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 Use of existing data which may not be relevant Cheating Costs versus benefits of collecting data for the metrics

Risks and how to avoid them

Examples
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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?

Background:
Key Performance Indicators (KPIs) are the means by which we measure and monitor our performance. A good KPI must reflect a characteristic which is key to delivering success, and which will drive our behaviours and actions to do so. 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

Uses:
Often used at a high level to identify the key measures for the business to work on to achieve longer term objectives VOB Translates into shared goals and objectives possibly at department or functional 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

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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 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?

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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? Examples:

Effectiveness
A measure of how well the process step meets or exceeds customer requirements Defects Complaints Billing accuracy One touch transactions
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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 Not necessarily delivered as fast as possible but rather delivered consistently against expectations held by or set for the customer. ACCURACY Correctness and clarity Completeness and closure Fairness and consistency Knowledge of the service agent Empathy of the service agent 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

Perceived Customer Value

Lower

Customer Requirement USL

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

LSL Upper -4 +1

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

Requirement Delivery to Schedule (days)

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

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KPI - Local Process Metric Worksheet

Metric Name Safety Quality On Time Delivery Description How Measured Target & Limits

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KPIs - Risks and how to avoid them

Risks :
Existing measures are used because they are available or they will do.

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.

Cheating. When a local metric can be made better at the expense of another metric, either locally or at the process customer

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

Metrics are selected which may be perfect for the customer but which are difficult or expensive to collect and monitor

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Example: Local Process Measures LV Motors Vsters Sweden

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Example: Local KPIs used in a Kaizen Reduce cost of material staging

KPIs

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.

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KPI - Example: Objectives Link to Measures ABB Drives New Berlin Wisconsin USA
Revenue Orders EBIT OCF Safety Quality Warranty RM Inventory FG Inventory Efficiency OTD Growth People Safety Quality Efficiency OTD

Global Objectives
(Board of Directors EC - Division)

LV Drive Objectives
(BU)

Shared Goals & Measures

(LBU Operations)

Focused Factory Goals & Measures

(Workstation Team)

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