KPIs #3 - Successfully Managing Local Performance

In this episode of our Newsletter series on the topic of Performance Measures we will explore a logical framework for visualising and then managing our local area performance.

This initial methodology will provide all that we need to establish a good, strong suite of performance measures for the transactional elements of our business activities. These will provide oversight of how well we are doing and allow us to start targeting things we can do to make our performance even better

?

Everything is a Process….

The start point in designing an appropriate suite of performance measures with which to manage and lead our department is to compartmentalise the purpose of our department into a single, or small suite of Processes. We started our considerations of our area as a Process in the last episode of our Newsletter when we looked at the SIPOC and ICOR Diagrams.

?The Process approach simply represents the activities we do as a 2-dimensional box. This box (our Process) transforms the inputs (components, forms or data) we receive into the Products or Services we deliver, out from our area and on to our customers.

?

Effectiveness

The first aspect of our performance that we should try to gain strong understanding and control of relates to those Outputs that we deliver. These merit prioritisation because these are the outward facing aspect of our performance and are the elements where others, outside of our area or business, might make decisions based on.

This ‘output’ performance can be thought of as the Effectiveness of our Process. This asks, is our process effective at delivering what our customers want, need or expect from us? If it is not, then they might choose to go elsewhere.

?We would generally measure the effectiveness of our Process in terms of its ability to deliver products or services that satisfy the Quality requirements and that satisfy the due date Delivery requirements of the orders for those outputs. Due date delivery may be represented in terms of performance against any service level agreement we are working to or a response or turn around time target rather than an order schedule. We can simply measure these in percentage terms on a periodic basis.

These measures are fundamental since a customer will most often choose to place orders with our business based on three main order winning criteria: Quality, Delivery and Price. The latter we will deal with slightly differently since price will often be set by the market conditions. All we can do is manage our costs, with the intention of reserving an adequate gap between price and cost that we maintain a level of profit.

?

Efficiency

The Costs involved in the delivery of our process activities, and I mean all of them, relate to four categories of Resources. These are our People Costs, Material Costs, Equipment Costs and Site/Overhead Costs. Every penny, or cent, that we spend in our business is spent on one of these four areas of resource.

In order to manage our Costs in an appropriate way we should deploy a further set of performance measures that maintain oversight of our Efficiency in the allocation and use of these resources. In many business areas it will not be necessary to manage all four of these resource areas. We should focus our effort on those measures that have the potential to provide significant benefits in efficiency terms. This will generally be dictated by the nature of our process and whether it is people or equipment dependant, and the relative spend in each resource area.

Overall efficiency can be improved by reducing the amount of each resource we maintain, reducing the unit cost of each resource or by reducing the time over which we attract cost. Only time is consistent across all 4 resource categories, leading to the key Lean driver of continuous Lead-time reduction.

?

Summary – The Magnificent 7

The recommended start point adopting an appropriate suite of performance measures with which to manage and lead our department would be the Quality, Cost and Delivery (QCD) measurement system discussed above. The two Effectiveness measures, four Efficiency measures and Lead-time provide a magnificent 7 of simple but strong oversight of local area performance.

In the next episode of our Newsletter we will explore those situations where the performance of our area goes beyond that of the transactions we manage and look at scenarios where our impact on the outcomes that determine success are a little more remote or complex.

The Greybeard Academy is made up of highly experienced, hands-on experts in business performance improvement who have ‘seen it, done it and achieved it’ many times in the past. This means that our advice and support is effective and efficient, saving time and costly mistakes.

?

Karl Smith (M.D.)

The Greybeard Academy