Ask someone what they think about KPI’s and you’ll get answers ranging from they’re unnecessary management overhead, while others believe without them they can’t run their business. Extremes are dangerous. The truth is that they’re as burdensome as you make them.
What if you’re doing everything according to the book? You have Key Process Indicators (KPI’s), a dashboard, and a data response plan. However your business is not running smoothly and your customer satisfaction is dropping. So what’s wrong?
KPI’s are just as the name suggests “Key”. They have a unique relationship to the fundamental parts of the process. They enable you to control the process in a way that satisfies the customer. If we define control as a statistically important relationship between a response variable and an adjustment that we make in the process, you have a good start for identifying KPI’s. Before you accept that and develop a long list of variables stop and think. The important word in the definition is Key. Now you have to discriminate.
Key indicators are those that have a significant response and serve two purposes:
First, they enable you to control an important parameter within the process. These “control variables” have a direct impact on the business or customer. Management of these variables will allow for predictive control of your products and services. You can and should do an analysis to differentiate between control and response variables and select a critical few that support your goals. As an example you can very accurately control the speed that you drive but without understanding your route you may become lost. The route is the key and the speed is secondary.
Second, the indicators themselves must be in control. A key indicator must have a high degree of accuracy, is repeatable, and reproducible. It has to be reliable. Your speedometer is of no use if you were to test it against a standard and it gives different answers every time. If your standard suggests you should read 20 mph and your speedometer varies between 5 and 50 mph, you’re out of control, you might get a ticket. If it varies between 18 and 22 mph you have a different comfort level. Use only those indicators that are useful.
A simple set of questions may help you pick the right indicators:
1. Does the indicator measure something important to the customer or business?
2. Is the indicator reliable?
3. Do I know what to do in response to the data collected?
4. Are the results displayed simply and understandably so progress can be monitored?
5. Are people aware of the findings and have ownership of the process and its control?
6. Does your control plan have a manageable list of KPI’s not hundreds?
Given some simple guidelines you can do an exceptional job responding to both your customer and the business.
For help please contact Lean2 Business Consulting.