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10 principles for designing quality control scorecard and KPIs

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A Balanced Scorecard is not positioned as a quality control tool, but regularly I see among our users efforts to integrate quality-related metrics into their Balanced Scorecards, or simply create a KPI scorecards with a bulk of different quality indicators. I've compiled the list of 10 best practices that we've learned from these cases.

As always, I'd like to hear your opinion. Do you use quality indicators on your business scorecard?

Based on: http://www.bscdesigner.com/10-tips-about-using-business-scorecard-and-kpis-for-ongoing-quality-control.htm

Published in: Business

10 principles for designing quality control scorecard and KPIs

  1. 1. 10 TIPS: BUSINESS SCORECARD AND KPIS FOR ONGOING QUALITY CONTROL Based on http://www.bscdesigner.com/10-tips-about-using-business-scorecard-and-kpis-for-ongoing-quality-control.htm By Aleksey Savkin
  2. 2. 1. BUSINESS CONTEXT COMES FIRST, THEN COME INDICATORS
  3. 3. ANALYZE YOUR BUSINESS CONTEXT BSC DESIGNER FIRST • Why do you need to measure the quality?
  4. 4. ANALYZE YOUR BUSINESS CONTEXT BSC DESIGNER FIRST • Why do you need to measure the quality? • What aspects of the quality are important to your customers?
  5. 5. ANALYZE YOUR BUSINESS CONTEXT BSC DESIGNER FIRST • Why do you need to measure the quality? • What aspects of the quality are important to your customers? • How exactly the company is planning to achieve current business goals?
  6. 6. ANALYZE YOUR BUSINESS CONTEXT BSC DESIGNER FIRST • What quality-related problems need more attention?
  7. 7. ANALYZE YOUR BUSINESS CONTEXT BSC DESIGNER FIRST • What quality-related problems need more attention? • What are the business challenges of your company right now?
  8. 8. USE ANSWERS TO DEFINE QUALITY BSC DESIGNER STRATEGY • The answers to these questions will help you to align your quality indicators to the specific business problems.
  9. 9. USE ANSWERS TO DEFINE QUALITY BSC DESIGNER STRATEGY • The answers to these questions will help you to align your quality indicators to the specific business problems. • In this way you will start defining your “quality strategy.”
  10. 10. USE ANSWERS TO DEFINE QUALITY BSC DESIGNER STRATEGY • The answers to these questions will help you to align your quality indicators to the specific business problems. • In this way you will start defining your “quality strategy.” • There is no separate quality strategy, but an idea of the quality can be integrated into other generic strategies.
  11. 11. USE ANSWERS TO DEFINE QUALITY BSC DESIGNER STRATEGY • If we are talking about Product Leadership as a strategy, then the defect rate might be on the scorecard.
  12. 12. USE ANSWERS TO DEFINE QUALITY BSC DESIGNER STRATEGY • If we are talking about Product Leadership as a strategy, then the defect rate might be on the scorecard. • If executives chose to follow a Customer Intimacy strategy, then a “First time resolution rate” might work as an indicator aligned with one of the business objectives from the “Customers” perspective.
  13. 13. BSC DESIGNER IN BSC DESIGNER • Go to the “Business goals” tab.
  14. 14. BSC DESIGNER IN BSC DESIGNER • Go to the “Business goals” tab. • There you can formalize your business goals and objectives, specify cause-and-effect connections between them.
  15. 15. BSC DESIGNER IN BSC DESIGNER • Go to the “Business goals” tab. • There you can formalize your business goals and objectives, specify cause-and-effect connections between them. • Later you can align KPIs with these goals and visualize them on the map.
  16. 16. BSC DESIGNER IN BSC DESIGNER
  17. 17. 2. VISUALIZE YOUR PROCESSES
  18. 18. BSC DESIGNER VISUALIZE YOUR PROCESSES • Quality control or speaking more generally, quality assurance, is not only about having a set of indicators and reporting them.
  19. 19. BSC DESIGNER VISUALIZE YOUR PROCESSES • Quality control or speaking more generally, quality assurance, is not only about having a set of indicators and reporting them. • The idea is to have an understanding of the process, its strong and weak points, and trying to prevent possible quality issues.
  20. 20. BSC DESIGNER VISUALIZE YOUR PROCESSES • One needs to do a regular analysis of the quality challenges, their reasons and possible solutions.
