Category Archives: Industry Insights

Measures and Metrics: Why they are important for organisational success

Grant Wise

“The right metrics are a powerful thing – they can show you how your business is doing against your business plan, and help you find weak points or improvement opportunities in your processes, giving you the information you need to continuously improve your business.”

“I often say that when you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced to the stage of science, whatever the matter may be.”

This quote by the Scottish physicist Lord Kelvin puts forward the idea that to truly understand a topic or process one needs to be able to measure it. The same goes for business – by measuring outcomes, you are able to test and observe the effects of various changes in a quantifiable way.

Measures and Metrics in Business

Many organisations gather and measure data. However, they often gain no real value from the practice because they don’t know which metrics to measure and analyse or how to use the results to make improvements. A key business imperative for all organisations in our increasingly competitive world is to continually strive to improve both their financial results and customer service. This can only be done through the collection and analysis of relevant metrics in a purposeful way.

The right metrics are a powerful thing – they can show you how your business is doing against your business plan, and help you find weak points or improvement opportunities in your processes, giving you the information you need to continuously improve your business.

Identifying Metrics

The purpose of identifying and analysing metrics is to help improve key performance against specific goals. Therefore, the key to pinpointing the right metrics is first looking at your goals and then identifying the factors that affect them.

The most powerful metrics are those that enable actionable insight into the processes that are tied to specific strategic goals. In order to ensure results, it is important to define your effort priorities in terms of these strategic goals and ensure that the metrics chosen have a clearly understood relationship with these goals. In other words, everyone understands why an improvement in the metric will lead to the attainment of the goal. Any metrics that do not meet this criteria should not be focussed on.

Examples of important metrics in manufacturing:

  1. Manufacturing cycle time – the speed or time it takes to produce a product from the time the order is released to production, to finished goods.
  2. Yield – The percentage of products that are manufactured correctly and to specifications the first time, without scrap or rework.
  3. Productivity in Revenue per Employee – This is a measure of how much revenue is generated by a plant, business unit or company, divided by the number of employees.
  4. Total Manufacturing Cost per Unit Excluding Materials– A measure of all potentially controllable manufacturing costs for each unit, for example labour costs and overhead expenses.
  5. Customer Fill Rate – This is the percentage of times that customers receives a completed order to the correct specifications, and delivered at the expected time.

The metrics above are generic and are used for illustration alone. Every business should ensure that the metrics that they are tracking are chosen to focus efforts on the key processes, which provide them with their competitive advantage and require improvement as per their own strategic goals. Once chosen they can be used to establish a baseline to be used to track improvement initiatives and targets can be set against which to measure improvements.

Using Measures and Metrics to Make Improvements

Once these metrics have been recognised and tracked, we can use them to identify where improvements need to be made. For example, if our manufacturing cycle time is slower than expected, we can begin to look at the individual process steps that affect it.

Then, by making changes to these steps and measuring the results, we can gauge the effects and drive continuous improvement by focussing on the critical few.

In doing so we gain an even better understanding of the process inputs and how sensitive the process is to the changes. These sensitivities and changes can provide us with even further insight into what needs to be managed.

Visualising Measures and Metrics with Dashboards

It’s easy to understand why measures and metrics are important. Combining this information into useful dashboards is an important step to understanding this data and creating insight for improvement. Meaningful dashboards are not simply about querying databases and creating pretty graphs – they should truly drive improvement and insights into the processes they are measuring.

Different metrics are relevant to different parts of the business, so dashboards should be created using the data that is important to the user. When selecting these metrics it is always important to consider their relationship with the key strategic metrics to ensure alignment of objectives throughout. We also need to consider the behaviours of the people interacting with it and the resultant behaviour that a measure may encourage or discourage.

Conclusion

Combining measures and metrics into useful dashboards can be a vital tool in creating continuous improvement for your business. They can provide real insight and valuable information about areas that require attention and how changes can be implemented. The danger with our modern computerised systems is that key insights lay hidden in a database, dashboards provide a mechanism to expose these by displaying them clearly for everyone to see and action by tapping into our human affinity for visual cues.

Do you want to properly use your data to Improve your business?

Please contact Grant if you would like to discuss how you can use your data to better streamline your processes. Email him on gwise@afrisoft.biz.

 

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