Key process performance definitions

Process performance management has many schools of thought about how best to approach and manage it. It’s important to first review the definitions of process performance. All processes have a metric or measurement associated with the work or output of the process that is performed. These metrics are based on the following fundamental metric dimensions:

• Cycle Time – measures the time it takes from the start of a process to the completion of that process in terms of the output

Cost – is a measurement of the monetary value associated with a process.

• Resource cost – is a measurement of the monetary value associated with the resources (human or non-human) required to complete a process.

• Opportunity cost – It is the value that is lost from the process by not getting the resultant output of the process. An example would be when a sales order is lost due to an error (Quality metric) in the sales order.

Capacity – this is an amount or volume of a feasible output associated with a process. • An example would be the number of transactions associated with a process.

Capacity usually has a revenue connotation associated with it. For example, if a manufacturing line of a widget manufacturer could improve the yield (reduce variation) of the line, then in essence the number of good products that could be sold to customers would increase, thereby increasing the revenue to the manufacturer.

• Capacity can also have a throughput connotation associated with it. An example of this would be when in a manual process, sales orders are manually entered into a system by sales people. The number of sales orders processes per hour would be limited by the number of people and how many orders could be processed during each hour (preferably without errors). If orders could be processes through a browser interface directly by the customer into the order management system, then the number or orders processed per hour would be limited by the number of concurrent users on the website, however, it would more than likely be more in quantity than if orders were processed by individual sales people.

Quality – is usually expressed as a percentage of actual to optimal or maximum in process terms and can take many forms.

• Satisfaction – is a measurement of customer satisfaction, which is usually associated with a service level expectation on the part of the customer.

• Variation – this is a measurement of the amount, extent, rate, or degree of change and is generally expressed as the difference between the actual and target or expected result

• Error or defect rate – is an example of variation in the measurement of errors associated with the output of a process

There are other measures, such as efficiency and effectiveness, however, these measurements are generally a function of one or more of the four fundamental metrics discussed above. Another aspect of process performance management is the concept of value added versus non-value added. This concept has its roots in Deming and Juran. However, we will not delve into those principles, but we will discuss the concept briefly. A process is value added either when it is required to generate the output required by the customer of the process or when the customer is willing to pay for the process (or activity) that generates the output; or to maintain quality and consistency of

the component resources or output or to provide continuity or transport depending on circumstance. In services, it may be a value added activity if it enhances customer experience even when it does not contribute directly to the specific service, e.g., the personal greeting and attention provided in a Ritz-Carlton is value added even though it is not directly related to providing the room. Bottom line is that the activity does something that is perceived as having added value to the customer. Understanding whether a process is value added or non-value added is important when it comes time to decide whether to eliminate a step or activity of a process when doing improvements. Effective metrics generally referred to as key performance indicators or KPIs have 12 characteristics:

Metric Characteristic

Alignment Key performance indicators (KPIs) are always aligned with corporate strategies and objectives

Accountability Every KPI is “owned” by an individual or group on the business side who is accountable for its outcome

Predictive KPIs measure drivers of business value and are leading indicators of desired performance

Actionable KPIs are populated with timely, actionable data so users can intervene to improve performance before it’s too late

Few in number KPIs should focus users on a few high value activities, or on the overall effectiveness of the process.

Easy to understand

KPIs should be straightforward, not based on complex indexes that managers don’t know how to influence directly.

Balanced and linked

KPIs should balance and reinforce each other, not compete and confuse. Otherwise, you will degrade process performance Transformative A KPI should trigger a chain reaction of positive changes in the

organization, especially when it is monitored by the process manager or officer.

Standardized KPIs are generally more effective when based on standard definitions, rules and calculations so they can be integrated across dashboards, throughout the organization and used for benchmarking within and across industries.

Context-driven KPIs put performance in context by applying targets and thresholds so users can gauge their progress over time.

Reinforced The impact of KPIs may be enhanced by attaching compensation or incentives to them.

Relevant KPIs gradually lose their impact over time, so they must be reviewed and refreshed periodically.

Source: www.techrepublic.com

The overall purpose of understanding process metrics is so that a manager can attribute a value to improving or changing a process as part of process performance management.