ABB Basic Quality Tools Series

Key Performance Indicators

Identifying and using key metrics for performance

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 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
Risks and how to avoid them
Use of existing data which may not be relevant
Cheating
Costs versus benefits of collecting data for the metrics
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
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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
 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 Efficiency

A measure of how well the

A measure of resource
process step meets or exceeds
utilisation in the process step
customer requirements
Defects Cost per transaction
Complaints Time per process step
Billing accuracy No. of staff per process step
One touch transactions Bill of materials per process step

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 KPI - How do I use it?
For a service process

KPIs are Based on Speed and Accuracy

SPEED ACCURACY

Decision / action cycle time Correctness and clarity

Response time Completeness and closure
Recovery time Fairness and consistency
Timelines met Knowledge of the service agent
No dead time Empathy of the service agent

Sustaining a balance of
Not necessarily delivered as fast as
thoroughness, efficiency and
possible but rather delivered
positive experience across all
consistently against expectations
encounters with the customer
held by or set for the customer.

On Time On Quality

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KPI - How do I use it?

CTQ Tolerance Limits

Perceived Customer
Customer Requirement
Lower
In manufacturing, customer tolerance limits Value
USL
come from technical specifications
For services, tolerances are based on data
regarding customer needs and frustration levels LSL
as discovered through the Voice of the Customer Upper
-4 +1
Set limits at the point where customer
satisfaction begins to noticeably fall off Requirement
Delivery to Schedule (days)
This is driven by what the customer feels is
acceptable, not by what you think is
Delivery from 4
economically feasible
days early to 1 day
The limits around the CTQ become your late is OK for me.
target zone for consistent process
performance

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KPI - Local Process Metric Worksheet

Metric Name Description How Measured Target & Limits

Safety

Quality

On Time
Delivery

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 KPIs - Risks and how to avoid them
Risks : Steps to avoid them :
Existing measures are used because they are available or This can result in the metrics being virtually useless
they will do. 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

Have a balancing metric for the same process that will
expense of another metric, either locally or at the process
expose cheating on the primary metric. For example, if
customer
OTD is a primary metric, finished goods inventory is the
balancing metric.

Metrics are selected which may be perfect for the Take time to consider whether the metric really is
customer but which are difficult or expensive to collect important, easy to collect and actionable get the
and monitor balance right between the time and cost of collecting the
data against the benefit of the metric itself

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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
Target of this Kaizen in a
receiving department was to
KPIs 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 Safety
OCF Quality
Warranty
RM Inventory
Global FG Inventory
Efficiency
Objectives OTD
(Board of Directors Growth
EC - Division) People
Safety
Quality
LV Drive Efficiency
OTD
Objectives
(BU)

Shared
Goals & Measures
(LBU Operations)
Focused Factory
Goals & Measures
(Workstation Team)

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