Process Metrics and KPIs Explained

Process Metrics and KPIs Overview

Although the great Peter Drucker quote “If you can’t measure it, you can’t manage it” has become a topic of debate among process gurus, KPIs and metrics are still the most essential tools in driving tangible process improvement results.

Measurement Definitions

Let’s start with some definitions because the two terms can be confused:

• A KPI or key performance indicator is a measurable factor that provides insight into how well an organization is achieving its business goals

• A metric is the target value for a KPI. Process initiatives often define metrics by stating the current value and a target value along with a target date for achieving them

This table gives some examples and shows how the two are related.

A process improvement initiative could use these KPIs and metrics to state its goals in the following way:

• Reduce Days Sales Outstanding from 45 to 30 by the end of 2020.

• Increase inventory turns from 4 to 7 by the end of Q4.

• Increase first customer support call resolution from 85% to 90%by Jun 30.

Better still, state the goals in phases. 

For example:

• Reduce Days Sales Outstanding from its current value of 45 to 30 by the end of Q1, 25 by the end of Q2, and 20 by the end of Q3.

Who Will Use These Process Metrics?

Before a report is created or a KPI is decided on, the question must be asked: “Who will use this information, and what action will be taken based on it?” This can reduce “report creep” drastically as information is bucketed into “Actionable” vs. “Nice to Know” categories. Start by determining who needs the information:

• Process Owners: Finding faults in the process. Is the process the problem or is it the people in the process?

• Executives

• Process Stakeholders

• Process Users

Each group might need different information presented in different ways to make it more effective. Once you decide who has access to specific reports and dashboards, agree on how the information will be used.

What You Can Measure

• Efficiency/Process cycle-time improvement

• Effectiveness/Increased customer satisfaction

• Capacity/Producing more

• Productivity/Cost Reduction

• Quality

• Profitability/Revenue Improvement

Establish Tolerance Levels

You will need to establish the tolerance level of your KPIs. This is to say, “What values outside the expected range are critical, requiring corrective action?” These are often displayed as Green, Yellow, and Red zones in a gauge. They might also be called RAG (Red, Amber, Green) Statuses.

So what tolerance levels are you comfortable with? Some companies may start at a +/- 10%, depending on the goal. For a constantly measured goal, like response time, you could start with Red at -20%, Yellow at -10%, and Green at the goal response time. You might, in fact, pilot these percentages without sharing the results (a management-only dashboard, for instance) to see how often response time falls out of range before making a final decision.

The predictability of the metric may dictate tighter measurement, say 2%-3% variation. This also might be based on how damaging these variations can be to the business. A few percentage points out of range for a highly-regulated process could be enough to require immediate reaction.

Once the appropriate tolerance levels are agreed upon, they must be communicated and shared with all stakeholders. Decide how you will handle performance and how often you will review it with frontline employees. What will be the repercussions and plans for moving forward? Better to clarify this upfront.

Note: Leading and Lagging Indicators

• A leading indicator points toward future actions, for example, the number of open customer service inquiries is a leading indicator. They can provide agility in staging interventions that move the needle in the right direction in real-time.
• A lagging indicator assesses past performance. For example, last month’s first call resolution percentage is an indicator of past performance. Lagging indicators are usually easier to track as long as there is a means to access and analyze accurate historical data.

Be S.M.A.R.T When You Choose Metrics

When using any methodology for defining metrics, keep the popular SMART model in mind:

• Metrics should be specific and tied to business goals. 

• Metrics should be meaningful and measurable. The underlying data elements must be captured accurately and completely and the calculation must be correct. If you cannot measure it or report on it from your current enterprise systems, consider the tradeoff in business value vs. manual effort or report development before including it in your list of metrics. 

• The target values for your metric must be realistically achievable. Do the right people have the ability and authority to drive the metric toward the target value?

• Metrics should be realistic, relevant, and results-oriented. Are there identified actions that can drive the metric toward its target value?

• Metrics need to be timely , especially if they are leading indicator metrics. Can reports be generated, or dashboards be updated in time to allow appropriate interventions to drive the metric toward its goal?

More Process KPI Examples

• Average process time

• Average process time

• Average time per task

• Average time to complete a task

• Number Accepted/Rejected

• Number in Queue in Stages

• Number of complaints

• Number of errors

• Number of escalations

• Number of late tasks 

• Number of requests

• Number of tasks sent for re-work

• Percentage of overdue tasks

• Percentage of processes below/above goal

• Requested vs. budgeted

• Requests by type

• Time from request to fulfillment

• The volume of tasks per staff

Reader Question

How do you establish KPIs and track metrics in your organization? Let us know in the comments.