In operations, numbers are everything. No matter what type of business, operations teams have the same quantifiable directive.
But in today’s world of overwhelmingly available information, it’s easy as a manager to get bogged down in data and track dozens of different numbers. Not only is this ineffective, but it can lead to a poor company culture as employees see the measurement as a big brother-style implementation of scientific management.
We see the future of work differently.
We believe that well-implemented KPIs can empower everybody in an organisation to contribute meaningfully to the organisation’s success. Furthermore, they can help drive a culture of high performance and radical transparency where everyone’s ideas are heard. But, like anything in business, they have to be done right and that starts with narrowing down to the few numbers that cut through the noise.
If you are new to KPIs, here are a couple of previous blogs by my colleague Stephen Lynch that will help you get some clarity:
Operationally, businesses are incredibly diverse, but we have identified five key metrics that are nearly universal. These are the numbers that ultimately drive the success of your operations team. When reviewed regularly, they will ensure your team is focused and continually asking the questions that will drive the right conversations. With these 5 metrics, your team will be focused on the biggest opportunities to make a strategic and operational difference for your organisation:
1) Labour Utilisation
Managing the percentage of available hours for work ‘billable’ to product or service delivery compared to the actual hours spent on that work is key to the efficiency and ultimately financial viability of your business.
2) Project Schedule Variance
Tracking expected versus actual work gives us information that poses great questions for any operational team. Variances can be due to inaccurate budgeting and planning, or inefficient execution of repeatable or similar work. As with any KPI, the earlier we put up a flag that we have gone off track, the earlier we can identify and implement the changes needed to get back on track and hit our targets.
3) DIFOT - Delivery In Full On Time
This is a metric for meeting customer expectations. Providing them with the right product or service in the time frame we promised seems straightforward, but it is one of the most powerful metrics for operational excellence. Focusing on this target ensures we are always asking questions around the customer expectations. This means that our operational processes are always designed with the client in mind.
One of the most frequent opportunities for improvement that we hear about is rework. Correcting work that should have done better the first time can be a huge cost to the business. It can relate to delivering poor quality to our external customers or producing poor quality work internally. Either way the cost of time and materials can be significant.
Tracking rework time or cost creates a laser focus on quality which creates an important discussion on processes and standards across the organisation. This is also a leading indicator for customer satisfaction and retention, and including it as a KPI ensures you get it right the first time.
A strong KPI structure has the right metrics to drive the right behaviour across the team. We have some measures around efficiency (utilisation) and effectiveness (schedule variance) as well as measuring rework as a leading contributor to profitability. But what about quality?
Measuring complaints is critical to ensuring that what we define as quality matches our customers’ expectations and requirements. Are our efficiency and effectiveness measures reducing the focus on customer satisfaction? We can pick up a change in complaint levels much earlier than a change in customer satisfaction surveys or client retention metrics. This early indicator, or lead measure, enables us to react and correct quickly.
Defining the top 5 KPIs for a functional area as wide ranging as operations will always require a certain generic approach. But research shows that clearly defining a metric around these five measures and running effective meetings to review progress, every week, without fail will keep your operations team delivering great results for your business and your customers.