Performance measures

Performance Measure:

One of the important measures of TQM is to measure for success. Performance measurement is done to check whether an organization is achieving its objectives or not. The objectives of an organization are manifold as follow.

• Achieving business objectives

• Improving response to customer need

• Reduction of quality cost

• Improving competitive position

• Making more and more profits

Why do we need to measure our performance?

What performance should we measure?

Examples of measures:

Production operations

Customer Satisfaction

Purchasing

process

Resource development

How do we measure our performance?

1- Graphical Techniques

Examples:

3.0

5.0

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6.0

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8.0

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Time series graph:

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Sales and earnings of a company from year 1985 to 1990

1- During the years 1986 through 1988, what were the average earnings per year?(A) 6 million (B) 7.5 million (C) 9 million (D) 10 million (E) 27 million

2- During which two-year period did the company’s earnings increase the greatest?(A) 85–87 (B) 86–87 (C) 86–88 (D) 87–89 (E) 88–90

3- In which year did sales increase by the greatest percentage over the previous year?(A) 86 (B) 87 (C) 88 (D) 89 (E) 90

2. Malcolm Baldrige National Quality Awards:

The Malcolm Baldrige National Quality Award (MBNQA) is an annual award

to recognize U.S organizations for performance excellence. It was created by public law in 1987. this award promotes complete understanding of the requirements for performance excellence & competitiveness improvement. There are five categories

• Manufacturing • Service• Education• Healthcare• Small business

Key characteristics of the criteria

*Customer satisfaction

*Human resource performance

*Productivity

*Market share, new development

3- Cost of Quality:

Cost of quality is the sum of costs incurred by an organization in preventing poor quality. There are essentially three types of quality costs:

• Preventive costs

• Appraisal costs

• Failure costs Internal failure cost External failure cost

Failure cost

Appraisal cost

Preventive cost

4- Balanced Scorecard

The Balanced Scorecard is a management tool that provides stakeholders with a comprehensive measure of how the organization is progressing towards the achievement of its strategic goals.

Focuses on four major perspectives:

• Financial perspective

• Customer perspective

• Business process perspective

• Learning & growth perspective

• Financial perspective - includes measures such as operating income, return on capital employed, and economic value added.

• Customer perspective - includes measures such as customer satisfaction, customer retention, and market share in target segments.

• Business process perspective - includes measures such as cost, throughput, and quality. These are for business processes such as procurement, production, and order fulfillment.

• Learning & growth perspective - includes measures such as employee satisfaction, employee retention, skill sets.

Objectives, Measures, Targets, and Initiatives

Each perspective of the Balanced Scorecard includes objectives, measures of those objectives, target values of those measures, and initiatives, defined as follows:

• Objectives - major objectives to be achieved, for example, profitable growth.

• Measures - the observable parameters that will be used to measure progress toward reaching the objective. For example, the objective of profitable growth might be measured by growth in net margin.

• Targets - the specific target values for the measures, for example, +2% growth in net margin.

• Initiatives - action programs to be initiated in order to meet the objective.

Balanced scorecard template

Balanced Scorecard

Objectives Measures Targets Initiatives

Finance        

Customer        

Process        

Learning & Growth        

Balanced scorecard template from the US department of Commerce