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.

​A Quality Management System (QMS) should be a dynamic system, and provide a framework, for planning, executing, monitoring and improving the performance of quality management activities. In order to take QMS performance to higher levels, we must first understand and track where we are at, in terms of our current level of performance.
 
Performance can be related to the management of activities, processes, products, services, systems or organizations. Performance indicators, therefore, are the metrics we use to track our current performance at functions, levels and processes, in order to make data driven decisions related to the improvement our QMS. Understanding whether our QMS is effective, requires determining and evaluating these performance indicators against established performance criteria. 
​​

To aid the reader in understanding the above concepts, I’m including several different metrics as examples. Business is not a one-size-fits-all activity, so the usefulness of these may vary. If any of these metrics are key to your business strategy, they would then be considered Key Performance Indicators (KPI's). Otherwise, they could still be considered, but in such case, they would simply be considered performance indicators.
 
Sample Business Metrics:

• Revenue Growth Rate
• Churn Rate
• Acquisition Rate
• Relative Market Share
• Return on Equity

 
Sample Financial Metrics:

• Monthly Recurring Revenue
• Net Profit Margin
• Operating Cash flow
• Working Capital
• Current Ratio
• Budget Variance

 
Sample Sales Metrics:

• Monthly New Leads/Sales
• Lead-to-Customer Conversion Rate
• Cost per Acquisition
• Sales Qualified Leads
• Customer Lifetime Value

 
Production Metrics

• First Pass Yield
• Rework
• Scrap
• On-Time Delivery
• Capacity Utilization
• Operating Efficiency 
• Overall Equipment Effectiveness
• Machine Downtime
• Machine Set Up Time
• Inventory Turns
• Inventory Accuracy
• Supplier Returns
• Customer Returns
• Training Hours
• Employee Turnover
• Revenue or Profit per Employee

 
Sample Marketing Metrics:

• Website Traffic Per Source
• Cost Per Acquisition
• Marketing Qualified Leads
• Net Promoter Score
• Conversion Rate

 
Sample Project Management Metrics:

• Planned Value
• Actual Cost
• Earned Value
• Cost Variance
• Schedule Variance

​

While an organization may likely have many performance indicators, not all metrics are key to its business strategy, and the strategic outcomes determined by the organization.
 
While it’s common to use performance indicators interchangeably with Key Performance Indicators (KPI’s), such a description is incorrect. It is important to understand that, while all KPI’s are performance indicators, not all performance indicators are KPI’s. To keep these differences clear, just remember the following: “KEY” = key to our business strategy.

​Congratulations to Watlow (Houston) on their recommendation for ISO 9001:2015 Certification, as applicable to the design/development, manufacturing and delivery of electrical control panels and related services.  For more information about their products and services, go to www.watlow.com

​Congratulations to Torq/Lite for their recommendation for recertification to ISO 9001: 2015 as applicable to the design and manufacture of torque wrenches and specialty tools and the provision of related training services (Bolting Training School).  For more information on their products and services, go to https://www.torqlite.com.

Congratulations to Texas Microelectronics for their recommendation for AS9100 certification and continued ISO 9001 certification as applicable to custom microelectronic circuit design, manufacturing of microelectronic products, and testing services.  For more information about their products and services, go to www.texasmicroelectronics.com

​Wishing all of our Friends and Clients a Happy Fourth of July!

Congratulations to Fab Services Ltd on their recertification to ISO 9001:2015. Located in Waller TX, Fab Services is a high-volume fabrication shop that specializes in the welding, forming and sawing of metallic products.  To learn more about their products and services, go to http://fabservices.net
​