KPIs trump KPDs: It's time to attain visibility into your most valuable metrics
True operational decision-making must be rooted in timely metrics that go beyond a few static data points. Compared to key performance indicators (KPI), which present calculated result metrics that you can’t impact, key performance drivers (KPD) provide actionable information.
Having the right information when you need it is critical to operational performance, but often there is a gap. It could be that the information is old, hidden, locked in a spreadsheet, or simply incomplete.
True operational decision-making must be rooted in timely, relevant key performance metrics that go beyond a few static data points. A comprehensive, real-time picture of your operational health comes from multiple data sources within value streams that span multiple functional areas. This provides visibility into performance information that goes beyond a key performance indicator (KPI), which is a result or an outcome.
More valuable is a key performance driver (KPD). Compared to KPIs, which present calculated result metrics that you can’t impact, KPDs provide actionable information.
For example, Overall Equipment Effectiveness (OEE) is calculated as a function of availability, throughput, and quality. Your OEE percentage is interesting and may tell you something about how your equipment is performing, but it is an outcome and you can’t take action to improve OEE based on that measure alone.
Only through the lens of a KPD can the OEE metric be broken down into the root cause of the problem. Was the availability score affected by unplanned maintenance, breakage, operator error? Was throughput impeded by a delay in raw materials? Did quality suffer because of a faulty setting? With the ability to drill down to this level of detail, operations can respond and improve the factors involved.
Another metric is Total Productive Maintenance (TPM), or equipment reliability. The goal is to keep equipment running as close to 100-percent reliability as possible, but myriad factors—including failure rate, repair times, and operator training—are components in the equation. Each element can be affected by having access to actionable information and responding quickly. Parts that have a high incidence of failure can be ordered ahead of need and perhaps replaced on a preventive-maintenance schedule. Operators can receive additional training on how to use equipment and the periodic maintenance requirements.
KPDs, presented together with KPIs, allow you to not only monitor outcomes, but also to analyze and take action to improve performance drivers and hence results. When forming a KPD plan, consider four criteria:
1. It’s not just about the KPI, which in and of itself is merely a rearview look. Determine the underlying KPDs that can highlight the specific cause of the issue and which, when improved, will contribute to improving the KPI result.
2. To find the KPDs most correlated with your KPIs, look “upstream”—that is, to prior steps in the value stream.
3. Don’t try to measure and manage your KPDs in isolation. KPDs must be determined and analyzed in context of value stream or business process.
4. KPDs must be available in “right-time” to support proactive, continuous improvement instead of limited ad hoc improvement.
As your KPDs develop, keep in mind that your organization should have timely notification of alerts. The ability to drill into and analyze performance drivers using an intuitive, interactive dashboard ensures critical data is presented in the right context for quick decision-making.
KPDs should be consistent across the business and use a single definition of the source data, but at the same time be cross-functional, spanning value streams across sales, finance, manufacturing, supply chain, distribution partners, customer service, product development, IT, and HR as appropriate.
About the author: Wayne Morris is CEO of myDIALS , a SaaS-enabled solutions supplier that is pioneering a new standard in operational performance management.
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Read more: 2015 Salary Survey