For the last decades, KPIs, metrics and indicators has become a high focus area for running successful business. With the age of digitization, data for generating indicators has become more and more available, and the current digitalization era makes the insights readily available for the business user through BI tools such as QlickView, Tablaue, and Power BI etc.
Our clients keeps asking us to help them design KPIs, Key Performance Indicators so that they can measure or justify initiatives. Usually that have tried a few times, but usually fail at making the indicators work for them. We often se a lot of work going into selecting indicators, but with a poor outcome when it comes to actual use of the indicators. In this post we will go through the basic types of indicator families that you must know. we will look at the essence of Indicator types.
Lets have a look at the 4 families of indicators which matters to a business and how to use them; Result-, Performance-, Process- and Condition- indicators. There is not always a clear line between these types of indicators. Sometimes they are belong to multiple groups, and the type of indicator usually change depending on why you measure them, and where in an organisation you are. Hopefully this theoretical knowledge of the indicator types will help you become better at selecting and designing your indicators.
To our help we will use 2 cases to illustrate what indicators would match each type:
1: We will try to measure productivity performance in a customer call center
2: We will measure quality in a sawmill producing boards
Result indicators:
This is typically the outcome of a process or activity. This could be the number of sold units, the company profit. In general a result indicator is only controllable to a certain degree. Reslut-indicators should be considered the a function of;
the organisations performance,
the business processes,
and the condition under which the organisation and process operates.
Result indicators are often misused and mixed with performance indicators. we often hear people claiming that "Today was a good day att work because we produced more than yesterday" based on a result indicator, and managers getting stressed about a "bad day", but in reality it might just be the effects of the current operating conditions. Praising yourself or stressing out due to the fluctuations of a result indicator happens every day, every where and should be avoided...
Examples:
In a callcenter a typical result indicator would be to measure the volume (number of calls) handled during that day. However, if you want to use this for measuring the performance of a group or operator this does usually not give you a the insight that you want. the volume is typicly dependent on many things such as time of day, week, month, complexity of calls and the processes that the operator should follow.
In a Sawmill the most used result indicators would be "Daily production output in M3" measured in board m3. This however will vary based on board types, incoming log dimension, desired cut patterns. resulting in a measurement. It doesn't tell you about the actual performance.
Process indicators
This would be a indicator which tells you about a process mode. It could be the number of operators working, the setting of various machinery, temperatures, etc. Typicly process indicators is what experts or operators, and experts try to control or selects.
Examples:
In a callcenter the number of operators working during a shift is selected by the experts in this case the manager.
in a sawmill the breakdown pattern, or the kiln temperature is set by the operators and planning staff.
Condition indicators
Condition indicators would be indicators that tell you about the conditions which the organisation you are trying to meassure are not in control off. We can sometimes predict these indicators to some degree, but not control them. Condition indicators sometimes trigger events in the process. i.e a incoming calls, stuck loggs.
Examples:
In a callcenter the volume of incoming calls is a condition indicator
in the sawmill the outdoor the temperature could be a condition indicator affecting Resultindicators
Performance indicators
This is the trickiest of indicators. We are now attempting to measure the performance of a activity. i.e how well the execute a task or action under a given set of conditions. Sounds simple enough but it is very difficult to design "true" and flawless indicators, that are not in some sense a Result indicator. From the bright side. if you succeed then there is no-one who can tell you that your indicator is misleading.
To design a performance indicator, you must furst define the task, and then use the most relevant result indicator and clean the indicator from external conditions (condition indicators), and adopt the indicator for process conditions (process indicators).
This is very almost impossible to do to 100% on a macro perspective, say for a whole sawmill or a bigger organisation. but you can succeed on a micro level. a specific process step or for a small group or individual operators.
Examples
What would measure the performance of the call center operator? In general you will find that most callcenters measure the number of processed incoming calls per hour hour. One could claim that it is a great indicator for measuring productivity, but perhaps not performance. To be fair the call center organisation nor the operators are not in control of the nature of the incoming calls, nor the number of incoming calls. Parameters that affect how many calls that can be processed in a given hour. This might fluctuate with the season, what products or services currently is out on the market and a number of different things. one indicator measuring production related to an operator in a call center, would be measuring the average lead time between two calls, adjusting for breaks and other interference.
What would measure quality for an sorting line operator in a sawmill? a relatively good performance indicator would be sorting accuracy of planks. i.e that poor planks doesn't get sorted into planks of superior grade. however an even better one would be to also measure that superior planks does not get sorted with poorer graded planks.
This article turned out longer than expected, but lets continue this topic with looking at how to set targets for performance indicators and how to select the right set of indicators.
Good luck Filip