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Measuring for success: Goals, performances, and outcomes

Every business should measure performances against goals, substantiate its existence, and justify paychecks on solid arguments and data that customers can understand. This presentation focuses on the value KPI may show of a business. Suggestions are given about developing KPIs that can be understood by customers.

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Measuring for success: Goals, performances, and outcomes

  1. 1. Goals, performances, and outcomes Measuring for success
  2. 2. Anything can be measured  No rocket science
  3. 3. The Fermi problem  How many piano tuners in Chicago?
  4. 4. Why measure?  To know something unknown  To learn what and how to measure  To reduce uncertainty and the risk of wasting money
  5. 5. Risk  In God we trust. All others must bring data.
  6. 6. Processes  Performance  The capacity to achieve goals expressed through preset known standards (how the system works)  Outcomes  The end result of the tasks executed
  7. 7. Performances vs. outcomes  Businesses focus on performances  Performances can be measured  Customers are interested in outcomes  Outcome goals cannot be controlled
  8. 8. Performances vs. outcomes Performance goal Outcome goal Run the 100m race in 10” Win first place in the contest Tackle your opponent out Win the rebound Sprint after ball comes into play Get to the ball first and control it
  9. 9. Continual improvement  Measuring process performances against organizational goals help identify opportunities for streamlining work, improving efficiency and reducing waste
  10. 10. Information asymmetry  Imbalance of power in transactions  Buyers and sellers have different information  Buyers cannot assess the value of the product/service through examination before sale is made
  11. 11. Signaling  Vendor conveys some information about itself to buyer  Positively correlated with capabilities  Measures are signals
  12. 12. First steps  Set the decision(s) to support  Detail the thing to measure  Assess impact of measures on decision(s)  Define the reasons for uncertainty  Determine the value added by measurement
  13. 13. Measurements  Not necessarily exact quantities
  14. 14. Scales Nominal Ordinal Interval Ratio Membership    Frequency     Mode     Median    Mean   Deviation     Operator =,  >, < +, - x, 
  15. 15. What to measure Area Primary measure Related measure Sales Price Cost of service Operations Cost of service Customer satisfaction Procurement Vendor rating Quality Human resources Resource development Vendor rating Quality Quality index Vendor rating Production Productivity Vendor capacity
  16. 16. Expected measurements Feature Area Variable Price Production Cost of service Timing Production Shipping capacity Project management Quality of service Production Investments Analytics Customer service Production Customer service Quality of service Maintenance costs Flexibility Vendors Production Peaks of demand Planning ability Creditworthiness Finance Production Sales Cash flow Reputation Staff Resource development Human capital
  17. 17. Baselines, thresholds and benchmarks  Baseline  The starting point for comparison  Threshold  The value for something to come into effect  Acceptance Quality Levels  Maximal percentage of non-conforming items to be considered as a satisfying process mean  Benchmark  A performance standard  Industry average
  18. 18. Performance measurement  Comparison of results against goals  According to pre-specified benchmarks  Compliance of standardized samples
  19. 19. A statistical process control (SPC) chart  Nonconformance  Minimum and maximum limits  Threshold
  20. 20. Indicators  Result indicator  The speed a car is traveling  Performance indicator  Speed/consumption ratio  Efficient/economic driving
  21. 21. Performance measures  Some measures may also seem useless per se
  22. 22. Basic measures Processes Finance Personnel • Efficiency • Overhead • Projects closures • Complaints • Unresolved complaints • Administration • Quality • Automation • Sales • Successful proposals • New customers • Customer profitability • Customer loyalty • Revenues • Cash flow • Profits • ROI • Staff • Number • Turnover • Development • Empowerment
  23. 23. Key Performance Indicators  Relating to strategic goals  Expressing how well the organization is performing  Helping make decisions accordingly
  24. 24. Process-related KPIs  Capacity Utilization Ratio (CUR)  DIFOT (Delivery In-Full, On-Time) rate  FPY (First PassYield)  Order Fulfillment CycleTime (OFCT)  Rework level  Complaints  Complaints rate  Complaints resolution rate  Complaints resolution cycle time
  25. 25. Capacity Utilization Ratio (CUR)  The output produced in a given time-frame Actual output Productive capacity x 100  The extent to which an organization uses its installed productive capacity  The difference to 100% indicates room to improvement without incurring costs of increasing capacity  A low value highlights serious process inefficiencies  E.g.The number of hours of work assigned to a resource or group of resources as a percentage of their availability for a given period.
  26. 26. Delivery In-Full, On-Time (DIFOT) rate  Ability of a business to fulfil orders and meet customer expectations  A measure of the effectiveness and efficiency of processes and supply chain Number of deliveries IFOT Total number of deliveries x 100
  27. 27. First PassYield (FPY)  The percentage of items that are moving through a process without any problems over a specified period of time Number of units coming out Number of units going in x 100  A measure of process efficiency
  28. 28. Order Fulfillment CycleTime (OFCT)  The average time taken to source, make and deliver a product or service from order to customer receipt  The total “time waiting” experienced  A measure of an organization’s delivery capacity in an end to end process
  29. 29. Rework level  A percentage of items inspected requiring rework  A measure of an organization’s operational efficiency at delivering the specification that the customer wants without further correction, alteration or revision Number of items from a production run Service period requiring rework x 100
  30. 30. Complaints  Complaints rate  The number of complaints received from customers divided by the total number of items delivered over the same period of time  Complaints resolution rate  The number of complaints solved divided by the total number of complaints received from customers  Complaints resolution cycle time  The total number of hours required to successfully resolve a customer complaint, from the time the complaint is submitted until when the complaint is resolved and closed divided by the total number of hours worked
  31. 31. Quantitative v. qualitative indicators  Quantitative indicators used for outcomes  Computed with mechanical methods  Expected to give the same results  Seen as objective  Easier to understand and manipulate  Approximations are always inevitable  Qualitative indicators are used for judgements  Depicting experience-based perceptions  Seen as subjective and unreliable  Identify constraints
  32. 32. Error-based metrics  Application of Six Sigma to soccer  A goalkeeper in a level-6 team playing 50 games in a season and facing 50 shots per game would concede one goal every 147 years
  33. 33. Create your own KPIs 1. Identify the strategic goal(s) for each indicator 2. State the question(s) that the indicator is meant to answer 3. Specify how each indicator will be used and shall not be used 4. Identify and describe which data should be collected and used, and how 5. Specify the assessment criteria (qualitative or quantitative) and the associated scale 6. Identify baseline, benchmark, and thresholds for each indicator
  34. 34. KPI attributes Current value Plan value Trend value Deviation value
  35. 35. KPI dashboards  Track only 5-10 KPIs for gauge charts  Where is the dashboard “feed” from?  Use clean raw data  Many free Excel templates
  36. 36. Common sense goes a long way
  37. 37. Thank you s-quid.it/en/30min slideshare.net/muzii/tcworld s-quid.it/en/kpi/