1. Do the measures relate to the purpose of the team, department or organisation?
In theory, this is an obvious point but very often the core reason for a team’s existence is not always clearly understood. Key questions for an operational team might be ‘what is the core service that you provide?’ or ‘What would tell you how effectively the core service is being delivered?’
It is common for individuals and teams to need time to think about the answers to those two questions. In fact within a team, there is likely to be discussion and debate on this topic. This is the starting point for reviewing KPIs and creating them from scratch. Most performance measures I witness in organisations do not have a close relationship with purpose.
2. Do the measures clearly indicate whether performance is improving or getting worse?
From reviewing the metrics, can the team clearly understand whether performance is going in the right direction, staying the same or getting worse? Tracking a measure over a time period and displaying this visually will help individuals and teams to see if their efforts are impactful. Continuous improvement will only take place when teams and individuals are able to understand the impact of change.
Regular huddles as a team with visual KPIs will naturally support problem-solving and innovation to improve performance.
Using visuals such as line graphs or bar charts can be very useful for individuals to identify trends. Root Cause Problem solving predominantly comes from identifying issues relating to performance.
3. Is there an understanding of the lead indicators of performance that can be affected?
Most KPIs businesses have in place are lagging measures which means they are measured following the event. For example, ‘the total sales figures for yesterday’ or ‘the percentage of work that was completed right-first-time over the last week’. For each lagging KPI we have in place, we ideally would know the lead indicators that help us predict and more importantly affect future performance. An everyday life example we can use is when an individual is seeking to lose weight. Putting yourself on the scales regularly would show whether or not you have lost weight (the lagging KPI).
However, if you were to think about what factors affect your weight, it might make sense to track these also (for example, how many calories were burned each day and how many calories were consumed). By positively affecting these lead indicators, over time the lag KPI of weight will be positively affected.
So if our lagging KPI is the total sales figure for a period, some lead indicators might include the number of new appointments scheduled or the value of sales quotes created. These indicators may help to drive focus on activities that can be affected, rather than waiting until after an event occurred and asking what went wrong.
4. Do the measures give a balanced view of performance?
It is very common for departments and teams to become too focussed on one aspect of performance. For example, if all eyes are on cost-related measures, the quality of service is likely to become neglected. It is also possible that service delivery becomes less responsive if we focus too highly on quality alone. QCDR is an effective simple method to assess the current KPIs to ensure the focus is proportionate across Quality, Cost, Delivery and Risk elements of performance. When a team or individual are designing new measures, using the QCDR categories can be a useful aid to ensure there are indicators of performance that relate to all of these with a pragmatic balance.
5. Is there alignment of the measures throughout the organisation?
Alignment of focus throughout the hierarchy or across different departments of an organisation is vitally important to ensure the direction of the business is understood.
It is very common to see a KPI at one level of an organisation that is not reviewed or understood at the next level below in the hierarchy. This typically means that focus at those two different levels is not aligned.
One method that can be used to help align measures throughout an organisation is a KPI tree. This concept helps to cascade metrics throughout a business and gives individuals at each level, the appropriate view of performance. For example, a KPI may be reviewed at one level of the organisation on a weekly basis. A level below this in the hierarchy could track and focus on lead indicators of that KPI on a daily basis. In this example, positive performance at the lower level feeds into the KPI. Actions can be created on a daily basis to ensure performance does not dip or improves.
Creating effective performance measures which drive optimum behaviours is never easy and we need to constantly evolve our metrics as the needs of customers and the business change. These 5 questions can be viewed as a checklist for reviewing the effectiveness of KPIs and may help when coaching individuals who are deciding which measures to put in place.
Effective measures are a necessity for any Operations Excellence improvement initiative. Not only will they help track the success of change, they also will help support the focus and drive on the most important elements in the future. Remember if the measures do not change, it is unlikely the behaviours will.