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.
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