The Basics of Creating a Metric
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Transcript of The Basics of Creating a Metric
1
THE BASICS OF METRICS*By: Romains Bos
* METRICS = Measurements That Mean Something
2
EIGHT CHARACTERISTICS OF GOOD METRICS
1. Actionality Inputs that affect the metric are under the direct hands-on control of the people who are responsible for the performance of the metric
2. Proximality Nearness in time and distance between the people that are responsible for the metric and those that take action to change the metric
3. Immediacy The time between a change in a micro-process input to a metric input and a change in the metric itself
4. Causality The degree to which a micro-process metric is a cause of change in a “higher” metric rather than an effect
3
EIGHT CHARACTERISTICS OF GOOD METRICS
5. Proportionality A high correlation between the size of a change in the performance of the individual, work group or site metric and the size of a resultant change in a “higher” metric
6. Atechnology The ease with which a metric can be updated and understood by the people responsible for improving it
7. Teamness The degree to which a metric engages intact work groups (or change teams) in meaningful, focused improvement efforts more than it engages individuals
8. Customer Focus The degree to which a metric reflects performance relative to internal and/or external customer requirements rather than “business” concerns
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REALLY, REALLY BAD METRIC
5
A POOR METRIC
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A GOOD METRIC
7
ANOTHER GOOD METRIC
8
CUSTOMERRETENTION
Panel A.
SALES
TECHNOLOGY
QUALITY
Success
FIRST FOUR AREAS
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SECOND FOUR
Panel B.
SuccessASSETS
CASHROI
WORKINGCAPITAL
ASSETS
Success
10
ANOTHER SIX
MFG .CAP.
EMPL.TRAIN.
PLANNINGMORALE
CUSTOMERSERVICE
COMM. SERVICE
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CUSTOMERSATISFACTION
Panel D.
BusinessSuccessMORALE
MAN.CAP.
COMM. SERVICE
PLANNING
CUSTOMERRETENTION
ASSETS
CASHROI
WORKINGCAPITAL
CUSTOMERRETENTIONMORALE
QUALITYCASH
ROI
QUALITYEMPL.TRAIN.
TECHNOLOGY
CUSTOMERSERVICE
ALL THE AREAS
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FINAL SET: HYPOTHETIC CEO METRIC AREAS
BusinessSuccess
PLANNING
CUSTOMERRETENTION
CASHROI
CUSTOMERRETENTION
ROI
QUALITYEMPL.TRAIN.
CUSTOMERSERVICE
CASH
QUALITY
MORALE
SALES
13
STARTS WITH A SIMPLE C&E DIAGRAM
Man Machine
MaterialsMeasurement
MethodSuccessfulBusiness
Effect
Employeetraining
Cash
Communityservice
Sales
Quality
Custo
mer
rete
ntion
ROI
Technology
Capital equipment
Planning
Capital ($)
Assets
Manufacturingcapacity
Morale
Custo
mer
Serv
ice
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EVALUATE AT EACH LEVEL
Customer retention 5 5 5 15 1 ESales 5 4 5 14 2 EQuality 4 5 4 13 3 CCustomer Service 4 5 3 12 4 CTechnology 5 5 1 11 5 CEmployee training 3 5 2 10 6 CWorking Capital ($) 1 4 4 9 7 EROI 1 5 2 8 8 ECapital spending 2 3 2 7 9 ECash 0 2 5 7 9 EPlanning 1 5 0 6 11 CManufacturing capacity 2 2 2 5 12 EAssets 1 3 1 5 13 EMorale 0 3 1 4 14 ECommunity service 1 2 0 3 15 E
Sen
sitiv
ityT
o T
he M
arke
t
Long
-ter
mIm
pact
Sho
rt-t
erm
Indi
cato
r
To
tal P
oin
ts/
Fin
al R
anki
ng
EvaluationCriteria
Cau
se (
C)
orE
ffect
(E
)
METRIC NAMES
Customer retention 5 5 5 15 1 ESales 5 4 5 14 2 EQuality 4 5 4 13 3 CCustomer Service 4 5 3 12 4 CTechnology 5 5 1 11 5 CEmployee training 3 5 2 10 6 CWorking Capital ($) 1 4 4 9 7 EROI 1 5 2 8 8 ECapital spending 2 3 2 7 9 ECash 0 2 5 7 9 EPlanning 1 5 0 6 11 CManufacturing capacity 2 2 2 5 12 EAssets 1 3 1 5 13 EMorale 0 3 1 4 14 ECommunity service 1 2 0 3 15 E
Sen
sitiv
ityT
o T
he M
arke
t
Long
-ter
mIm
pact
Sho
rt-t
erm
Indi
cato
r
To
tal P
oin
ts/
Fin
al R
anki
ng
EvaluationCriteria
Cau
se (
C)
orE
ffect
(E
)
METRIC NAMES
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FINAL CEO SET OF METRIC AREAS
Customer Retention Percent of customers (in the last two years) who place an order at least once a quarter (W)
Sales Total sales (W)
