Key performance indicators are used to assist management and employees in achieving a higher level of results by measuring the success or failure of a specific activity. These measurements are important for a number of reasons:
- They identify which activities are important to the overall success of the organization.
- They define how the activity will be measured.
- They provide the tools and system that facilitates the measurement.
- They stimulate analysis and discussion regarding the results of the measurement and a framework for implementing corrective action.
We have all heard the phrase "you can't manage what you don't measure", but most people don't bring it into their personal or private lives.
This became apparent to me in of all places, the dentist's office. I was having a periodontal exam, and the hygienist was calling out numbers that were being entered into a computer. She explained that she was assigning a grade to each of my teeth. She indicated that 1's and 2's were good, 3's were ok, and the 4's and 5's needed attention.
While I had been having a periodic oral exam for many years this is the first time it was presented in this manner. After the exam was completed she explained the ratings and also suggested steps that I could take to improve my numbers, and this would be part of future visits. In the past I would be told to brush and floss.
The difference now was that I understood how the activity was to be measured, what system was being employed to facilitate the measurement, and most important we had a discussion regarding the results and what corrective action would begin an improvement.
Needless to say I was now engaged in a proactive process, I understood what I needed to do, and I look forward to my next visit/measurement to see the results.
This process works to improve the results of any activity that we want to improve. We only need to follow the steps above.
In a manufacturing plant such activities as set up time, scrap expense, and dock to stock time can all be measured with the goal of having them reduced. However just as with my hygienist, measuring alone will not bring about improvement. The most important step is the analysis and discussion that leads to improvement. For example with setup time the discussion may lead to having the required tool available before beginning the set up. An analysis of scrap may identify its causes and lead to changes in either the production process or improving the quality of material received from the supplier.
Many times we tend to believe that measurement is only applied to a production process. As demonstrated with my dental hygienist above, we can see that it can be applied to any activity where we want to see improvement. In the marketing department measuring the lead generation process can determine what programs are successful by resulting in more leads, and further analysis may determine that changes can be made to improve the quality of the lead.
The sports industry has been using measurements to manage and improve performance for years. We all know and understand their importance as they relate to our favorite sport. Measurements like Batting Average, Unforced Errors, Runs Batted In, and Field Goal Attempts.
Most of us know about these statistics but not many of us use performance measurements in our own business. How many of us know what our Days Outstanding, Billable Hours Ratio, Scrap Rate, or Closing Ratio is?
The important message that I want to leave with is that while it is important to measure the performance of activities, the benefit comes from understanding the measurement and the analysis and discussion that it creates.
Additional information on Key Performance Indicators can be found at www.kpilibrary.com.
