Key Performance Indicators in Business Management

Study Notes

Having only one or two KPIs can be risky; it's smart to have at least four KPIs to cover different areas, such as scheduling, quality, sales, profitability, deliveries, customer service, and relationships with suppliers and customers.

Three approaches exist to prioritize problem areas:
- Using the sole criterion of dollars (or equivalent currency)
- Considering the relationship between the problem area and operations strategies
- Allowing for soft factors, such as the effects of the problem areas on people

A Fishbone Diagram is used to identify the causes of a problem:
- Draw a horizontal line with the problem at one end (the "head of the fish")
- Draw diagonal lines running up or down from the horizontal line, labeling each with a category (the "bones of the fish")
- Typical categories used include Equipment, Process, People, Materials, Environment, and Management
- Add categories if possible causes arise that don't fit the original categories

Sometimes a solution is obvious and requires common sense and/or experience
Identify factors within each category of the Fishbone Diagram that may be contributing to the problem
Use idea-generating techniques to identify possible solutions

Calculate the benefits expected from applying a solution and subtract the costs you expect to incur
Calculate a payback period, the time it takes for the benefits of a change to outweigh the costs
Use this technique to decide among potential solutions

The improvement process is structured around three questions:
- What to change? What is the problem?
- What to change to? What is the solution?
- How to cause the change? How can we implement the solution?
The focusing steps for maximizing the performance of a system by ensuring that improvement efforts focus on constraints are:
- Identify the system constraint
- Decide how to exploit the system constraint
- Subordinate and synchronize all other processes to support the above decision
- Elevate the system constraint until it is "broken" or solved
- Don't let inertia become the system constraint!