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Regardless of the operating environment - manufacturing, transportation, government or municipality, regulated industry - every business is greatly concerned with performance. Too often this concern is demonstrated by periodic attempts to gauge business success through onetime audits and sporadic surveys of selected business practices and characteristics. The result of such effort is a set of figures which may or may not have anything to do with actual company performance. In fact, companies often establish goals and measurements within their organizations that actually work against each other.
Enterprises that employ recognized best practices determine their business strength, progress, and success in a much more organized manner: by establishing a concrete set of key performance indicators for their enterprise and by using critical to-do lists to help streamline business processes.
Key Performance Indicators
According to Wikipedia, Key Performance Indicators (KPI) are financial and non-financial metrics used to quantify objectives to reflect strategic performance of an organization. These indicators are used to show the current state of a company with respect to its core business goals - and to reveal areas where improvement, change, and/or enhancement is needed to promote further progress toward those goals.
At a more detailed level, KPIs represent a way to measure the value of activities and processes that are often difficult to measure. Examples of such factors include customer satisfaction, service efficiency, effects of internal leadership, and value of contact.
A large municipal transportation firm has set up a KPI that determines what equipment warranties will expire within a certain period of time. Specific equipment are listed on the KPI results each week, allowing the company to conduct inspections on the buses, rail cars, and support fixtures while they are still under warranty. Any required repairs for such equipment can then be performed prior to warranty expiration, thus providing for substantial repair savings and increased equipment reliability.
Clearly a KPI can be practically any measurable business driver. That is both the strength and weakness of KPI construction and usage. Strength and weakness?Yes!Because there is no fi nite, standard list of KPIs, the assembly of a business? KPI library is highly individual. Each business enterprise has different goals, diff Therefore, establishing and implementing a KPI library is much more than a chairman, president, or manager writing a list of measurable goals. Eff always require consensus and buy-in from all the relevant players. This interaction helps to prevent the establishment of KPIs that work against one another - because stakeholders can communicate their priorities and hash out potentially harmful confl in stone.
A well-known electric motor manufacturer tasked its departments with establishing KPIs for their operations. No interaction between departments was sponsored. The Maintenance Department set a KPI for quantifying equipment downtime - with a goal of reducing the figure by 25% within a year. The Supply Department set a KPI for reducing overall parts inventory by 20%. Strangely, as the Supply Department reduced or eliminated parts from stockrooms, thus moving toward accomplishing its inventory reduction goal, the Maintenance Department experienced a marked increase in equipment downtime - due to the unavailability of critical repair parts.
Be aware that KPIs at the highest level represent company-wide measurable objectives; but not all KPIs reside in this enterprise-centric stratosphere. Best Practices methodology shows that top-tier KPIs are fed by numerous related and subordinate KPIs. These lesser KPIs relate to specific nuts-and-bolts business factors that contribute to more localized performance success and that are of critical concern to mid-tier management. This is the primary reason why KPI generation must be coordinated with all stakeholders. Otherwise, the subordinate KPIs can conflict thus yielding false indications for the associated top-tier KPI.
A nationally prominent service company has numerous contracts to service, maintain, and repair airport terminal spaces, gate systems, baggage handling equipment and the like. These contracts specify minimum response times for initiating repairs. This company has established a KPI that measures average response times for each service call received. This top-tier KPI is fed by records of specific response times for a variety of work types, service trades, and equipment designations. The company can use the primary KPI to gauge overall timely service execution success, and company middle managers can drill down into the subordinate KPIs to determine potential problem areas for improvement, to determine accuracy of late fees, and to gage individual business unit performance.
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