Every business should measure performances against goals, substantiate its existence, and justify paychecks on solid arguments and data that customers can understand. This presentation focuses on the value KPI may show of a business. Suggestions are given about developing KPIs that can be understood by customers.
4. Why measure?
To know something unknown
To learn what and how to measure
To reduce uncertainty and the risk of wasting
money
5. Risk In God we trust. All others must bring data.
6. Processes
Performance
The capacity to achieve goals expressed through
preset known standards (how the system works)
Outcomes
The end result of the tasks executed
7. Performances
vs. outcomes
Businesses focus on performances
Performances can be measured
Customers are interested in outcomes
Outcome goals cannot be controlled
8. Performances
vs. outcomes
Performance goal Outcome goal
Run the 100m race in 10” Win first place in the contest
Tackle your opponent out Win the rebound
Sprint after ball comes into play Get to the ball first and control it
9. Continual
improvement
Measuring process performances against
organizational goals help identify
opportunities for streamlining work, improving
efficiency and reducing waste
10. Information
asymmetry
Imbalance of power in transactions
Buyers and sellers have different information
Buyers cannot assess the value of the product/service
through examination before sale is made
11. Signaling
Vendor conveys some information about itself
to buyer
Positively correlated with capabilities
Measures are signals
12. First steps
Set the decision(s) to support
Detail the thing to measure
Assess impact of measures on decision(s)
Define the reasons for uncertainty
Determine the value added by measurement
15. What to
measure
Area Primary measure Related measure
Sales Price Cost of service
Operations Cost of service Customer satisfaction
Procurement Vendor rating Quality
Human resources Resource development Vendor rating
Quality Quality index Vendor rating
Production Productivity Vendor capacity
16. Expected
measurements
Feature Area Variable
Price Production Cost of service
Timing Production
Shipping capacity
Project management
Quality of service Production
Investments
Analytics
Customer service
Production
Customer service
Quality of service
Maintenance costs
Flexibility
Vendors
Production
Peaks of demand
Planning ability
Creditworthiness
Finance
Production
Sales
Cash flow
Reputation Staff
Resource development
Human capital
17. Baselines,
thresholds and
benchmarks
Baseline
The starting point for comparison
Threshold
The value for something to come into effect
Acceptance Quality Levels
Maximal percentage of non-conforming items to be considered
as a satisfying process mean
Benchmark
A performance standard
Industry average
25. Capacity
Utilization
Ratio (CUR)
The output produced in a given time-frame
Actual output
Productive capacity
x 100
The extent to which an organization uses its installed
productive capacity
The difference to 100% indicates room to improvement
without incurring costs of increasing capacity
A low value highlights serious process inefficiencies
E.g.The number of hours of work assigned to a
resource or group of resources as a percentage of their
availability for a given period.
26. Delivery In-Full,
On-Time
(DIFOT) rate
Ability of a business to fulfil orders and meet
customer expectations
A measure of the effectiveness and efficiency of
processes and supply chain
Number of deliveries IFOT
Total number of deliveries
x 100
27. First PassYield
(FPY)
The percentage of items that are moving
through a process without any problems over a
specified period of time
Number of units coming out
Number of units going in
x 100
A measure of process efficiency
28. Order
Fulfillment
CycleTime
(OFCT)
The average time taken to source, make and
deliver a product or service from order to
customer receipt
The total “time waiting” experienced
A measure of an organization’s delivery capacity in an
end to end process
29. Rework level
A percentage of items inspected requiring
rework
A measure of an organization’s operational efficiency
at delivering the specification that the customer wants
without further correction, alteration or revision
Number of items from a production run
Service period requiring rework
x 100
30. Complaints
Complaints rate
The number of complaints received from customers
divided by the total number of items delivered over
the same period of time
Complaints resolution rate
The number of complaints solved divided by the total
number of complaints received from customers
Complaints resolution cycle time
The total number of hours required to successfully
resolve a customer complaint, from the time the
complaint is submitted until when the complaint is
resolved and closed divided by the total number of
hours worked
31. Quantitative
v. qualitative
indicators
Quantitative indicators used for outcomes
Computed with mechanical methods
Expected to give the same results
Seen as objective
Easier to understand and manipulate
Approximations are always inevitable
Qualitative indicators are used for judgements
Depicting experience-based perceptions
Seen as subjective and unreliable
Identify constraints
32. Error-based
metrics
Application of Six Sigma to soccer
A goalkeeper in a level-6 team playing 50 games in a
season and facing 50 shots per game would concede
one goal every 147 years
33. Create your
own KPIs
1. Identify the strategic goal(s) for each
indicator
2. State the question(s) that the indicator is
meant to answer
3. Specify how each indicator will be used and
shall not be used
4. Identify and describe which data should be
collected and used, and how
5. Specify the assessment criteria (qualitative or
quantitative) and the associated scale
6. Identify baseline, benchmark, and thresholds
for each indicator