CASTRO, BrixanneSALVADOR, Rochelle AnnSantos, DominicSison, Jovert

PERFORMANCE MEASUREMENT AND INFORMATION MANAGEMENT

Is a fundamental building block of Total Quality Management and a total quality organization

Kelvin Anon “You cannot manage what you cannot measure”

PERFORMANCE MANAGEMENT

Organization need good measure for three reasons:

To lead the entire organization in a particular direction; that is, to drive strategies and organizational change

To manage the resources needed to travel in this direction by evaluating the effectiveness of action plans

To operate the process that make the organization work and continuously improve

THE SCOPE OF PERFORMANCE MEASUREMENT

Effective information systems provide the right information to the right people at the right time. As a result individual in manufacturing can have input on product design and sales; designers can obtain immediate feedback about manufacturing and financial implications of decisions; and everyone can share information for solving problems. Empowered individuals with the right information can make more timely decisions and can take action to better serve customers

Individual level – such information about quality performance, adherence to schedules and costs operations provide real-time information for feedback process control.

Process level – operational performance data such as yields, cycle times, and productivity measures help middle managers determine whether their processes are accomplishing their objectives

Organizational level – product and service quality and operational performance data from all areas of the firm, along with relevant customer, financial, human resource, and other organizational effectiveness data.

THREE LEVELS OF QUALITY

Traditionally, most organizations have relied on performance data based almost solely on financial or accounting-based factory productivity considerations, such as return on investment, earnings per share, direct labor efficiency and machine utilization

To achieve a high level of performance, excellence requires a much broader set of performance measures that are aligned to an organization’s strategy.

Art Scneiderman at Analog Devices first developed concept of balanced scorecard in 1987

The purpose of balanced scorecard is to “translate strategy into measures that uniquely communicate your vision to the organization”

THE BALANCED SCORECARD

Financial Perspective – measures the ultimate results that the business provides to its shareholders. They include profitability, revenue growth, return on investments, economic value added (EVA) and shareholder value

Internal Perspective – focuses attention on the performance of the key internal processes that drive the business. They include such measures as quality levels, productivity, cycle time and cost

Customer Perspective – focuses on customer needs and satisfaction as well as market share. This includes service levels, satisfaction ratings, and repeat business

Innovation and Learning Perspective – directs attention to the basis of future success – the organization’s people and infrastructure. Key measures might include intellectual assets, employees satisfaction, market innovation, and skills development.

THEIR VERSION OF THE BALANCED SCORECARD CONSISTS OF FOUR

PERSPECTIVES

Organizations need to know what is happening now and what might happen in the future. For example, customer survey results about recent transactions might be a leading indicator for customer retention (a lagginh undicatr); employee satisfaction might be a leading indicator for turnover, and so on.

A good balanced scorecard contains both leading and lagging measures and indicators. Lagging measures (outcomes) tell what has happened; leading measures (performance drivers) predict what will happen.

Leading and lagging measures and indicators can help to establish cause-and-effect relationships across perspectives.

The Malcolm Baldrige Criteria for Performance Excellence Resls category groups performance measures into six sets:

Product OutcomesCustomer-focused OutcomesFinancial and Market OutcomesWorkforce-focused OutcomesProcess Effective OutcomesLeadership Outcomes

Relevant measures and indicators of an organization’s performance as viewed by customers include direct of customer satisfaction and dissatisfaction, customer retention, gains and losses of customers and customer accounts, customer complaints, and warranty claims, perceived value, loyalty, positive dimensions.

Service quality measures often revolve around the dimensions of reliability assurance, tangibles, empathy and responsiveness.

CUSTOMER-FOCUSED OUTCOMES

In-stock service levelsOn-time deliveryOrder completenessEmergency response timeEase of dealing with supplierEase of contact with customer service departmentComplaint handlingAccuracy of shipmentOrder cycle timeProduct quality and performance

3M’S MEASUREMENTS INCLUDE THE FOLLOWING

Financial measures are generally tracked by senior leadership to gauge overall organizational performance and are often determine incentive compensation for senior executives.

Measures of financial performance might include revenue, return on equity, return on investments..

A useful financial performance indicator is the cost of quality, which managers use to prioritize improvement projects and gauge the effectiveness of total quality efforts.

FINANCIAL AND MARKET OUTCOMES

Marketplace performance indicators could include market share, measures of business growth, new product and geographic markets entered, and percentage of new product sales as appropriate.

Workforce-focused outcomes show how well the organization has created and maintained a productive, engaging and caring work environment.

WORKFORCE-FOCUSED OUTCOMES

Measures and indicators of process effectiveness and efficiency might include work system performance that demonstrates improved cost savings or higher productivity by using internal or external resources.

PROCESS-EFFECTIVENESS OUTCOMES

With an increased focus on issues of governance, ethics, and leadership accountability, it is important for organizations to practice and demonstrate high standards of overall conduct. Relevant performance measures can help organizations monitor these issues.

