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ABB Basic Quality Tools Series

Key Performance Indicators

Identifying and using key metrics for performance

ABB Group July 27, 2010 | Slide #

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KPI - Content
What 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

KPIs are part of policy deployment

Where 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 Business

How do I use it?

Questions to ask when choosing a KPI

Evaluating metrics
KPIs for a service process
CTQ tolerance limits
Process metric worksheet

Risks and how to avoid them

Use of existing data which may not be relevant

Costs versus benefits of collecting data for the metrics

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KPI - What is it for?

Uses of this tool:

KPIs 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

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 KPIs will give us sound baselines from
which to continue to improve our performance

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KPI- Where could I use it?



Key Performance Indicators (KPIs) are the

means by which we measure and monitor
our performance.

Often used at a high level to identify the key

measures for the business to work on to achieve
longer term objectives VOB

A good KPI must reflect a characteristic

which is key to delivering success, and
which will drive our behaviours and actions
to do so.

Translates into shared goals and objectives

possibly at department or functional level

KPIs 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

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

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KPI - How do I use it?

Some questions to ask when selecting a KPI

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

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?

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KPI - How do I use it?

Evaluating metrics
Criteria 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?

A measure of how well the
process step meets or exceeds
customer requirements
Billing accuracy
One touch transactions
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A measure of resource
utilisation in the process step
Cost per transaction
Time per process step
No. of staff per process step
Bill of materials per process step

KPI - How do I use it?

For a service process
KPIs are Based on Speed and Accuracy
Decision / action cycle time
Response time
Recovery time
Timelines met
No dead time

Correctness and clarity
Completeness and closure
Fairness and consistency
Knowledge of the service agent
Empathy of the service agent

Not necessarily delivered as fast as

possible but rather delivered
consistently against expectations
held by or set for the customer.

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

On Time

On Quality

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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

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Delivery to Schedule (days)

Delivery from 4
days early to 1 day
late is OK for me.

KPI - Local Process Metric Worksheet

Metric Name
On Time

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How Measured

Target & Limits

KPIs - Risks and how to avoid them

Risks :

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

Metrics are selected which may be perfect for the

customer but which are difficult or expensive to collect
and monitor

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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

Example: Local Process Measures

LV Motors Vsters Sweden

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Example: Local KPIs used in a Kaizen

Reduce 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



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KPI - Example: Objectives Link to Measures

ABB Drives New Berlin Wisconsin USA

(Board of Directors
EC - Division)

RM Inventory
FG Inventory

LV Drive

Goals & Measures
(LBU Operations)

Focused Factory
Goals & Measures
(Workstation Team)

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