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Avoiding Pitfalls in the KPI Jungle

Avoiding Pitfalls in the KPI Jungle. By Neil Mellor BEng MEng AMIMechE FCQI CQP. Neil Mellor Quality Manager for 15 years Started with Honda (Swindon) Other roles in Remanufacturing, Metalworking and Construction Currently Company Quality Manager for Kier Infrastructure UK. Introduction.

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Avoiding Pitfalls in the KPI Jungle

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  1. Avoiding Pitfalls in the KPI Jungle By Neil Mellor BEng MEngAMIMechE FCQI CQP

  2. Neil Mellor • Quality Manager for 15 years • Started with Honda (Swindon) • Other roles in Remanufacturing, Metalworking and Construction • Currently Company Quality Manager for Kier Infrastructure UK Introduction

  3. Pitfalls around … Why KPIs? What are KPI’s Structure of KPI’s Choosing KPI’s Discussion “hidden” KPIs Agenda

  4. Vital part of the TQM method • The Check of the PDCA cycle. Why KPIs ?

  5. KPIs are a measurement. • Businesses have been seduced into doing the “Check” without the plan and review/act. • What is the point of measuring something if you are not going to take action? Pitfall 1

  6. KPI stands for Key Performance Indicator • Key in that it is important • Performance in that it measures how we are doing • Indicator in that it tells us how we are doing. What are KPI’s

  7. Measuring things that are not important to the business but are easy to measure. • Example – Number of employees • Example – Total number of Non-Conformities Pitfall 2 – Not Key

  8. Measuring things that do not tell you about your performance • Example – Number of voluntary hours donated by employees • Example – Total number of documents approved Pitfall 3 - Irrelevant Value Target Actual (Rolling 12 Mths) Time

  9. Measuring in such a way that they cannot be compared with other data. • Picking subjects that are dependant on at least one random variable • Example – Number of Contracts Lost • Example – School league tables – as an indicator of teaching quality. Pitfall 4 – Not Indicative

  10. KPIs need definition • What is being measured • How is it to be measured • KPIs often need Normalisation • KPIs chosen need to be continuously measurable • KPIs need limits or trigger values Structure of KPIs

  11. To be useful the definition needs to be understood and consistent. • This pitfall is much utilised by government, who often “move the goalposts” • Example – Crime rate, Unemployment rate e.t.c • If the measurement method of the KPIs moveable then we can not derive any useful data. • Loss of comparative data means loss of trust in KPI making it pointless. Pitfall 5 – Fluid Definition

  12. There is often a need to compare like with like even across business functions with differing parameters. • E.g. Projects or business units. • The way to do this is through normalising the KPI by dividing both with a common variable. • The variable needs to be chosen with care. • But - Does the variable need to be compatible? • E.g – Non conformity across differing project/business sizes – Is it better to use hours worked or turnover? Pitfall 6 – Mis Normalisation

  13. Sometimes KPIs are set without first defining normal, abnormal and danger levels. • Alternatively levels are set but are “adjusted” when exceeded. • Point here is if there is no limits then cannot be used as an “indicator” • Exception – When starting a new KPI there may be no knowledge of what is normal… Pitfall 7 – No Limits

  14. KPIs can be powerful control tools and may cause unintended consequences. • Unintended consequences can be more likely when there is benefit attached. • Be clear which KPIs are leading and which are lagging. • KPIs need to be influencable by the entity being measured – beware of this being to influencable. Choosing KPIs

  15. A KPI may cause unintended consequences. • E.g NHS and natural birth targets vs required intervention. • Consequences can mask trends or even be detrimental to achieving the companies aim. • Care must be taken to consider how others might view the KPI. Pitfall 8 – Consequences

  16. Beneficial gain either positive or negative can have even more detrimental effects. • E.g. workers hiding a injured colleague in order to get safety bonus. • Recharging of NCRs ? • This can lead to “skewing” the results to achieve the reward or avoid the punishment. • Cannot trust measurement. • Surprising that many companies apply this approach to performance management. Pitfall 9 – Beneficial Gain

  17. Define as one that the company or satisfactor has no influence over. • e.g. Defects raised by the client. • hours lost due to weather. • Generally by rephrasing slightly the KPI can be satisfiable. • e.g. Defective work handed over to the client. • However this is not excluding KPIs that could be influenced by the satisfactor by providing resources or a conducive culture. Pitfall 10 – “Impossible KPIs”

  18. We have seen that some KPIs can be very powerful So • Should some KPIs be measured in secret? Communication of KPIs

  19. To Summarise then … • Many possible pitfalls in designing and using KPIS • Pitfalls in the argument for KPIs • Pitfalls in the understanding of the purpose of KPIs • Pitfalls in structuring of KPIs • Pitfalls in choice of KPIs • However it is important to get this right as KPIs can • Be very powerful. • Give early warning of serious business issues. Summary

  20. Any Questions ? Happy Christmas from the North London Branch Thank you for listening Goodbye

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