KPIs: Measuring the Right Things

Feb 6, 2020Business, Business Consulting

How do you measure your business’s performance?

Business owners have access to volumes of data to help them make the best decisions. To ensure your business is running at peak performance, it is a must to measure and monitor key performance indicators (KPIs).

The goal – to save you time and money.

Step 1: Decide what KPIs are most critical for your business. 

We recommend each department of your business brainstorm what measurements are important to them and how best to monitor them.

Step 2: Determine metric(s) to measure the information.

Base metrics may revolve around quality, cost, delivery, safety, morale or other items.

Quality Based Metrics:

  • Number of defects
  • First pass yield
  • Ratio of first run acceptance
  • Number of units returned to units shipped
  • Total cost of quality
  • Number of suggestions per year per employee
  • Rate of implementation of suggestions
  • Lead-time
  • Time spent on improvement
  • Number of services reperformed
  • Other items specific to your industry

Cost Based Metrics:

  • Scrap reduction in pieces or dollars
  • Productivity
  • Actual hours incurred to standard hours/budgeted hours
  • Actual overtime hours to allowed overtime
  • Overtime per unit manufactured
  • Material handling cost
  • Stock keeping cost
  • Number of suppliers with price breaks
  • Activity cost of expediting
  • Other items specific to your industry 

Delivery Metrics:

  • On-time delivery rate
  • Machine down time
  • Ratio of setup time to run time
  • Total travel distance
  • Repeat visits to operations
  • Work cell performance
  • Items completed on schedule
  • Work in process reduction
  • Number of work orders per direct employee
  • Number of skills (worker flexibility)
  • Number of schedules changed
  • Past dues not on last week’s report,
  • This week’s new expedites
  • De-expedites of last week’s expedites
  • Other items specific to your industry

Safety Metrics

  • Recordable injury (OSHA)
  • Lost time injury (OSHA)
  • Hours without a lost time injury
  • Days without a lost time injury
  • Near misses
  • Number of safety/ergonomic improvements

Morale Metrics

  • Headcount vs. vacancies
  • Employee turnover rates
  • Absenteeism
  • Applications for employment
  • Employee satisfaction

The list of possible metrics is endless. What elements make a good metric?

  1. Relevant
  2. Understood by all
  3. Based on business objectives
  4. Easy to measure
  5. Accurate

Step 3: Identify appropriate benchmarks for KPIs.

Benchmarks may include industry information, budgets, strategic plans, etc.

Step 4: Set performance goals.

Communication of the metric goals is important. Since the overall goal is to improve performance, save time and money, it is important to align individual performance with chosen KPIs. We recommend setting “stretch goals” in order to maximize improvement.

Step 5: Review.

Each KPI should be regularly reviewed to ensure it is providing valuable information and driving the desired behavior. 

What are the key components of a KPI plan? 

  1. Develop a KPI title and a brief description.
  2. Determine goals and objectives the metric is linked to.
  3. Document an understanding of what decisions may be made based on the analysis of the metric.
  4. Assign who will make those decisions.
  5. Allocate who will collect the data.
  6. Determine how the data will be collected and how often.
  7. Assign who reports the data and how it is reported.
  8. Determine who analyzes the data and how it should be analyzed.
  9. Document lowest and highest acceptable numerical values, target goal(s).

KPI plans are meant to change behavior. It’s important those involved understand the needs and benefits of change. Metrics alone do not change behavior, management MUST analyze, monitor and communicate results to drive improvement.

Need help getting started?

Pick a few KPIs and execute them well before adding additional. If a metric is not working, modify or try a different measure. Smith Schafer is an ongoing source to help you grow your business with strategies to help you increase profits, identify opportunities and much more!

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