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  1. 1. 1 Key Performance Indicators Thomas Nguyen
  2. 2. 2 Key Performance Indicators SuccessFailure
  3. 3. 3 Objectives Demonstrate how KPI's relate to the overall project To define Key Performance Indicators (KPI’s) Provide some examples of KPI's Show how to measure against the selected KPI's The objectives of this session are:
  4. 4. 4 First some definitions A measurable variable that is related to a series of process steps against which performance can be managed to deliver against a particular corporate objective. One, or a series, of process steps that are critical to the achievement of a particular corporate objective. The following is a generic “road map” to help you think through the establishment of KPI's KPI - Key Performance Indicator CSF - Critical Success Factor
  5. 5. 5 KPI's and Processes But KPI's need to relate back to objectivesBut KPI's need to relate back to objectives Project Channel Relations Develop Product Fulfill Demand CSF CSF to achieve improve- ment ProcessProcess Identify critical success factors Identify critical success factors Define key performance indicators Define key performance indicators KPI Defining KPI's by Process
  6. 6. 7 KPI's and Projects Why are KPI's important as part of a project ? To establish the base line We need a base line for selected KPI's. To assess current performance so we can quantify the opportunity for improvement and correlate to the base case Measure success To have selected KPI's for today that will be monitored for the future to demonstrate success Utilize results of Benchmarking How do our KPI's compare to the outside world so we can scope our objectives for improvement
  7. 7. 8 KPI's & Projects –The CSF to achieve the Process objectives or –The CSF to achieve the overall target KPI's can be driven out of either Both will give similar “answers” but.... We need to ensure that – We have addressed all areas – They are linked to CBA – Meet the management teams/steering committees expectations.
  8. 8. 9 Establishing KPI's - The KPI process Define Objectives Set Targets Develop Action Plan Measure Performance Provide Feedback Archieve Results What needs to improve? Establish improvement target Create a plan on how we are going to measure Monitor the KPI Evaluate & feedback results to interested parties Benefit Identify critical success factors Identify critical success factors
  9. 9. 10 An example: To achieve the CSF of - reducing time to market Define Objectives Set Targets Develop action plan Measure Performance Provide Feedback Achieve Results Manufacturing lead-time reduction for new product introduction Reduce Manpack development to 2 days How do we capture current lead-time for Manpack development? Who should do it? How often is it repeated Measuring current lead-times Who to feedback to? How is it fed back? Do you want action taken if it is not achieving target?
  10. 10. 11 Performance Indicators What factors contributes to delivery of the critical success factor? What do we need to measure? What are the expectations for performance? Get the objectives agreed Assign responsibilities Define Objectives Once the objectives are defined we can agree the targets...
  11. 11. 12 Performance Indicators Set Targets Once the objectives are set we need to develop the action plan to collect information and monitor performance... What specific performance targets should we aim to achieve? What is the time frame for achievement? What action occurs when measures go outside control limits for the target? Should there be unique goals for – product groups? – markets? – other significant input variables
  12. 12. 13 Performance Indicators Develop Data Action Plan How something is measured is very important especially during a major change project and if individuals are regarded based on existing KPI's This is the plan for how we will collect the information to monitor our selected KPI Where will the data come from? – is it consistent? – is it valid/accurate? – is it trusted? – how will it be collected? Who is the “policeman”? How often will data be collected? Who reports it? What format is it collected in? Who “owns” the measurement?
  13. 13. 14 An example of how calculations can be misleading 1. Delivery Reliability from Production (production orders) No. of PO correct (time and quantity) Total no. of PO x100 = 3/10 = 30% 2. Delivery Reliability from Production (quantity) Total actual production Total planned production x100 = = 104% 3. Delivery Reliability (financial) Total produced actual £ Total planned £ x100 = = 110% 1040 1000 16000 14500 Which is correct? There is always more than one way to calculate a KPI
  14. 14. 15 Performance Indicators Visible measurement Team versus individual People react to what Management Inspect Levels within the organization Visibility Create continuous improvement Positive feedback Measuring Performance Provide Feedback
  15. 15. 16 Summary - The steps to establish KPI's as a management tool Define Objectives Set Targets Develop action plan Measure Performance Provide Feedback Achieve Results What? How much? How to measure? Measuring Reporting
  16. 16. 17 The KPI process - Key Things to Remember... Keep the total number of KPI's to 8-10 (key indicators) Sub measures may be required to build the total picture Take into account how easy it is to measure the KPI now and in the future Will the KPI effect behavior? How will we ensure consistency of data and how KPI's are calculated throughout the project? Who owns the KPI? How will the KPI work with other aspects of the project (e.g.. CBA, Benchmarking)
  17. 17. 18 Now... You are a consumer in a specific supermarket Use the process just described to develop appropriate KPI’s. What KPI's would you use to measure the store service? What should the target be? How should they conduct the measurement? Who should they feed it back to?