  21. 21. BSC DESIGNER VISUALIZE YOUR PROCESSES • One needs to do a regular analysis of the quality challenges, their reasons and possible solutions. • The result of this analysis needs to be formalized in the form of a flow chart.
  22. 22. BSC DESIGNER IN BSC DESIGNER • Go to the “Strategy Map” tab, create a new map and use it to visualize your process.
  23. 23. BSC DESIGNER IN BSC DESIGNER • Go to the “Strategy Map” tab, create a new map and use it to visualize your process. • Later you will be able to visualize some KPIs directly on this map.
  24. 24. BSC DESIGNER IN BSC DESIGNER
  25. 25. 3. BALANCE BETWEEN LAGGING AND LEADING INDICATORS
  26. 26. BALANCE BETWEEN LAGGING AND BSC DESIGNER LEADING INDICATORS • Have a look at the flow charts created in the previous step.
  27. 27. BALANCE BETWEEN LAGGING AND BSC DESIGNER LEADING INDICATORS • Have a look at the flow charts created in the previous step. • On each step there is some input used and some result produced according to the defined standards.
  28. 28. BALANCE BETWEEN LAGGING AND BSC DESIGNER LEADING INDICATORS • You can have quality indicators associated with those control points.
  29. 29. BALANCE BETWEEN LAGGING AND BSC DESIGNER LEADING INDICATORS • You can have quality indicators associated with those control points. • There might be leading or lagging indicators.
  30. 30. BALANCE BETWEEN LAGGING AND BSC DESIGNER LEADING INDICATORS • Lagging indicators tell you a story of what has happen, this information is useful, but you are just observing what happened and you cannot change anything about that.
  31. 31. BALANCE BETWEEN LAGGING AND BSC DESIGNER LEADING INDICATORS • Lagging indicators tell you a story of what has happen, this information is useful, but you are just observing what happened and you cannot change anything about that. • Leading indicators reflect inputs that influence the process.
  32. 32. BALANCE BETWEEN LAGGING AND BSC DESIGNER LEADING INDICATORS • Lagging indicators tell you a story of what has happen, this information is useful, but you are just observing what happened and you cannot change anything about that. • Leading indicators reflect inputs that influence the process. • On your scorecard you need to have both – leading and lagging indicators.
  33. 33. BSC DESIGNER IN BSC DESIGNER • From the viewpoint of calculations, lagging and leading indicators are the same,
  34. 34. BSC DESIGNER IN BSC DESIGNER • From the viewpoint of calculations, lagging and leading indicators are the same, • The difference is in their business meaning that you provide as a user.
  35. 35. 4. WHAT ARE THE MOST IMPORTANT INDICATORS?
  36. 36. WHAT ARE THE MOST IMPORTANT BSC DESIGNER INDICATORS? • The answer is: “All of them are important!”
  37. 37. WHAT ARE THE MOST IMPORTANT BSC DESIGNER INDICATORS? • The answer is: “All of them are important!” • The question is: are all of them equally important?
  38. 38. BSC DESIGNER ARE ALL OF THEM EQUALLY IMPORTANT • Reducing defects number from 0,01% to 0,001% might slow down the whole production system, while your clients were happy with a 0,01% defect rate,
  39. 39. BSC DESIGNER ARE ALL OF THEM EQUALLY IMPORTANT • Reducing defects number from 0,01% to 0,001% might slow down the whole production system, while your clients were happy with a 0,01% defect rate, • And for them the parameter of specific product function is much more important.
  40. 40. BSC DESIGNER ARE ALL OF THEM EQUALLY IMPORTANT • Reducing defects number from 0,01% to 0,001% might slow down the whole production system, while your clients were happy with a 0,01% defect rate, • And for them the parameter of specific product function is much more important. • You need to find a balance and reflect the differences between how important each of the indicators on your scorecard are.
  41. 41. BSC DESIGNER IN BSC DESIGNER • You have a weight property for an indicator.
  42. 42. BSC DESIGNER IN BSC DESIGNER • You have a weight property for an indicator. • Check out an article that explained how to use it.
  43. 43. BSC DESIGNER IN BSC DESIGNER
  44. 44. 5. WHAT IS THE PERFORMANCE OF AN INDICATOR?
  45. 45. BSC DESIGNER AN EXPAMPLE • Let’s say you have 1% defect rate,
  46. 46. BSC DESIGNER AN EXPAMPLE • Let’s say you have 1% defect rate, • Then you optimized the process and achieved a 0,1% defect rate,
  47. 47. BSC DESIGNER AN EXPAMPLE • Let’s say you have 1% defect rate, • Then you optimized the process and achieved a 0,1% defect rate, • Finally, after an introduction of additional quality measures you got a 0,01% defect rate on average.
