The Basics of Creating a Metric

1

THE BASICS OF METRICS*By: Romains Bos

* METRICS = Measurements That Mean Something

2

EIGHT CHARACTERISTICS OF GOOD METRICS

1. Actionality Inputs that affect the metric are under the direct hands-on control of the people who are responsible for the performance of the metric

2. Proximality Nearness in time and distance between the people that are responsible for the metric and those that take action to change the metric

3. Immediacy The time between a change in a micro-process input to a metric input and a change in the metric itself

4. Causality The degree to which a micro-process metric is a cause of change in a “higher” metric rather than an effect

3

EIGHT CHARACTERISTICS OF GOOD METRICS

5. Proportionality A high correlation between the size of a change in the performance of the individual, work group or site metric and the size of a resultant change in a “higher” metric

6. Atechnology The ease with which a metric can be updated and understood by the people responsible for improving it

7. Teamness The degree to which a metric engages intact work groups (or change teams) in meaningful, focused improvement efforts more than it engages individuals

8. Customer Focus The degree to which a metric reflects performance relative to internal and/or external customer requirements rather than “business” concerns

4

REALLY, REALLY BAD METRIC

5

A POOR METRIC

6

A GOOD METRIC

7

ANOTHER GOOD METRIC

8

CUSTOMERRETENTION

Panel A.

SALES

TECHNOLOGY

QUALITY

Success

FIRST FOUR AREAS

9

SECOND FOUR

Panel B.

SuccessASSETS

CASHROI

WORKINGCAPITAL

ASSETS

Success

10

ANOTHER SIX

MFG .CAP.

EMPL.TRAIN.

PLANNINGMORALE

CUSTOMERSERVICE

COMM. SERVICE

11

CUSTOMERSATISFACTION

Panel D.

BusinessSuccessMORALE

MAN.CAP.

COMM. SERVICE

PLANNING

CUSTOMERRETENTION

ASSETS

CASHROI

WORKINGCAPITAL

CUSTOMERRETENTIONMORALE

QUALITYCASH

ROI

QUALITYEMPL.TRAIN.

TECHNOLOGY

CUSTOMERSERVICE

ALL THE AREAS

12

FINAL SET: HYPOTHETIC CEO METRIC AREAS

BusinessSuccess

PLANNING

CUSTOMERRETENTION

CASHROI

CUSTOMERRETENTION

ROI

QUALITYEMPL.TRAIN.

CUSTOMERSERVICE

CASH

QUALITY

MORALE

SALES

13

STARTS WITH A SIMPLE C&E DIAGRAM

Man Machine

MaterialsMeasurement

MethodSuccessfulBusiness

Effect

Employeetraining

Cash

Communityservice

Sales

Quality

Custo

mer

rete

ntion

ROI

Technology

Capital equipment

Planning

Capital ($)

Assets

Manufacturingcapacity

Morale

Custo

mer

Serv

ice

14

EVALUATE AT EACH LEVEL

Customer retention 5 5 5 15 1 ESales 5 4 5 14 2 EQuality 4 5 4 13 3 CCustomer Service 4 5 3 12 4 CTechnology 5 5 1 11 5 CEmployee training 3 5 2 10 6 CWorking Capital ($) 1 4 4 9 7 EROI 1 5 2 8 8 ECapital spending 2 3 2 7 9 ECash 0 2 5 7 9 EPlanning 1 5 0 6 11 CManufacturing capacity 2 2 2 5 12 EAssets 1 3 1 5 13 EMorale 0 3 1 4 14 ECommunity service 1 2 0 3 15 E

Sen

sitiv

ityT

o T

he M

arke

t

Long

-ter

mIm

pact

Sho

rt-t

erm

Indi

cato

r

To

tal P

oin

ts/

Fin

al R

anki

ng

EvaluationCriteria

Cau

se (

C)

orE

ffect

(E

)

METRIC NAMES

Customer retention 5 5 5 15 1 ESales 5 4 5 14 2 EQuality 4 5 4 13 3 CCustomer Service 4 5 3 12 4 CTechnology 5 5 1 11 5 CEmployee training 3 5 2 10 6 CWorking Capital ($) 1 4 4 9 7 EROI 1 5 2 8 8 ECapital spending 2 3 2 7 9 ECash 0 2 5 7 9 EPlanning 1 5 0 6 11 CManufacturing capacity 2 2 2 5 12 EAssets 1 3 1 5 13 EMorale 0 3 1 4 14 ECommunity service 1 2 0 3 15 E

Sen

sitiv

ityT

o T

he M

arke

t

Long

-ter

mIm

pact

Sho

rt-t

erm

Indi

cato

r

To

tal P

oin

ts/

Fin

al R

anki

ng

EvaluationCriteria

Cau

se (

C)

orE

ffect

(E

)

METRIC NAMES

15

FINAL CEO SET OF METRIC AREAS

Customer Retention Percent of customers (in the last two years) who place an order at least once a quarter (W)

Sales Total sales (W)

Quality Percent of 1st Time “perfects” for each of top three products/services (D)