  18. 18. 19 What KPI's should we use in a project? COST QUALITY TIME SERVICE What are the factors that influence these elements? Break down to select the primary impact area There are a large number of KPI's which could be selected for a project
  19. 19. 20 KPI breakdown - What are the components of cost? Decomposition is a major tool... Market Responsiveness % New Products < 90 days % Updates < 30 days Market Share Idea Generation Prototype Approval Mass Production New Product Sales Lead-time to Quality Number of ideas % Ideas qualified Lead-time to Approval Number of ideas % Ideas qualified Lead-time to Ready for Mass Lead-time to Customer Delivery % sales from new products
  20. 20. 21 KPI - Level of stock Stock Working stock Safety stock Forecast accuracy Demand variability Lead timeSupply variability Service Level Order processing time Frozen period Time bucket Planning cycle Throughput time Processing time No. of stepsQueue timeBatch size Product portfolio Demand volume Change-over time Which area should we measure? If the level of stock is a major component of cost - What are the major impact areas?
  21. 21. 22 Raw material price Holding cost Purchasing dept.. expenses Write-offs/disposal costs Interest on raw material held Raw material inspectors premium freight KPI - What are the components of cost? What should be measured? Total Supply Chain Cost Cost to supply Cost to manufacture Cost to serve All costs associated with the purchase and holding of raw materials All costs incurred converting raw materials to finished goods All costs incurred due to holding inventory of finished goods Production dept.. expenses Utilities and expenses product quality testing Process control systems Warehouse material handling Rework and waste Variances Holding costs of WIP Interest on WIP Write-offs/disposal costs Logistics dept.. costs Warehousing costs Interest on F.Goods stock Material handling costs Freight/distribution Packing/replacing Another way to break down a major cost area into its specific elements
  22. 22. 23 Stock outs KPI - What are the components of service? What should we measure to truly reflect customer service? Order Processing Customer Service Customer Service = Performance Expectation Delivered on time Quality of delivery Number of Time Number of Back orders Order Promising Time Number of Credit Notes
  23. 23. 24 KPI's - Specific types of measures in each area COST QUALITY TIME SERVICE There can be KPI's which are Absolute numbers - today the value is X tomorrow we want the value to be Y. Ratio’s - today the ratio between A & B is X% tomorrow we want Y%. Process - today the process requires resources and has X number of steps, in the future it will have less steps and use fewer resources. Time Money Volume All of these can be expressed in
  24. 24. 25 KPI's - An example of ratios as KPI's Credit Notes/Total invoices Some KPI's can be shown as ratios = Accuracy of customer ordering Number of Rework Orders/Total Production Orders = Quality of Right First Time Number of Product Change Requests/Total Number of New Products = Accuracy of Design to Production Conversion These are only some examples of where ratios can be used
  25. 25. 26 Main Activities Innocence Awareness Understanding Competence Excellence Supplier Relations • Supplier relationships adversarial and competitive with no contract basis • No coherent strategy except demand for price reduction • Larde number of disposable suppliers • Adversarial but competitive contract based • Strategy based on price, quality & delivery • Large supplier base with long “tail” • Supplier performance review undertaken but does not involve feedback to suppliers • All suppliers accredited • Relationships established with strategic suppliers • Strategy recogniwes long term relationships with key suppliers • Focus on reduced number of suppliers by volume consolidation • Formal supplier performance reviews based on subjective/qualitive data • Relationships based on strategic partnerships • Strategy drives partnership sourcing • Some integration of suppliers into the internal supply chain • Some involvement of suppliers in the innovation process • Formal supplier performance reviezs based on objective/quantitative data every 6 months • Qll suppliers assured • Relationships based on supply management process • Shared goals and objectives within partnerships. • Partnershipsbased on buying supplier’s capacity • Suppliers integrated into whole supply chain • Early and key involvement of suppliers in the innovation process • Formal suppliers performance help quarterly • Suppliers manage supply to defined rules • EDI used for call offs Skills • Buying/negotiating • Professional purchasing skills Information Systems • Paper based • Stand alone functional package (spreadsheet) • Integrated system along internal supply chain • Integrated system along complete supply chain KPI's - An example of a process related KPI
  26. 26. 27 KPI's Select the key measures based on the project objectives & CSFs Develop a plan to collect the measures Work with other groups to action the plan Monitor, control & communicate results Within a project we need to
  27. 27. 28 Key Performance Indicators Summary Measure what is important Principles Structure KPI's are needed before, during and after a project – Keep it simple – Visible – Consistent – Understood – Define objectives – Set targets – Develop plan (who, when, what) – Measure
  28. 28. 29 Key Performance Indicators and ECSI SuccessFailure