KPI Master Class
Love them or hate them KPIs (Key Performance Indicators) are the way many organisations monitor and measure their processes. These should be linked to business objectives and as January often starts with the annual cycle of objective setting, just how good is your organisation at setting KPIs?..
Here is what ISO 9004 tells us…
‘ensure that you provide information that is measurable, accurate and reliable, and usable to implement corrective actions when performance is not in conformity with objectives or to improve process efficiency and effectiveness’.
What should we measure?
All processes within your organisation should be measured and monitored and key performance indicators should take into account:
- the needs and expectations of customers and other interested parties
- the importance of individual products to the organization, both at the present time and in the future
- the effectiveness and efficiency of processes
- the effective and efficient use of resources
- profitability and financial performance
- statutory and regulatory requirements
What makes a good KPI?
The KPI should be relevant to the control of critical parts of your organisation. The KPIs should also be quantifiable and should enable you to set measurable objectives, identify and predict trends and if required take corrective, preventive and improvement actions.
Are you best in class? Take the test…
How you use the KPI is often another matter. ISO 9004 has provided a self assessment test to allow you to assess where your organisation is regarding the use of KPIs. On a scale of 1 to 5 (1 being poor – 5 being best in class) take a look at the following self assessment questions to see where you think you are on the ISO 9004 business maturity scale.
Business Maturity Level 1: Very limited set of data from measurements and assessment is available to support management decisions or tracking of the progress of actions taken. Basic indicators (such as financial criteria, on-time deliveries, and the number of customer complaints, legal warnings and fines) are used. Data are not always reliable.
Business Maturity Level 2: There is a formal set of definitions for key indicators related to the organization’s strategy and main processes. Indicators are mostly based on the use of internal data. Management decisions are supported by the outputs from reviews of the management system and additional key performance indicators.
Business Maturity Level 3: Process-level objectives are related to key performance indicators. Data is available to show how the organization’s performance compares with that of other organizations. The main conditions for success are identified and tracked by suitable, practical indicators. Management decisions are supported by reliable data from the measurement systems.
Business Maturity Level 4: Data is available to show progress on key performance indicators over time. Deployment of the strategy and objectives are monitored. Performance indicators are established, widely deployed and used for strategic decisions regarding trends and long term planning. Systematic analysis of data allows future performance to be predicted.
Business Maturity Level 5: Systematic analysis of comprehensive data allows future performance to be predicted with confidence. Indicators contribute to good strategic decisions. KPIs are selected and acted upon in a way that provides reliable information for predicting trends and for taking strategic decisions. Risk analysis is performed as a tool for prioritizing improvement.
The most important thing here is to identify where you are in terms of business maturity and how you can improve your use of KPIs as a business control and improvement tool for the coming year.
And finally if the KPIs you are measuring do not drive any kind of process control, action or improvement, make it your new years resolution to save some time and effort and stop measuring them!