Quality Percent of 1st Time “perfects” for each of top three products/services (D)
Customer Service Objective survey results from a random sample of customers (M)
Employee training Percent of employees who have completed two weeks of training in the last 52 weeks (W)
ROI Return on investment (M or Q)
Cash Cash on hand (W)
Planning Percent of managers and supervisors who have completed this metric exercise with the participation of their direct reports (M)
Morale Objective survey results from a random sample of employees (M)
FINAL SELECTEDCEO METRICS
D = Daily, W = Weekly, M = Monthly, Q = Quarterly
DEFINITIONS
Customer Retention Percent of customers (in the last two years) who place an order at least once a quarter (W)
Sales Total sales (W)
Quality Percent of 1st Time “perfects” for each of top three products/services (D)
Customer Service Objective survey results from a random sample of customers (M)
Employee training Percent of employees who have completed two weeks of training in the last 52 weeks (W)
ROI Return on investment (M or Q)
Cash Cash on hand (W)
Planning Percent of managers and supervisors who have completed this metric exercise with the participation of their direct reports (M)
Morale Objective survey results from a random sample of employees (M)
FINAL SELECTEDCEO METRICS
D = Daily, W = Weekly, M = Monthly, Q = Quarterly
DEFINITIONS
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METRIC MAPS ARE MADE FROMCAUSE &EFFECTS DIAGRAMS
Man Machine
MaterialsMeasur’nt
Method ROA
INVENTORY
ASSETS
CUSTOMERRETENTION
CASHSALES
CYCLE TIME
COMMUNITYSERVICE
CAPITALEQUIPMENT
MORALE
YIELDS
PROFITS
Effect
17
EACH DEPARTMENT/SECTION THEN DOES A C&E ON THE KEY CAUSES
OF THE FIRST EFFECT
Man Machine
Materials
Measur’nt
Method
CUSTOMERRETENTIONLATE SUPPLIER
SHIPMENTS
POOR RESPONSEON CALLS
MORALE
POOR QUALITY12 WEEK LEAD TIME
DEPT: SALES
POOR VOLUMESALES DEALS
NO ORDER HISTORYON COMPUTER
CAN’T TRACKIN-PROCESSORDERS
18
THE PROCEDURE IS REPEATED AT EACHLEVEL, IN EACH DEPT., FOR EACH
OF THE METRICS
CEOLEVEL: SALESV.P.
DEPT.HEAD
METRIC: CUSTOMERRETENTION
ROA
SALESTEAM
% OF CUSTOMERINQUIRIES
HANDLED INTWO DAYS
% OF KEYCUSTOMERS
CALLEDEACH WEEK
19
LEVEL BENEATH CEO (VP SALES FOR “SALES METRIC AREA”)
Man Machine
MaterialsMeasurement
Method
Man Machine
MaterialsMeasurement
Method Sales
Effect
Well-trainedsales reps
Better trackingof orders
No computerizedpricing
Need hard-hittingbrochures
Too little print media
No
cooperation
between
territories
Slow
ord
erin
put Poor
quality
Small travelbudget
No auto-ticklerfile on customers
Poor follow-upon complaints
Customerrelations
Poor
adve
rt.
Customerservice
Panel A:V.P. of Sales
20
LEVEL BENEATH CEO (VP MFG.
FOR “SALES METRIC AREA”)Man Machine
MaterialsMeasurement
Method
Effect
Panel B:V.P. of Mfg.
Ship FromStock Agreements
Sales
Thro
ughp
ut
Spee
d
Quality
WarningOnSpecials
Timely deliveryon custom orders
Breakdowns
Returns hitting later month’s sales
21
ALL THE WAY “DOWN” FORONE METRIC
Customer RelationsCatalog MaterialsEffective AdvertisingProduct PositioningPhone Follow UpCustomer Service
Throughput SpeedQualityCommunications Between
Customers And The PlantWarning On SpecialsShip From Stock Agreements
Major Accounts Called Each Week
Survey ResultsOrder Accuracy
Assignment Of PeopleTo Specific Accounts
Order Input AccuracyCustomers Know
Order Status Data
Unplanned MaintenanceChangeover TimeLot SizesScheduling AccuracyLast Minute Emergencies
Preventative Maintenance Skills
Unplanned Downtown
CEO METRICSCustomer retention
SalesQuality
Employee trainingCustomer Service
ROICash
PlanningMorale
MFG. V.P. METRICSSALES V.P. METRICS
SALES MGR. METRICS MFG. MGR. METRICS
SALES TEAM CELL TEAM
22
CREATING A METRIC MAP
23
METRIC MAP IN PROGRESS
24
METRIC MAPPING COMPLETE
25
A GENERIC METRIC MAP FORMAT
President
Vice Presidents
Directors
Managers
Supervisors
Percent On-time
Cycle Time
Work In Process (WIP)
Costs Per UnitOutput
Defects/Yields
These Metrics Can Be Applied With Minimal Customization By Any Work Group At Any Level
Every Work Group, Every Employee, Every Manager Focused On A Similar Set Of Metrics For Their Own Processes
Micro-processworkers