What Is A Key Performance Indicator (KPI)?

Identifying the Right KPI for Your Business is Critical to Managing the Performance of the Business (Part 1)

“What gets measured, gets done” and Key Performance Indicators (KPI) are critical to measuring the performance of the organization and business. So what specifically is a KPI? According to the The Professionals Guide To Maintenance And Reliability Terminology, a KPI is a vital indicator which is used to evaluate process performance. KPIs are used to represents a measure (or set of metrics) focusing on those aspects of organizational performance that are the most critical for the current and future success of the organization.

Commonly KPIs and Metrics are confused and used interchangeably. This is a mistake, which may lead departments in the wrong direction. A metric is a numerical measure used to assess performance and effectiveness in a specific area. Metrics are typically measured during specific points of the process, and a few metrics may be aggregated up into a KPI.

Knowing the difference between KPIs and Metrics is critical to developing a KPI. How a KPI should be designed and how to determine what should be measured is critical to managing the performance of the business.

When designing KPIs, a few criteria should be used. This criteria ensures that the KPI drives the right behaviour in the organization and is in fact a KPI.

• Encourage the right behaviour. Ensure the KPI(s) will drive the right behaviour with the team or process being measured by it. Also ensure the team will not become solely focused on the KPI as the single measure of their success.
• Be difficult to manipulate. Often times KPIs are manipulated to meet a target. When designing a KPI, a rigorous definition should be developed to describe what will be measured when and how. It is a good practice to include any definitions and exceptions with the KPI. SMRP does an excellent job at defining KPIs and can be used as an example or predefined KPI.
• Not require a lot of effort to measure. If the KPI requires a lot of time to measure, it may be ignored and not measured for very long. Also if it is difficult to measure, work arounds may be put in place and may inadvertently skew how the KPI is calculated.

KPIs not meeting these criteria can drive inappropriate behaviours. For example, when measuring Schedule Adherence, a department can put two work orders on the schedule and ensure they met the target. The intent of measuring Schedule Adherence is to increase the productivity of the maintenance crew, but by only measuring Schedule Adherence can drive the opposite. To counter this, a balancing KPI can be introduced to ensure that the intent is achieved. For Schedule Adherence, a balancing KPI may be % of Planned Work. This ensures that the majority of the work on the schedule is planned, and enough work orders is scheduled to meet the required level of planned work.   These KPIs balance each out because if a department tries to drive one without focusing on the intent of the KPIs, the other KPI will suffer. More details on this topic can be found in the 3^rd post in this series.

With the criteria establish for a good KPI, what should be measured needs to be determined. What is measured should always be based on what the business needs are and what the department needs to do to support the business needs.

How to determine what KPIs should be measured;

• Identify the business goals. This is the high level goals of the business or a specific site. As mentioned in previous posts, a good Maintenance & Reliability program should be based on the needs of the business. The needs can be defined from the goals of the site. These goals may be Cost per Unit of Production, Uptime, etc. Regardless what is used, the goals must be identified.
• Identify what the department needs to achieve to support the business goals. With the business goals established, brainstorm what specifically the maintenance department must do to support these goals. If the business is measuring a cost per unit produced, the department may focus on % overtime or $/CARV? If the business is focused on OEE, the appropriate maintenance KPI may be availability.   Take the time to identify the few specific KPIs that will translate into the business goals.   It is important to ensure that a balancing KPI is identified for each KPI to ensure the right behaviours are embedded.
• Establish the performance goals. Lastly, with the KPIs determined, the maintenance department needs to determine the targets for the KPIs that will drive the business goals. For example, if a site needs to achieve 70% OEE, 70% Availability will not support the business, a higher target of 80% Availability may be needed for the business to achieve its goal of 70% OEE.

Using the criteria above, you can develop the specific, targeted KPIs that will drive business performance the right way.

Are your KPIs targeted and driving the right results or did you inadvertently drive the wrong behaviours? I encourage you to share your stories, as everyone benefits from sharing experiences and learnings. If your KPIs are not driving the performance you expected, you should take the time to work through the above exercise and begin to drive the business.

Remember, to find success, you must first solve the problem, then achieve the implementation of the solution, and finally sustain winning results.

I’m James Kovacevic
HP RELIABILITY
Solve, Achieve, Sustain

Featured image by: Nic McPhee