You are on page 1of 13

ABB Basic Quality Tools Series

Key Performance Indicators

Identifying and using key metrics for performance

ABB Group July 27, 2010 | Slide #


15 July 2010, Slide 1

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
process

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


Cheating
Costs versus benefits of collecting data for the metrics

Examples
ABB Group July 27, 2010 | Slide #
15 July 2010, Slide 2

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

ABB Group July 27, 2010 | Slide #


15 July 2010, Slide 3

KPI- Where could I use it?


Background:

Uses:

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
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

ABB Group July 27, 2010 | Slide #


15 July 2010, Slide 4

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
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?

ABB Group July 27, 2010 | Slide #


15 July 2010, Slide 5

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?
Examples:

Effectiveness
Effectiveness
A measure of how well the
process step meets or exceeds
customer requirements
Defects
Complaints
Billing accuracy
One touch transactions
ABB Group July 27, 2010 | Slide #
15 July 2010, Slide 6

Efficiency
Efficiency
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
SPEED
Decision / action cycle time
Response time
Recovery time
Timelines met
No dead time

ACCURACY
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

ABB Group July 27, 2010 | Slide #


15 July 2010, Slide 7

KPI - How do I use it?


CTQ Tolerance Limits

Perceived
Customer
Value

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

ABB Group July 27, 2010 | Slide #


15 July 2010, Slide 8

Customer
Requirement

Lower

USL

LSL
Upper
-4

+1

Requirement
Delivery to Schedule (days)

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

KPI - Local Process Metric Worksheet


Metric Name
Safety
Quality
On Time
Delivery

ABB Group July 27, 2010 | Slide #


15 July 2010, Slide 9

Description

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
customer

Metrics are selected which may be perfect for the


customer but which are difficult or expensive to collect
and monitor

ABB Group July 27, 2010 | Slide #


15 July 2010, Slide 10

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

ABB Group July 27, 2010 | Slide #


15 July 2010, Slide 11

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


breakdown.

KPIs

ABB Group July 27, 2010 | Slide #


15 July 2010, Slide 12

KPI - Example: Objectives Link to Measures


ABB Drives New Berlin Wisconsin USA
Revenue
Orders
EBIT
OCF

Global
Objectives
(Board of Directors
EC - Division)

Safety
Quality
Warranty
RM Inventory
FG Inventory
Efficiency
OTD
Growth
People
Safety
Quality
Efficiency
OTD

LV Drive
Objectives
(BU)

Shared
Goals & Measures
(LBU Operations)

Focused Factory
Goals & Measures
(Workstation Team)

ABB Group July 27, 2010 | Slide #


15 July 2010, Slide 13