  48. 48. HOW WAS THE PERFORMANCE OF THE BSC DESIGNER QUALITY INDICATOR CHANGED? • Was it improved 10 times, and then again improved 10 more times?
  49. 49. HOW WAS THE PERFORMANCE OF THE BSC DESIGNER QUALITY INDICATOR CHANGED? • Was it improved 10 times, and then again improved 10 more times? • From a business viewpoint clients might be unhappy with a 1% defect rate, and really happy when you have a 0,1% defect rate, and achieving a 0,01% defect rate may not have make any visible difference for them.
  50. 50. HOW WAS THE PERFORMANCE OF THE BSC DESIGNER QUALITY INDICATOR CHANGED? • In real life some indicators have a linear performance function,
  51. 51. HOW WAS THE PERFORMANCE OF THE BSC DESIGNER QUALITY INDICATOR CHANGED? • In real life some indicators have a linear performance function, • Or the performance of an indicator might grow slowly in the beginning and then the function converts into an almost flat line, meaning that further improvements don’t improve the end performance.
  52. 52. HOW WAS THE PERFORMANCE OF THE BSC DESIGNER QUALITY INDICATOR CHANGED? • In real life some indicators have a linear performance function, • Or the performance of an indicator might grow slowly in the beginning and then the function converts into an almost flat line, meaning that further improvements don’t improve the end performance. • Remember this when you design your indicators and set targets for them.
  53. 53. BSC DESIGNER IN BSC DESIGNER • There is an “Optimization” drop list, where you can change linear optimization function to a more relevant one for the measured aspect of the quality.
  54. 54. BSC DESIGNER IN BSC DESIGNER
  55. 55. 6. THE TOTAL SCORE OF THE QUALITY SCORECARD
  56. 56. THE TOTAL SCORE OF THE QUALITY BSC DESIGNER SCORECARD • When you have 50+ indicators on your quality scorecard, each with its own performance function, benchmarks, values, and weights,
  57. 57. THE TOTAL SCORE OF THE QUALITY BSC DESIGNER SCORECARD • When you have 50+ indicators on your quality scorecard, each with its own performance function, benchmarks, values, and weights, • Then theoretically you can calculate the performance of each category and then the performance of the whole scorecard.
  58. 58. THE TOTAL SCORE OF THE QUALITY BSC DESIGNER SCORECARD • When you have 50+ indicators on your quality scorecard, each with its own performance function, benchmarks, values, and weights, • Then theoretically you can calculate the performance of each category and then the performance of the whole scorecard. • As a result you will have a single number (in this case we might call it a “quality score”).
  59. 59. GROUP INDICATORS INTO CATEGORIES • Some top managers ask for a single quality score, but in the most cases it won’t make any sense, as this number aggregates too much data. BSC DESIGNER
  60. 60. GROUP INDICATORS INTO CATEGORIES • Some top managers ask for a single quality score, but in the most cases it won’t make any sense, as this number aggregates too much data. • It looks nice in the reports, but it won’t give any meaningful information for a top manager. BSC DESIGNER
  61. 61. GROUP INDICATORS INTO CATEGORIES • Some top managers ask for a single quality score, but in the most cases it won’t make any sense, as this number aggregates too much data. • It looks nice in the reports, but it won’t give any meaningful information for a top manager. • The better option is to group indicators into categories and report the performance of each category. BSC DESIGNER
  62. 62. BSC DESIGNER IN BSC DESIGNER • The program can calculate the performance figures for a container and for the whole scorecard, but the end usage is up to you.
  63. 63. BSC DESIGNER IN BSC DESIGNER
  64. 64. 7. PLAN YOU ACTIONS
  65. 65. BSC DESIGNER PLAN YOU ACTIONS • Be sure that you have (preferably in writing) some plan aligned to each quality indicator.
  66. 66. BSC DESIGNER PLAN YOU ACTIONS • Be sure that you have (preferably in writing) some plan aligned to each quality indicator. • What will you do if this indicator gets into the red zone?
  67. 67. BSC DESIGNER PLAN YOU ACTIONS • Be sure that you have (preferably in writing) some plan aligned to each quality indicator. • What will you do if this indicator gets into the red zone? • Are there any routine procedures associated with this indicator?
  68. 68. BSC DESIGNER PLAN YOU ACTIONS • How often do you need to revise this indicator?
  69. 69. BSC DESIGNER PLAN YOU ACTIONS • How often do you need to revise this indicator? • Who is responsible for an indicator?
