Performance Measures

“ If we can define it – we can measure it;

If we can measure it – we can analyze it;
If we can analyze it – we can control it;
If we can control it – we can improve it.”
– R. M. McNealv
 Learning Outcomes
 Objectives of Performance Measures
 Performance Indicators (What Are The Items To Be Measured?)
 Performance Measures Presentation

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 Objectives of Performance Measures
 Performance measures indicate the measurement of success in an organisation.
 Objectives of Performance Measures are:
1. To establish baseline measures and reveal trends.
2. To determine which processes need to be improved.
3. To indicate process gains and losses.
4. To compare goals with actual performance.
5. To provide information for individual and team evaluation.
6. To provide information to make informed decisions.
7. To determine the overall performance of the organization.

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 Performance Indicators
(What Are The Items To Be Measured?)

Criteria Indicators/Determinants
1. Customers – number of customer s’ complaints
– number of warra nty claims
– number of suggestions per employee
– number of suggestions implemented
– % returns by c ustomers
– customer sati sfaction index
– time to resolve complaints
– mean time to repa ir
2. Production – productivity = output /input = result /costs
– labour productivity = result /la bour costs
– capital productivity = result /capital costs
– material productivity = result /material costs
– effectiveness † = actual result/expec ted re sult
– efficienc y † = expec ted costs /ac tual costs
– revenue growth
– % rej ects ; % scra p
– failure rate =
(number of fa ilures /total number of products tested)  100%
– quality grade =
{(production quantity – number of defects) ÷
production quantity}  100 %
– thr oughput time = processing time + inspection time +
movement time + waiting time
– manufa cturing cyc le effectiveness = processing time /throughput
time
– number of breakdowns
– availability = MTBF /MTTR
where MTBF = Mean time between failures, and
MTTR = Mean time to repair.
– actual processing time Vs waiting times
– lead time for product development
3. Suppliers – service rating

†
Efficiency h as been defined as ‘doing things better’ and effectiveness as ‘doing better
things’.

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 Performance Indicators

Criteria Indicators/Determinants
1. Customers – number of customers’ complaints
– number of warranty claims
– number of suggestions per employee
– number of suggestions implemented
– % returns by customers
– customer satisfaction index
– time to resolve complaints
– mean time to repair
2. Production – productivity = output/input = result/costs
– labour productivity = result/labour costs
– capital productivity = result/capital costs
– material productivity = result/material costs
– effectiveness† = actual result/expected result
– efficiency† = expected costs/actual costs
– revenue growth
– % rejects; % scrap
– failure rate =
(number of failures/total number of products tested)  100%
– quality grade =
{(production quantity – number of defects) ÷
production quantity}  100%
– throughput time = processing time + inspection time +
movement time + waiting time
– manufacturing cycle effectiveness = processing time/throughput
time
– number of breakdowns
– availability = MTBF/MTTR
where MTBF = Mean time between failures, and
MTTR = Mean time to repair.
– actual processing time Vs waiting times
– lead time for product development
3. Suppliers – service rating

† #6
Efficiency has been defined as ‘doing things better’ and effectiveness as ‘doing better
things’.
 Performance Indicators

3. Suppliers – service rating

– on-time delivery
– quality performance
– SPC charts
– billing accuracy
– average lead time
– just-in-time delivery target
4. Research and – new product time to market
Development – time needed to launch a new product
– design change orders
– cost estimating errors
– % of sales from new products
5. Human – % personnel turnover
Resources – % absence due to illness
– employee satisfaction index
– number of training hours per employee
– number of active teams
– number of suggestions/grievances
– % safety incidents
– % environmental incidents
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 Performance Indicators

6. Marketing/ – sales growth

Sales – market growth
– % delivery completed
– sales expense to revenue
– new customers
– sales income to number of sales people
– order accuracy
7. Adminis- – revenue growth
tration – revenue per employee
– expense to revenue
– cost of poor quality
– % of payroll distribution on time
– office equipment up-time
– order entry/billing accuracy
– invoicing speed

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 Performance Measures Presentation

 The commonly used six basic techniques for presenting performance measures
are:
1. Time series trend graphs,
2. Control charts,
3. Capability index,
4. Taguchi’s loss function,
5. Costs of poor quality, and
6. Quality awards.

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 1. Time Series Trend Graphs

 A trend graph provides information for the investigation and assessment of

quality improvement programmes.

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 2. Control Charts

 The control charts are powerful tools for the diagnosis of quality problems.

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 3. Process Capability Index

 Process capability index is the ratio of the tolerance to the capability.

 There are two measures:
(i) Cp: It measures the ability of the process to meet specifications.
(ii) Cpk: It indicates the centering of the process on the target.

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 4. Taguchi’s Quality Loss Function

 Taguchi’s quality loss function (QLF) technique is based on the fact that quality
loss occurs when a product’s specifications deviates from target or nominal value.
 Taguchi’s U-shaped loss function curve:

 This technique combines target, cost, and specifications into one measurement.

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 5. Cost of Poor Quality

 Quality cost is the cost of not meeting the customers’ requirement, i.e., the cost
of poor products and services.
 The cost of quality can be classified into the following four categories:
(i) Costs of prevention,
(ii) Costs of appraisal,
(iii) Costs of internal failures, and
(iv)Costs of external failures.
 Quality costs provide sound ‘tools’ for arriving many managerial decisions.

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 6. Quality Awards

 Quality awards are prizes awarded for some aspect of quality performance which has been
demonstrated to an organization which normally has no responsibility for the recipient’s
performance.
 Examples of international awards include:
1. The Deming Prize.
2. The European Quality Award.
3. Asia-Pacific Area Golden Quality Award.
 Examples of national awards are:
1. The Malcom Baldrige Award.
2. The UK Quality Award.
3. The Golden Peacock National Quality Award.
4. The Rajiv Gandhi National Quality Award.
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 Recap
Now you should be able to answer the following questions:
1. List out the benefits of performance measures.
2. List and explain the various measures of performance in evaluating the success
of an organization.
3. Explain the commonly used techniques for presenting performance measures.

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End of Presentation

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