Performance Indicators and KPI’s
In an earlier blog post, I gave a few examples of performance indicators, as well as described the relationship between performance indicators and Key Performance Indicators (KPI’s). The distinguishing feature between these two, is whether the performance indicator under consideration is relevant to the to the strategic outcomes determined by the organization.
The take-away from all this being, all KPI’s are performance indicators, but not all performance indicators are KPI’s. We monitor and measure constantly (or at least we should), but the resulting data may, or may not, be directly relevant to the achievement of our strategic goals.
Performance indicators, regardless of whether they’re considered a KPI or not, can only successfully be used to determine the performance and the effectiveness of the QMS if a criterion for effectiveness has been determined. This effectiveness criteria is not necessarily an improvement goal, but rather is used to indicate the extent to which planned activities are realized and planned results are achieved.
For example, if a manufacturing process has a rework rate of 2.5%, but an effectiveness criterion of 5%, we can say that the process under consideration is “effective” (2.5% < 5%); it has achieved planned results. In this example, a rework rate of 2.5% is not an improvement goal, but rather it indicates that our expectations have been met, and the process works as intended.
Improvement goals, on the other hard, are realized through the process of establishing, planning and achieving quality objectives. To understand the relationship between performance indicators, KPI’s and Quality Objectives, remember that performance indicators reflect the performance of a process, function, activity, etc., while objectives are tools used to promote improvement of the Quality Management System at a strategic, tactical or operational level.
Taking the above example further, if our manufacturing process has a rework rate of 2.5%, but an effectiveness criterion of 5%, we can say that the process under consideration is “effective” (2.5% < 5%); it has achieved planned results. In contrast, a process may have a rework rate of 2.5%, but we want to improve that rate down to 1.65%, we now have the basis for a quality objective. Note also, that the results of the performance indicator (2.5%), the effectiveness criteria (5%), and the quality objective (1.65%) may all exist in the same space, at the same time.
Simply put, performance indicators do just as the name implies; they indicate the performance of a process or activity, against established effectiveness criteria. Key Performance Indicators (KPI) indicate the performance of a process or activity that is key to the organization’s business strategy. Quality Objectives reflect an improved level of performance desired by the organization.
While the relationship between KPI's and Quality Objectives should be fairly intuitive, most organizations have only so many resources to spread around. We can't improve everything at once, and improvements in some areas provide little or no return. Just like every performance indicator is not a KPI, every KPI does not require a corresponding quality objective.
,Context, Quality Policy and Objectives
The ISO 9001:2015 Standard puts a strong focus on strategic management. What this means is a closer connection in the interrelationships between business policy, objectives and results.
Interpreting ISO 9001:2015, we can relate to 3 key areas of Business Strategy:
If we consider the literal definition of Context, we arrive at the term "circumstance". Therefore, we can consider our Context to be those circumstances that affect our ability to provide a product or service. In order to comprehend those circumstances, we must understand our business. What are our strengths and weaknesses (internal factors) and what opportunities and threats must we consider (external factors)? What requirements must we satisfy and how to we intend to achieve these results?
A common misconception is that ISO 9001:2015 requires quality objectives to be based on the company's quality policy; however, the actual requirement is that they are consistent with this policy. To be effective, quality objectives do not require line-by-line linkage to the quality policy, only align with it's intent. Quality objectives must take into account those strategic issues arising from an analysis of current business performance and opportunities.
Most quality policies cite improvement, customer satisfaction and quality. Many however, fall short on the commitment to satisfy applicable requirements. Meeting customer requirements is one piece of the whole; however, with a heightened focus on internal and external factors, interested parties and their requirements as part of determining the context of the organization, the quality policy needs to take these other requirements into consideration.
Per ISO 9001:2015, there are 4 key components that a Quality Policy must encompass:
The Quality Management System (QMS) must be aligned with the Business Strategy. If the organization has strategic initiatives in place, they must connect with the Quality Policy. There must be linkage between the QMS and the Business. The Quality Policy must reflect the strategic direction of the company.
Can you connect the dots between your organization's strategic direction, quality objectives and quality policy?
Quality Objectives and planning to achieve them (6.2)
Excerpt from ISO 9001:2015 below. Also attached is a worksheet that we use for this purpose. Hope this helps.
6.2.1 The organization shall establish quality objectives at relevant functions, levels and processes needed for the quality management system.
The quality objectives shall:
a) be consistent with the quality policy;
b) be measurable;
c) take into account applicable requirements;
d) be relevant to conformity of products and services and to enhancement of customer satisfaction;
e) be monitored;
f) be communicated;
g) be updated as appropriate.
6.2.2 When planning how to achieve its quality objectives, the organization shall determine:
a) what will be done;
b) what resources will be required;
c) who will be responsible;
d) when it will be completed;
e) how the results will be evaluated.
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