A performance indicator or key performance indicator (KPI) is a type of performance measurement. KPIs evaluate the success of an organization or of a particular activity (such as projects, programs, products and other initiatives) in which it engages. Often success is simply the repeated, periodic achievement of some levels of operational goal (e.g. zero defects, 10/10 customer satisfaction, etc.), and sometimes success is defined in terms of making progress toward strategic goals. Accordingly, choosing the right KPIs relies upon a good understanding of what is important to the organization ‘What is important’ often depends on the department measuring the performance – e.g. the KPIs useful to finance will differ from the KPIs assigned to sales. Since there is a need to understand well what is important, various techniques to assess the present state of the business, and its key activities, are associated with the selection of performance indicators. These assessments often lead to the identification of potential improvements, so performance indicators are routinely associated with ‘performance improvement’ initiatives.
Categorization of indicators
Key performance indicators define a set of values against which to measure. These raw sets of values, which are fed to systems in charge of summarizing the information, are called indicators. Indicators identifiable and marked as possible candidates for KPIs can be summarized into the following sub-categories:
- Quantitative indicators that can be presented with a number.
- Qualitative indicators that can’t be presented as a number.
- Leading indicators that can predict the outcome of a process
- Lagging indicators that present the success or failure post hoc
- Input indicators that measure the amount of resources consumed during the generation of the outcome
Identifying indicators of organization
Performance indicators differ from business drivers and aims or goals. A school might consider the failure rate of its students as a key performance indicator which might help the school understand its position in the educational community, whereas a business might consider the percentage of income from returning customers as a potential KPI.
The key stages in identifying KPIs are:
- Having a pre-defined business process (BP).
- Having requirements for the BPs.
- Having a quantitative/qualitative measurement of the results and comparison with set goals.
- Investigating variances and tweaking processes or resources to achieve short-term goals.
Examples of KPI in a Industry:::
Overall equipment effectiveness is a set of broadly accepted non-financial metrics which reflect manufacturing success.
- OEE = availability x performance x quality
- Availability = run time / total time, by definition this is the percentage of the actual amount of production time the machine is running to the production time the machine is available.
- Performance = total count / target counter, by definition this is the percentage of total parts produced on the machine to the production rate of machine.
- Quality = good count / total count, by definition, this is the percentage of good parts out of the total parts produced on the machine.
- Cycle time ratio (CTR) = standard cycle time / real cycle time
some examples :