Service KPIs/ Metric calculation-Formulas

Hours Related.

Maurizio Bonacchi Caterpillar Geneve 1

 Hours Related.

• General formulas: Technician Productivity- TP% TP% CAT Goal

=>85

Revenue + Interdepartmental +Warranty + CSA

TP%=
Revenue + Interdepartmental +Warranty +CSA + Policy+Redo +Lost Time+Training

Billable Hours/Productive hours Non - Chargeable Hours

Hours Worked

Hours Related.
• General formulas:
• Calculation of %: Labor utilization or Productive Hours, Expenses hours &
Allowed hours e.g.:

Billable or Total hours –[Allowed hours + Rework hours + Policy hours

Productive hours=
+ Lost Time hours + Training hours]

Productive hours
Total Productive hours
or Labor % = Dealer Goal
utilization Total Hours (Potential/Real)

Expenses Total Expense hours

hours = Dealer Goal
% Total Hours (Potential/Real)

Allowed Total Allowed hours

hours = Dealer Goal
% Total Hours (Potential/Real)

Maurizio Bonacchi Caterpillar Geneve 2

 Hours Related.

• General formulas:

• Calculation of %: Always the denominator will be Hours worked =

Billable hours + Non Chargeable hours e.g.:

Non Chargeable Total Non-Charg hours

Hours % = CAT Goal =<14%
Hours worked

Technician Total overtime hours

Overtime = Goal depend on
% Hours worked
each country

Travel Total travel hours it depends on the

hours = Hours worked geography of each
% country and the
coverage, <=20% is
recommended

Hours Related.

• Specific formulas:
• Calculation of hours weight %: Always the denominator will be total
specific reference hours and numerator will be an specific hours to
weigh e.g.:

Specific hours Total specific productive hours

weight % =
Total productive hours

External customers (included CSA) >=65% vs.

Interdepartmental customers. In the case of CRC the
hours are interdepartmental because they work for
MARC & TM&R Contracts

Non-Chargeable travel Non Chargeable travel hours Dealer Goal,

Hours weight %= important metric to
Total travel hours be used in the Km or
radius calculation

Maurizio Bonacchi Caterpillar Geneve 3

 Hours Related.
• Specific formulas:

• Standard jobs hours deviations: (Forecast vs. Actual)

• Is the deviation between Standard Job Hours, or Hours specified for
the work to be completed, & Hours Work on the Standard or Hours
actually worked on a Standard Job.

Standard Standard job hours – actual hours work on standard

jobs = _____________________________
hours Standard job hours
deviations

Negative result: indication of work hours increment vs. standard

Positive result: indication of work hours reduction vs. standard
Normal deviation +5% and -5%

BUSINESS TOOLS FOR SERVICE MANAGERS

Service Quality Related.

Maurizio Bonacchi Caterpillar Geneve 4

 Service Quality Related.

Specific formulas: REDO-Rework-Service after sales labour warranty

Calculation

Cat Goal TOTAL REDO (€)

% REDO vs. Service Sales =
=< 2% TOTAL SERVICE SALES (€)

TOTAL REDO (Hours)

Cat Goal Hours REDO vs. Hours Worked =
=< 2% TOTAL HOURS WORKED

TOTAL UNITS* FAILED

Cat Goal REDO Quality Index =
=< 4% * SAME TYPE TOTAL UNITS* REPAIRED

BUSINESS TOOLS FOR SERVICE MANAGERS

Marketing Related.

Maurizio Bonacchi Caterpillar Geneve 5

 Marketing Related.

Cat Goal :
PSTS/SDCAL: All parts through Service Europe >=55%
AME=>33%
Total Dealer Parts

Part/prod hour: Specific parts through Service (@ DN) Dealer Goal

Specific productive hours

BUSINESS TOOLS FOR SERVICE MANAGERS

Warranty Related. Caterpillar

Maurizio Bonacchi Caterpillar Geneve 6

 Warranty Related. Caterpillar
• General formulas:
• Calculation % of: Warranty recovered rate % or Warranty performance %
Warranty cost or residual warranty cost & Warranty hours.:

Warranty recovered Total settlement amount or Total Paid CAT Goal

rate or Warranty = 95% to 85%
performance Total expected amount or Total Claim

Dealer
Total settlement amount or Total Paid Bench
Warranty cost % = 100% - 40%
Total warranty cost to
50%

Dealer
Warranty hours Total warranty productive hours (travel excluded) Bench
distribution % = 15%
Total productive or billable hours to
12%
Mix
Warranty cost as Total warranty cost warranty
cost
% of sales =
=<2.5%
Total Sales of Prime Product *

BUSINESS TOOLS FOR SERVICE MANAGERS

Work in Process or Service Inventory Related.

