Quality Progress - January 2014 - 8
Selecting and developing KPIs
guishing between measures and indicators.
Q: How should process improvement
For an indicator, measurement relates to
teams select and develop key performance
performance and is not a direct measure.1
recommends that the measures be deployed
There are some guidelines for select-
down and across the organization: "Having a
indicators (KPI) to measure performance in
metrics the performance team can act on.
To reinforce this idea, author Duke Okes
ing indicators. One item to consider is lag,
high-level metric that does not have support-
which refers to how far the measure is
ing metrics existing in the right processes
A: I would begin by understanding the objec-
removed from real-time performance of a
will not add value other than letting manage-
tives of the process improvement team.
process, and how soon you may react to it.
ment know that things aren't going well."4
Usually, the process improvement objectives
Indicators with short lag (the measure is not
are derived from the broader organizational
far removed from real-time performance
Teams and Other Hard-to-Measure Work,"5
strategic objectives. Examples may include
of a process and you may be able to react
Jack Zigon provides a structured approach
improving the market share in specific prod-
quickly) are preferred for the team directly
to developing performance measurement:
uct segments or geographical locations by a
managing the improvement.
1. Review the organizational measures.
the short and long term?
certain percentage, increasing the number
Author Richard J. Schonberger suggests
In his article, "Measuring the Hard Stuff:
2. Define measurement starting points.
of differentiated innovative products or re-
you should "react often to short lag-time
ducing the operation expenses by a certain
metrics, less often to those with intermedi-
percentage. After you understand which
ate lag and seldom for metrics with long lag
4. Develop performance measures.
of the strategic objectives the process
time. Contrarily, business scorecards tend to
5. Develop performance standards.
improvement team maps to, you can deter-
display metrics intermixed as to lag times,
6. Decide how to track the performance.
mine appropriate KPIs for the process.
and managers tend to react to them, with
For example, for a process improvement
3. Weight the results (based on relative
In general, do not select measures and
goals and corrective assignments, at a fixed
indicators that are irrelevant to the improve-
team mapping to the objective of reducing
time interval, typically monthly."2 Schonberg-
ment objective. This will waste the team's
operation expenses by X%, KPIs may include
er suggests using three levels of indicators:
time in driving actions that have no impact.
items such as first pass yield, throughput,
1. Indicators with short lag times for the
Also, ensure that the measures are not
number of engineering changes post production release, equipment uptime, training
hours per employee and per process, and lost
hours from accidents and safety incidents. An
direct team management.
2. Indicators with monthly or quarterly lag
times for middle management.
3. Indicators tracked on an annual basis for
redundant, such as measuring yield and internal failure costs. If the internal failure cost
has more failure components, break down
the details into separate measures. Ensure
improvement team from a service function
the data are from a reliable source and are
mapping to an organizational objective may
The indicator should get broader as it
verified periodically for integrity.
have different KPIs than a team working in
gets to the third level. For example, percent-
the manufacturing environment. Examples
age of nonconformances may be a first-level
of service KPIs may include transaction dura-
measure for a performance improvement
tion, transactions on time and transaction
team; cost of poor quality may be a second-
error defects per million opportunities.
level measure for middle management; and
It is difficult to exactly identify appropri-
operation expenses may be a third-level
ate KPIs until you know the larger organi-
measure for senior management. Second
zational objectives your process relates to.
level or third-level measures cannot exist
Also, note in this response I am not distin-
by themselves without supporting first-level
ASKED AND ANSWERED
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QP * www.qualityprogress.com
Director, quality assurance
SunPower Corp., San Jose, CA
1. National Institute of Standards and Technology, 2013-2014
Baldrige Criteria for Performance Excellence, Measures
and Indicators, p. 47.
2. Richard J. Schonberger, "Time-Relevant Metrics in an
Era of Continuous Process Improvement: The Balanced
Scorecard Revisited," Quality Management Journal, July
2013, pp. 10-18, http://bit.ly/qmjmetrics.
4. Duke Okes, Performance Metrics: The Levers for Process
Management, ASQ Quality Press, 2013, pp. 29-40.
5. Jack Zigon, "Measuring the Hard Stuff: Teams and Other Hardto-Measure Work," 1998, http://asq.org/forums/teamwork/
proceedings/2000/Proceed/00025.html (case sensitive).
Table of Contents for the Digital Edition of Quality Progress - January 2014
Mr. Pareto Head
Breaking Down Barriers
Follow the Fundamentals
Back in Service
Quality in the First Person
One Good Idea
Quality Progress - January 2014