In this episode, we discuss how to establish KPIs, where to look in the business to determine which indicators are best, and how to establish the proper review processes for KPIs.
We are going to start with what kind of information we need to have in order for it to be considered key, which employees should be in charge of collecting and reporting this information, and what actions leadership should take to make sure the results of key performance indicators are accurately reported and understood within the organization.
Simple measurements for KPIs Vs. Complex Measurements
The simplest metrics for performance indicators are counting measurements. Simple measurements often are enough to give us a full picture, but for facilities engaging in complex operations, more sophisticated measurements are appropriate.
Complex measurements are going to be appropriate for organizations that have changing circumstances within operational steps, or where inline measuring equipment is installed that can capture this information.
Most companies that attempt complex measurements for key performance indicators have sophisticated hardware or software to provide this information, and have to make sure that technology works continuously as part of the data collection.
The calculation of the KPI is only as good as the data collected. So, if a company decides to track a complex KPI, then they need to make sure they can consistently collect that information during production.
One thing to think about is that if we set KPIs in an organization and employees come to see them as unreliable or inconsistently measured, they will come to see performance indicators as not important, which is the opposite of what they are in place for.
Determining the Most Important KPIs
Determining the most important metrics for our business requires that we identify crucial sources of success in the business, which would be the source of positive KPIs, or the greatest risks to revenue, which would be the negative metrics we are hoping to prevent.
If you are new to selecting key performance indicators, or are considering redoing the KPIs your operation has established, we recommend starting with a collaboration between the sales, accounting and leadership of the company to identify what those departments can measure as the source of financial health of the business.
One thing to note about selecting financial measurements as key performance indicators is that while these are almost always attractive measurements for leaders of a business, they are distant and abstract for workers in operations. It is best to balance a combination of KPIs focusing on the quality or safety of the product along with financial measurements.