Maurizio Bonacchi Caterpillar Geneve 7

 Work in Process or Service Inventory Related.

• Specific formulas:

((P,L,M) cost to be Invoiced for the month– Cash Advance) x 30 days

WIP (Days) =
Total cost of sales (P,L,M) for the month CAT Goal =<15 days

Hours to be invoiced x 365 days CAT Goal

WIP (Days)=
Hours Invoiced last 12 months =<15 days

WIP (Days)= Hours to be invoiced x 30 days CAT Goal

Hours Invoiced =<15 days

Note: Parts will be accounted when they are in the shop, the parts that
are not in stock should not be accounted

Work in Process or Service Inventory Related.

Control Work in Process

Carrying cost
Interest = (Average cost found pending to be invoiced – Cash Adv) x annual rate %

W.O/ Quantity of Work Order open & closed in the month

Admin =
Pers. Quantity of administrative person dedicate to Invoice

W.O/ Quantity of Work Order open & closed in the month

day/Pers.=
Quantity of administrative person dedicate to Invoice X Monthly Working days

Maurizio Bonacchi Caterpillar Geneve 8

 BUSINESS TOOLS FOR SERVICE MANAGERS

Service Statement Related (operational calculation) .

Service Statement Related (operational calculation).

• General formulas:
• Gross profit %: Always the denominator will be total service sales

Gross Profit = Total service sales – Cost of sales

Gross Profit Total gross profit

%= Dealer Goal
Total service sales

• Cost of sales/Direct Expense %: Always the denominator will be total service sales

Cost of Total cost of sales

sales % = Dealer Goal
Total service sales

Direct Total direct expenses

Expense % = Dealer Goal
Total service sales

Maurizio Bonacchi Caterpillar Geneve 9

 Service Statement Related (operational calculation).

• Specific formulas:
• Calculation of sales weight %: Always the denominator will be total
specific reference sales and numerator an specific sales to weigh
e.g.:

Specific sales Total specific sales

weight % =
Total services sales

External customers (included CSA) >=65% vs.

Interdepartmental customers. In the case of CRC the
hours are interdepartmental because they work for
MARC & TM&R Contracts

Service Statement Related (operational calculation).

• Specific formulas:

• Calculation of All type of Profit:

e.g.:

M.A.E.H = Service Sales – Cost of Sales – Expenses Hours (At labor cost rate)

P.A.D.E = Service Sales – Cost of Sales – Expenses Hours – Direct expenses

M.A.E.H P.A.D.E
M.A.E.H%= P.A.D.E.%=
Service Sales Service Sales
CAT Goal
=>15%

Maurizio Bonacchi Caterpillar Geneve 10

 Service Statement Related (operational calculation).

• Specific formulas:
• Average labor and cost rate per hour: Always the denominator will be
total specific referenced hours and numerator will be total specific sales.

Average Total specific sales

specific rate/hour =
Total specific productive hours

Average
Specific rate cost/hour =
Total specific cost of sales
Total specific productive hours

Service Statement Related (operational calculation).

• Specific formulas:

• Calculation of labor sales & cost variance %:

e.g.:

Labor rate sales Realized labor sales rate – Published Av. labor sales rate
variance % =
Published Av. labor rate

Labor cost rate Published Av.labor cost rate – realized labor cost rate
variance % =
Published Av. labor cost rate

Maurizio Bonacchi Caterpillar Geneve 11

 Service Statement Related (operational calculation).

Specific formulas: 1 Technician labor cost rate/h. and 2 Technician

standard labor cost rate/h.

Labor Annual salary costs for a group technicians

cost = _________________________________________
1
rate/h Total annual service hours for a group technicians

Labor Annual salary costs for a group technicians + Specific cost of supplies
cost = ___________________________________________
rate/h 2 Total annual service hours for a group technicians

Service Statement Related (operational calculation).

Specific formulas: Technician labor cost rate/h. and Technician standard

labor cost rate/h. Price calculation

Labor Labor group cost rate/h

sales =
rate/h (1- % of margin per hour )
100

This% additionally it should contain the discount % (if this policy exist).

