginning and the end of a given period are also valuable. Inventory turnover benchmarks should be established for each serving site that maintains any inventory. Even if a school receives meals prepped at another location, it likely has paper and cleaning supplies on hand! It’s important to establish these benchmarks for every individual site, because each setting is so unique. The ideal is to have as high an inventory turnover rate as possible. When the inventory turnover rate is low—meaning you have packed or even overflowing storage areas—it presents a number of problems. At the most basic, it is difficult simply to keep track of all the products you have on-hand! Plus, more storage space is required, money is tied up and it is harder to control waste or pilferage. Essential KPIs for School Nutrition Success provides sample instructions for calculating inventory turnover rate. The first step is determining the cost of goods sold. Then, you divide this number by the average inventory value. The result should be the same figure as the previous month’s ending purchased inventory value. This process is displayed in the graphic above. Also, Essential KPIs for School Nutrition Success features a case study that establishes a hypothetical school district and school nutrition program, walking the reader through the specific steps of this calculation. Industry standards assert that a school that receives a weekly delivery for most products should have a turnover rate of once every 7 to 10 days or two to three times per month. Some of the factors that will influence this KPI are: » forecasting accuracy » inventory loss due to waste, theft, spoilage and other product lost » secure and safe storage practices (which can reduce inventory loss and ensure shelf life is maximized) » frequency of deliveries » storage space » use of cycle menus and the number of weeks in the cycle » minimizing menu substitutions » size of the bid » order procedures (centrally placed orders tend to allow for review and revision) » meals and meal counts » meal service interruptions where there is a loss of foodservice sales (i.e. snow days) » non-compliance with regulations As with other KPIs for school nutrition, once the calculation has been conducted, you can identify problem areas and develop an action plan (see the sample template on page 28). Calculating the KPI for inventory turnover rate can also be used for trend analysis, which is useful for projecting future purchases. DATA DRIVES DECISIONS School nutrition operators can use KPIs to support a wide range of decisions and assessments. For example, the KPI Average Daily Participation can assist in forecasting and taking subsequent action, such as determining labor requirements and food/non-food purchase projections. The KPI Breakeven Point indicates whether a school nutrition operation is self-sufficient and can be used to determine the financial feasibility of starting an initiative such as a supper program or offering summer service. The KPI Staff Turnover Rate can be used to identify a poor work environment, including a lack of opportunities for development and advancement and poor supervision. These are just a few of the numerous ways to use KPI data all across your operation. ICN is in the process of developing a series of online training programs based on the content of Essential KPIs for School Nutrition Success. In the meantime, school nutrition directors are encouraged to use this resource as a desk reference, as well as for training their management staff to use KPIs. Keith Rushing is director of and Shellie Hubbard is research assistant for the Applied Research Division of the Institute of Child Nutrition, located at the University of Southern Mississippi. Rushing was project coordinator for Essential KPIs for School Nutrition Success. KPI 101 Although KPI analysis is so critical to the success of school meal programs, there is a serious lack of resources available on this subject for school nutrition professionals to turn to for training, education and reference. To fill this void, the Applied Research Division of the Institute of Child Nutrition embarked on a multi-phase, multi-year project. The culmination of this research is a free, downloadable resource: Essential KPIs for School Nutrition Success. It is advised that school nutrition management professionals receive training based on the contents of this resource after they have completed the following ICN courses: Orientation to School Nutrition Management and Financial Management: A Course for School Nutrition Directors. (For more information about this training, please visit ICN at www.theicn.org.) In the meantime, download your own copy of this reference tool at http://tinyurl.com/ICNonKPI-SNMag. Here’s what you’ll find to help you improve your financial management skills—and help you improve your operation’s bottom line: The researchers identified 12 KPIs and have grouped these into three areas (see page 25). For each KPI, there are the following 10 sections: » The Description introduces users to the KPI. » The Why Calculate section explains the importance and value of using the KPI. » How Often to Calculate provides suggestions on the frequency of calculating the KPI. » How to Calculate explains the mathematical steps for calculating the designated KPI. » The Sample Calculations section demonstrates, step-by-step, how to calculate the KPI. » Where to Capture Data provides guidance for locating the necessary data you will need to calculate the KPI. » The How to Use section explains how to apply the data once a calculation has been made. » Industry Standards provides a reference by which users can compare the results of their KPI calculations. » Factors That Influence identifies various factors that may cause the value of the KPI to increase or decrease. » References compiles all the references used to create the content for the designated KPI. Essential KPIs for School Nutrition Success also features brief discussions on how to use the results of KPI calculations. Three helpful tools are included as appendices: a “SMART” (specific, measurable, achievable, realistic and time-bound) Goals action-planning template; a sample Statement of Activities Report (revenues and expenses); and step-by-step calculations for meal equivalents. Once a KPI (or KPIs) has been calculated, the user is encouraged to review Chapter 3 for ways to analyze and apply the data by benchmarking findings; conducting a trend analysis; developing action plans for program improvement; and communicating the findings to managerial staff and other stakeholders. The research project that led to the development of this resource is detailed in an article published in the Fall 2017 issue of The Journal of Child Nutrition & Management, SNA’s online, twice-yearly, peer-reviewed research journal. The article goes into depth regarding the research methods, provides greater detail about the new resource and features references. You can access it at http://tinyurl.com/KPI-JCNM-SNMag.
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