Simply put, if you measure something, it will improve.
So, if you measure lots of things (And therefore, create as many KPIs as you can think of) then you will make lots of improvements. To the uninitiated, it seems sensible.
In fact, I used to joke that in a factory (Where I have spent much of my working career), if it moves, measure it.
The logic seems sound, but actually, it is flawed, principally because humans are involved and it is really important that this is taken into consideration, since:
In truth, you cannot possibly put in effective actions for all of the things that need to be improved. You’d need an army!
When KPIs are similar (And they will be) there will be countless arguments about how something should be measured. The consistency of the measure, rather than absolute accuracy is far more important. The credibility of it to reflect well the improvements you are making is much more important than absolute accuracy.
It is highly likely that over time you will need to change what you are measuring (Things change after all). If you are measuring many things this becomes too complex.
Different metrics mean different things to different people so a few that are well considered will have more relevance
Today, I have a much more considered view:
No more than 2 or 3 per department.
Keep them as simple to understand as possible.
Where possible derive a single KPI value that will mean something to different departments within the organisation
I’ll come back to more detailed examples of how I go about creating KPIs shortly but first of all, let me tell you a few stories that I hope will clarify the three flaws I mention earlier.
The first is pretty self-explanatory, simply put it is simply impossible to effectively tackle so many things. Humans are much more effective when they only have a few things to do. so will give a pass on that one.
The second one relates to the father of a friend of mine. He was the most senior quality person in the corporation we all worked in. Periodically, he would visit different facilities around the World, where presentations would be made to him and opportunities to compare facilities with a view to sharing best practice and improving overall corporate performance.
During one event there was an extended period where different people in the audience, both visitors and locals started to argue about how a given metric was calculated in one facility compared with theirs and that the stated improvements could not really make sense.
This “discussion” carried on for some time and finally, my friend’s father could not stand the debate any longer and told everyone to shut up.
He went on to say that the absolute accuracy of the calculation did not matter. The only things that mattered were the following:
If the trend is going in the right way keep doing whatever you are doing
If the trend is going in the wrong way then fix it quickly and look to other facilities for help (May just be clues).
If the trend is flat (Neither getting better nor worse) then it’s OK(Ish) and make sure that it does not start to go in the wrong direction, look to other parts of the organisation for inspiration.
The third one relates to a simple output KPI. In the facility where I worked, we made complex, highly configurable enclosure assemblies (Depending on the configuration one of these could take a few hours or few days to build. Into each of these, we would add a certain quantity of the same sub-assembly.
Rather than reporting the value of the shipments, and the quantity of the enclosures and the quantity of some sub-assemblies the only KPI that was reported was the quantity of the subassemblies shipped per period. Because this was reported every month everyone could see if things were getting better, worse or staying the same. It is also worth noting that there was another (Balancing) KPI that related to the delivery performance.