Maurizio Bonacchi Caterpillar Geneve 12

 Service Statement Related (operational calculation).
•Specific formulas: Total Labor cost or Break even rate per hour. (Forecasted)

Break Total Service cost after indirect expenses and before interest and taxes
Even = _________________________________________
rate/h Total productive or Billable service hours

Billable = Total Hours– Hours of (Allowed +Redo +Lost Time + Training+Policy)

hours (Potential/Real)

Dealer % 2% 8% 4% 1%

Labor Break even rate rate/h This additionally

sales = % it should
rate/h (1- % of profit per hour ) contain the
100 discount % (if
this policy exist).

Service Statement Related (operational calculation).

Specific formulas: Realized Total Service labor cost/h or Break Even rate/h

Break 3
Total Service cost after indirect expenses and before interest and taxes
Even = _________________________________________
rate/h Total productive or Billable service hours

Break Total technicians' wages cost (dealer cost)

_________________________ 3 = A + B + C
Even =
rate/h A Total productive or Billable service hours
Break Service direct expenses (without technicians expenses) A Constant Value
Even = _________________________
rate/h B Total productive or Billable service hours B Variable Value

Break Service indirect or allocated expenses C Variable Value

Even = _________________________
rate/h C
Total productive or Billable service hours

Maurizio Bonacchi Caterpillar Geneve 13

 Service Statement Related (operational calculation).

Specific formulas: Standard cost of sales deviations or cost of sales variance

Standard Standard cost of sales – actual cost of sales

cost = _____________________________
of sales Standard cost of sales
deviations

Negative result: indication of cost of sales increment vs. standard cost of sales
Positive result: indication of cost of sales reduction vs. standard cost of sales
Normal deviation +5% and -5%

BUSINESS TOOLS FOR SERVICE MANAGERS

Service Capacity or Manpower Related.

Maurizio Bonacchi Caterpillar Geneve 14

 Service Capacity or Manpower Related.

• General formulas:
• Calculation technicians (Capacity)

Quantity of Productive hours increment or opportunity hours

technicians =
[(Regular Productive hours/Tec + Overtime
Productive hours/Tec) +/- % of YOY expenses
hours change]

Note: the +/- % of YOY expenses hours change is the annual variation of
the exp hours that affect the productive hours. it is recommendable to
calculate the CAGR% of the last 5 years

Service Capacity or Manpower Related.

• General formulas (cont.): Method 1

• Calculation technicians (Capacity)
Total specific parts sold through service
Specific Parts /=
hour [Total annual specific productive or Billable hours]

Specific parts opportunity through service or Part growth

Billable hours =
[Specific Parts / hour ]

Quantity of Productive hours increment or opportunity hours

technicians =
[(Regular Productive hours/Tec + Overtime
Productive hours/Tec) +/- % of YOY expenses
hours change]

Maurizio Bonacchi Caterpillar Geneve 15

 Service Capacity or Manpower Related.

• General formulas (cont.): Method 2

• Calculation technicians (Capacity)

Total annual hours Annual Billable hours increment or opportunity hours

opportunity =
Annual Labor utilization %

Quantity of Total hours opportunity X Actual technicians

technicians =
[Actual total service hours]

Service Capacity or Manpower Related.

Method 3
Conversion of Flat Rates sales into hours. (only labor)

Flat Rate sales - Flat Rate sales x Flat Rate Gross Profit %
Billable hours (FR)=
[Flat Rate Realized labor cost rate/ hour ]

Conversion of Time & Material sales into hours. (only labor)

T&M sales - T&M sales x T&M sales Gross Profit %

Billable hours (TM)=
[T&M Realized labor cost rate/ hour ]

Maurizio Bonacchi Caterpillar Geneve 16

 Service Capacity or Manpower Related.
Method 3 (cont...)

Conversion of CSA sales into hours. (only labor)

CSA labor sales – CSA labor sales x CSA Labor G. Profit %

Billable hours (CSA)=
[CSA Realized labor cost rate/ hour ]

Conversion of Special Program sales into hours. (only labor)

SP sales - SP sales x SP sales Gross Profit %

Billable hours (SP)=
[SP Realized labor cost rate/ hour ]

Service Capacity or Manpower Related.

Method 3 (cont...)

Total Billable hours from sales = Σ hours of FR + T&M+ CSA + SP + etc

Method 1 (Standard)

Quantity of Productive hours increment or opportunity hours

technicians =
[(Regular Productive hours/Tec + Overtime
Productive hours/Tec) +/- % of YOY expenses
hours change]

Maurizio Bonacchi Caterpillar Geneve 17