  70. 70. BSC DESIGNER IN BSC DESIGNER • Select an indicator or business goal,
  71. 71. BSC DESIGNER IN BSC DESIGNER • Select an indicator or business goal, • Click “Initiatives” button, attach some relevant documents,
  72. 72. BSC DESIGNER IN BSC DESIGNER • Select an indicator or business goal, • Click “Initiatives” button, attach some relevant documents, • Choose a person responsible, and specify required update interval for an indicator.
  73. 73. IN BSC DESIGNER
  74. 74. 8. BUILD A QUALITY DASHBOARD
  75. 75. BUILD A QUALITY DASHBOARD BSC DESIGNER • Dashboards help to visualize quality indicators.
  76. 76. BUILD A QUALITY DASHBOARD BSC DESIGNER • Dashboards help to visualize quality indicators. • For some of them you will need to use a gauge-style chart,
  77. 77. BUILD A QUALITY DASHBOARD • Dashboards help to visualize quality indicators. • For some of them you will need to use a gauge-style chart, • For others the best option is to display time chart with a trend line. BSC DESIGNER
  78. 78. BUILD A QUALITY DASHBOARD • A well designed dashboard will give you a top level view. BSC DESIGNER
  79. 79. BUILD A QUALITY DASHBOARD • A well designed dashboard will give you a top level view. • Use it together with indicators visualized on the map. BSC DESIGNER
  80. 80. BSC DESIGNER IN BSC DESIGNER • You can create a number of dashboards to visualize your indicators or business goals there.
  81. 81. BSC DESIGNER IN BSC DESIGNER
  82. 82. 9. TRACK THE TREND
  83. 83. BSC DESIGNER TRACK THE TREND • Even if you check your indicators regularly you might miss out on a negative trend.
  84. 84. BSC DESIGNER TRACK THE TREND • Even if you check your indicators regularly you might miss out on a negative trend. • For that purpose track indicators’ value for longer periods of time.
  85. 85. BSC DESIGNER TRACK THE TREND • For example, taking a 3 month period as a base for calculations you might see that an indicator is trending into a red zone.
  86. 86. BSC DESIGNER TRACK THE TREND • For example, taking a 3 month period as a base for calculations you might see that an indicator is trending into a red zone. • This will serve as an excellent early-warning signal for your team.
  87. 87. BSC DESIGNER IN BSC DESIGNER • “Time” chart has a trend line on it.
  88. 88. BSC DESIGNER IN BSC DESIGNER • “Time” chart has a trend line on it. • Also, you can use “Forecast Analysis” on “Analysis Tab” to forecast indicators’ value.
  89. 89. BSC DESIGNER IN BSC DESIGNER
  90. 90. 10. MAKE SURE YOU GET BAD NEWS EARLY
  91. 91. BSC DESIGNER MAKE SURE YOU GET BAD NEWS EARLY • If some quality indicator has gotten into the red zone and this indicator is critical for the ultimate quality (if it is not, why is it on your quality scorecard?),
  92. 92. BSC DESIGNER MAKE SURE YOU GET BAD NEWS EARLY • If some quality indicator has gotten into the red zone and this indicator is critical for the ultimate quality (if it is not, why is it on your quality scorecard?), • Then make sure that all of the stakeholders get a notification about the problem immediately.
  93. 93. BSC DESIGNER IN BSC DESIGNER • On “Alerts” tab one can setup alerts that will be sent to the person responsible, or to the manager if an indicator is in the red zone.
  94. 94. BSC DESIGNER IN BSC DESIGNER
  95. 95. GENERAL RECOMMENDATIONS ABOUT QUALITY METRICS
  96. 96. GENERAL RECOMMENDATIONS ABOUT BSC DESIGNER QUALITY METRICS • On the Internet you might find some ready-to-use quality metrics.
  97. 97. GENERAL RECOMMENDATIONS ABOUT BSC DESIGNER QUALITY METRICS • On the Internet you might find some ready-to-use quality metrics. • Be careful about using these indicators, they aggregate some best practices about measuring quality, but your business does not necessary need them.
  98. 98. GENERAL RECOMMENDATIONS ABOUT BSC DESIGNER QUALITY METRICS • On the Internet you might find some ready-to-use quality metrics. • Be careful about using these indicators, they aggregate some best practices about measuring quality, but your business does not necessary need them. • The best approach is to pass through the steps 1-3 as described above and create indicators that are specific for your business.
  99. 99. Find more insightful articles about the Balanced Scorecard in ”Articles” section at www.bscdesigner.com BSC DESIGNER MORE ABOUT THE BALANCED SCORECARD
  100. 100. BSC DESIGNER THANK YOU! Feel free to send us your questions using the contact form at www.bscdesigner.com

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