Why do we have KPIs (Key Performance Indicators)?
If you’re playing sport, you usually keep score. Scores tell you whether or not you are improving. Footy players keep score. Athletes keep track of their PBs (personal best). Coaches measure yet more statistics. KPIs are just the scores or measures for your business or organisation.
Most organisations either have too few measures, or too many. I recently worked with a business which supplied products to the building industry. They all agreed that the reason their customers chose them was for the quality of their products. Yet they had no quality measure anywhere in their business. It would be very hard for them to know how they were performing and whether they were getting better or worse. They were relying on their own installers to fix up quality problems before the customer became aware of them, but at what cost?
It’s important to get the balance of measures just right – both in the number of measures and in the spread or balance. At organisation level, this is often called a balanced scorecard. Not everyone in the organisation needs to know and manage all the measures (just like the players don’t know the level of detail the coaches do on a footy team) but the measures any individual has needs to mean something and be within their control.
The KPIs for an individual or a department must also drive the right behaviour and be aligned with the organisation’s targets. Be particularly careful of department specific measures – those ones that make a department look good at the expense of others. An example is purchasing having raw material unit price as a measure. Reducing unit price can drive ordering in large quantities, causing headaches for the warehouse, increased storage costs and risk of damage or obsolescence. It might also result in decisions being made on price at the expense of quality. In this case the purchasing department also needs to have overall stock value or stock turns and product quality or warranty costs as a measure.
Keep it simple. Just as players are too busy playing the game to study the stats, operators are usually too busy working to study pages of numbers, even if they are visually displayed. 4-5 measures is a manageable number. Number goals (e.g. good parts produced) often means more than percentages. The measures need to be within the person or team’s control.
Keep it balanced. People will do what is asked of them, as they will think that is what is important to the business. So if production volume is the only thing measured then quality or safety may suffer.
Priority of KPIs or measures
Prioritise KPIs in the following order, so that people get to learn what the organisation’s priorities are. Quality is high up the list because in most cases, if you try to drive productivity, quality will suffer. However, if you focus on quality and improving processes, productivity will improve:
- Improvements – projects or ideas
These points can form the basis of a tool box talk agenda, or month end review meeting.
Some examples of possible KPIs or measures are below. But make sure you review your measures and targets regularly to ensure they are driving the right behaviours.
Suggested KPIs or measures
- Safety – no of days since MTI/LTI (medically treated/lost time injury). Don’t have a target on first aid injuries, as people may be tempted to hide minor injuries. A great proactive measure is the number of times someone is ‘caught’ behaving in a safe manner such as wearing the right PPE. 5S (workplace organisation) score or no. of 5S audits completed is another option.
- Quality – no. of parts made right first time (RFT). This should be recorded positively and is one example where percentages works OK as % RFT of total parts (similar to % free throws by a basketball player).
- Delivery – DIFOT (delivery in full on time). The main problem with this is many sites change the dates – usually with the customer’s agreement – so always have 100%, which doesn’t reflect the chaotic reality. Schedule adherence for manufacturing is good as it is more within their control and is a good indicator of stability.
- Productivity – no of items per team or cell per hour or day. Or number of batches or jobs. Ideally there is also a per person or per manhour measure so that if one if the team is missing, the rest pull together to make their numbers look good.
- Improvements – no of projects on the go, no of projects completed, savings as a result of these projects, training hours. This may be an input measure. A footy team might measure attendance at skills training sessions.
Input vs Output measures
This is a blog post in itself but if you trust the process, getting the right inputs will result in the outputs you want. Checking outputs is often too late.