Customer Service Objective survey results from a random sample of customers (M)

Employee training Percent of employees who have completed two weeks of training in the last 52 weeks (W)

ROI Return on investment (M or Q)

Cash Cash on hand (W)

Planning Percent of managers and supervisors who have completed this metric exercise with the participation of their direct reports (M)

Morale Objective survey results from a random sample of employees (M)

FINAL SELECTEDCEO METRICS

D = Daily, W = Weekly, M = Monthly, Q = Quarterly

DEFINITIONS

Customer Retention Percent of customers (in the last two years) who place an order at least once a quarter (W)

Sales Total sales (W)

Quality Percent of 1st Time “perfects” for each of top three products/services (D)

Customer Service Objective survey results from a random sample of customers (M)

Employee training Percent of employees who have completed two weeks of training in the last 52 weeks (W)

ROI Return on investment (M or Q)

Cash Cash on hand (W)

Planning Percent of managers and supervisors who have completed this metric exercise with the participation of their direct reports (M)

Morale Objective survey results from a random sample of employees (M)

FINAL SELECTEDCEO METRICS

D = Daily, W = Weekly, M = Monthly, Q = Quarterly

DEFINITIONS

16

METRIC MAPS ARE MADE FROMCAUSE &EFFECTS DIAGRAMS

Man Machine

MaterialsMeasur’nt

Method ROA

INVENTORY

ASSETS

CUSTOMERRETENTION

CASHSALES

CYCLE TIME

COMMUNITYSERVICE

CAPITALEQUIPMENT

MORALE

YIELDS

PROFITS

Effect

17

EACH DEPARTMENT/SECTION THEN DOES A C&E ON THE KEY CAUSES

OF THE FIRST EFFECT

Man Machine

Materials

Measur’nt

Method

CUSTOMERRETENTIONLATE SUPPLIER

SHIPMENTS

POOR RESPONSEON CALLS

MORALE

POOR QUALITY12 WEEK LEAD TIME

DEPT: SALES

POOR VOLUMESALES DEALS

NO ORDER HISTORYON COMPUTER

CAN’T TRACKIN-PROCESSORDERS

18

THE PROCEDURE IS REPEATED AT EACHLEVEL, IN EACH DEPT., FOR EACH

OF THE METRICS

CEOLEVEL: SALESV.P.

DEPT.HEAD

METRIC: CUSTOMERRETENTION

ROA

SALESTEAM

% OF CUSTOMERINQUIRIES

HANDLED INTWO DAYS

% OF KEYCUSTOMERS

CALLEDEACH WEEK

19

LEVEL BENEATH CEO (VP SALES FOR “SALES METRIC AREA”)

Man Machine

MaterialsMeasurement

Method

Man Machine

MaterialsMeasurement

Method Sales

Effect

Well-trainedsales reps

Better trackingof orders

No computerizedpricing

Need hard-hittingbrochures

Too little print media

No

cooperation

between

territories

Slow

ord

erin

put Poor

quality

Small travelbudget

No auto-ticklerfile on customers

Poor follow-upon complaints

Customerrelations

Poor

adve

rt.

Customerservice

Panel A:V.P. of Sales

20

LEVEL BENEATH CEO (VP MFG.

FOR “SALES METRIC AREA”)Man Machine

MaterialsMeasurement

Method

Effect

Panel B:V.P. of Mfg.

Ship FromStock Agreements

Sales

Thro

ughp

ut

Spee

d

Quality

WarningOnSpecials

Timely deliveryon custom orders

Breakdowns

Returns hitting later month’s sales

21

ALL THE WAY “DOWN” FORONE METRIC

Customer RelationsCatalog MaterialsEffective AdvertisingProduct PositioningPhone Follow UpCustomer Service

Throughput SpeedQualityCommunications Between

Customers And The PlantWarning On SpecialsShip From Stock Agreements

Major Accounts Called Each Week

Survey ResultsOrder Accuracy

Assignment Of PeopleTo Specific Accounts

Order Input AccuracyCustomers Know

Order Status Data

Unplanned MaintenanceChangeover TimeLot SizesScheduling AccuracyLast Minute Emergencies

Preventative Maintenance Skills

Unplanned Downtown

CEO METRICSCustomer retention

SalesQuality

Employee trainingCustomer Service

ROICash

PlanningMorale

MFG. V.P. METRICSSALES V.P. METRICS

SALES MGR. METRICS MFG. MGR. METRICS

SALES TEAM CELL TEAM

22

CREATING A METRIC MAP

23

METRIC MAP IN PROGRESS

24

METRIC MAPPING COMPLETE

25

A GENERIC METRIC MAP FORMAT

President

Vice Presidents

Directors

Managers

Supervisors

Percent On-time

Cycle Time

Work In Process (WIP)

Costs Per UnitOutput

Defects/Yields

These Metrics Can Be Applied With Minimal Customization By Any Work Group At Any Level

Every Work Group, Every Employee, Every Manager Focused On A Similar Set Of Metrics For Their Own Processes

Micro-processworkers