Key Performance IndicatorsIdentifying and using key metrics for performance

ABB Basic Quality Tools Series

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KPI - ContentWhat is it for? • Understand how KPIs are deployed as relevant local goals• Used to identify, measure and monitor the performance of key elements of the process• KPI’s are part of policy deploymentWhere could I use it?• At the local level to monitor process outputs and

performance against scorecard• As part of listening to the Voice of the Customer• To monitor shared goals and objectives• Alignment to the business objectives – links to the Voice of

the BusinessHow do I use it?• Questions to ask when choosing a KPI• Evaluating metrics• KPI’s for a service process• CTQ tolerance limits• Process metric worksheetRisks and how to avoid them• Use of existing data which may not be relevant• Cheating• Costs versus benefits of collecting data for the

metricsExamples

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Expected Benefits:• Gives alignment across the organisation when used in conjunction with a longer term business plan

• Provides clear focus for the policy deployment of this plan

• Helps identify where there are shared goals and objectives across all functions

• More specifically, at a local level it is an essential tool in monitoring and controlling our processes, and driving improvement in the areas which will increase the satisfaction of our customers

• Clear and well defined KPI’s will give us sound baselines from which to continue to improve our performance

Uses of this tool:• KPI’s are used to measure and monitor our performance against the characteristics which we determine are critical for us to deliver our business plan

• Used at different levels from long term objectives, through shared goals and down to local level

• At local level we will often use the Voice of the Customer (VOC) to help identify our process metrics

KPI - What is it for?

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Background: Uses:

•Often used at a high level to identify the key measures for the business to work on to achieve longer term objectives – VOB

•Translates into shared goals and objectives possibly at department or functional level

•Typically used at local level to assess our delivery performance against the CTQ requirements by using a Key Performance Indicator (KPI) – a process metric which is:

•Defined ‘through the eyes of the customer’

•How they would measure what good looks like against their needs

•A fixed target with tolerance zones•The basis to assess process capability and to implement process control

•A process metric can describe performance at a point in time; over a period of time; at a point in the process; overall for a set of process steps

KPI- Where could I use it?

•Key Performance Indicators (KPI’s) are the means by which we measure and monitor our performance.

•A good KPI must reflect a characteristic which is key to delivering success, and which will drive our behaviours and actions to do so.

•KPI’s are used at several levels in an organisation, from quantifying the vision and long term plan, through the policy deployment process which translates these into relevant measures and targets at local level

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© ABB Group July 27, 2010 | Slide ‹#›

Some questions to ask when selecting a KPI

Do we have existing measures in use within our business or process that can be used?

If NO, then develop a measure and ask: Does the measure match how the customer defines the process quality?

If performance changed, as reflected through the measure, would the customer ‘feel’ the impact?

Does the measure define success and failure? Will it provide an insight into ‘defect rates’?

KPI - How do I use it?

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Evaluating metricsCriteria for evaluation of process metrics:

Importance: Are you measuring the things that really matter?Ease: Does the measurement ‘flow’ from the activity being monitored?Actionable: Can the metric initiate appropriate actions?Examples:

EfficiencyEffectiveness

A measure of how well the process step meets or exceeds customer

requirements

A measure of resource utilisation in the

process step Defects

ComplaintsBilling accuracy

One touch transactions

Cost per transactionTime per process step

No. of staff per process step

Bill of materials per process step

KPI - How do I use it?

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© ABB Group July 27, 2010 | Slide ‹#›

For a service process

Not necessarily delivered as fast as possible but rather

delivered consistently against expectations held by

or set for the customer.

On Time

Sustaining a balance of thoroughness, efficiency and positive experience across all encounters with the customer

On Quality

Decision / action cycle timeResponse timeRecovery timeTimelines metNo ‘dead’ time

SPEEDCorrectness and clarityCompleteness and

closureFairness and

consistencyKnowledge of the

service agentEmpathy of the service

agent

ACCURACY

KPIs are Based on Speed and Accuracy

KPI - How do I use it?

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KPI - How do I use it?

CTQ Tolerance Limits

In manufacturing, customer tolerance limits come from technical specifications

For services, tolerances are based on data regarding customer needs and ‘frustration’ levels as discovered through the Voice of the Customer

Set limits at the point where customer satisfaction begins to noticeably fall off

This is driven by what the customer feels is acceptable, not by what you think is economically feasible

The limits around the CTQ become your target zone for consistent process performance

Lower

Upper

PerceivedCustomerValue

RequirementDelivery to Schedule

(days)

LSL

USL

Customer Requireme

nt

- 4 + 1

“Delivery from 4 days early to 1 day late is OK

for me.”

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KPI - Local Process Metric Worksheet

Metric Name Description How Measured Target & Limits

Safety

Quality

On TimeDelivery

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KPI’s - Risks and how to avoid themRisks :• Existing measures are used because they are available or “they will do”.

• Cheating. When a local metric can be made better at the expense of another metric, either locally or at the process customer

• Metrics are selected which may be perfect for the customer but which are difficult or expensive to collect and monitor

Steps to avoid them :• This can result in the metrics being virtually useless – we have to measure what is relevant to the key characteristic. Understanding the Voice of the Customer and converting this to the CTQ are essential tasks.

• Have a balancing metric for the same process that will expose cheating on the primary metric. For example, if OTD is a primary metric, finished goods inventory is the balancing metric.

• Take time to consider whether the metric really is important, easy to collect and actionable – get the balance right between the time and cost of collecting the data against the benefit of the metric itself

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© ABB Group July 27, 2010 | Slide ‹#›

Example: Local Process MeasuresLV Motors – Västerås Sweden

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Example: Local KPIs used in a KaizenReduce cost of material staging

Target of this Kaizen in a receiving department was to improve OTD and Efficiency.

Focus here is on Efficiency.

Notice the target: Reduce cost to $34 (current costs are not stable: $33 to $42 during last 6 months)

Notice the analysis of cost breakdown.

KPIs

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KPI - Example: Objectives Link to MeasuresABB Drives – New Berlin Wisconsin USA

GlobalObjectives

(Board of DirectorsEC - Division)

LV DriveObjectives

(BU)

RevenueOrdersEBITOCF

SharedGoals & Measures

(LBU Operations)

SafetyQualityWarrantyRM InventoryFG InventoryEfficiencyOTDGrowthPeople

Focused FactoryGoals & Measures

(Workstation Team)

SafetyQualityEfficiencyOTD

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