LEADERSHIP OUTCOMES

The purpose of a performance measurement system include the following:

Providing a perspective of the past, present, and future

Identifying trends and progressFacilitating understanding of cause and effect

relationshipAllowing performance comparison to

benchmarks

DESIGNING EFFECTIVE PERFORMANCE MEASUREMENT

SYSTEMS

Mark Graham Brown suggests some practical guidelines for designing a performance measurement system :

Fewer is better. Concentrate on measuring the vital few key variables rather than the trivial many.

Measures should be inked to the factors needed for success, namely, the key business drivers.

Measures should include a mix of past, present, and future to ensure that the organization is concerned with all three perspectives.

Measures should be based around the needs of customers, shareholders, and other key stakeholder

Measures should start at the top and flow down to all levels of employees in the organization.

Measures should be changed or at least adjusted as the environment and strategy changes.

Process measures should also clearly align with customer requirements.

At the process level, product and service quality measures focus on the outcomes of manufacturing and service processes.

PROCESS-LEVEL MEASUREMENTS

Six Sigma began by stressing a common measure for quality

In Six Sigma terminology, a defect is any mistake or error that is passed on to the customer.

A unit of work is the output of a process or an individual process step. A measure of output quality is defects per unit.

Defects per unit = Number of defects discovered/Number of units produced

DPU tends to focus on the final product, not the process that produce the product.

Critical defect – is one that judgement and experience indicate will surely result in hazardous or unsafe conditions for individuals using, maintaining, or depending on the product and will prevent proper performance of the product

Major defect – is one not critical but likely to result in failure or to materially reduce the usability of the unit for its intended purpose

Minor defect – is one not likely to materially reduce the usability of the item for its intended purpose, nor to have any bearing on the effective use or operation of the unit

MANY ORGANIZATIONS CLASSIFY DEFECTS INTO THREE CATEGORIES:

Identify all customers of the system and determine their requirements and expectations.

Define the work process that provides the product or service.

Define the value-adding activities and outputs that comprise the process.

Develop specific performance measures or indicators.Evaluate the performance measures to ensure their

usefulness.

IDENTIFYING AND SELECTING PROCESS MEASURES

Aligning strategic and process-level measurements is vital to a high-performing organization, and can be viewed as an approach for strategy deployment.

Alignment is tied fundamentally to the performance goals: the measures support goal attainment.

Enterprise Resource Planning (ERP) – systems are software packages that integrate organizational information systems and provide an infrastructure for managing information across the enterprise.

ALIGNING STRATEGIC AND PROCESS-LEVEL MEASUREMENTS

Analysis refers to an examination of facts and data to provide a basis for effective decisions:

Examining trends and changes in measures and indicators using charts and graphs

Calculating a variety of statistical measures such as means, proportions, and standard deviations

Appling sophisticated statistical tools such as correlation and regression analysis to help understand relationships among different measures

Comparing results relative to other business units, competitors, or best-in-class benchmark

ANALYZING AND USING PERFORMANCE DATA

Examples of such analyses are: How product and services quality improvement correlates

with they key customer indicators such as customer satisfaction, customer retention, and market share

Financial benefits derived from improvements in employee safety, absenteeism and turnover

Benefits and costs associated with education and training Relationships between product and service quality,

operational performance indicators, and overall financial performance

Profit impacts of customer satisfaction and retention Impacts of employee satisfaction on customer satisfaction

INTERLINKING – is the term that describes the quantitative modelling of cause-and-effect relationships between performance measures, such as the customer satisfaction and product quality or employee performance

LINKAGES BETWEEN KEY MEASURES OF BUSINESS OF BUSINESS

PERFORMANCE

Data Mining – is the process of searching large databases to find hidden patterns in data, using analytical approaches and technologies such as cluster analysis, neutral networks, nad fuzzy logic

Comparative data are needed because an organization needs to know where it stands relative to competitors and to best practices

The effective selection and use of comparative data and information require the determination of needs and priorities, criteria for seeking appropriate sources for comparisons

Comparative data may be obtained in many ways and include third party surveys and benchmarking approaches

THE ROLE OF COMPARATIVE DATA

The analysis of data provides the foundation for management review

Managers review performance results for several reasons:

To assess organizational success and performance relative to competitors

To understand how well progress on strategic objectives and action plans is being achieved

To identify priorities for improvement and opportunities for innovation for products, services and processes

Data summaries are integrated and reported to appropriate committees, company leadership and physicians

PERFORMANCE REVIEW

The concept of cost of quality emerged in the 1950sThe reporting of quality-related costs had been

limited to inspection and testing; other costs were accumulated in overhead accounts

Cost of Quality approaches have numerous objectives, but the most important one is to translate quality problems into the “language” of upper management- the language of moneyTo establish a cost of quality approach, one must identify the activities that generate cost, measure them in a way that is meaningful to managers.

THE COST OF QUALITY

Prevention cost – are investments made to keep non-comforting products from occurring and reaching the customer

Appraisal cost – are those associated with the efforts to ensure conformance to requirements, generally through measurement and analysis of data to detect non-conformances

Internal failure cost – are incurred as a result of unsatisfactory quality found before the delivery of a product to the customers

External failure cost – occur after poor-quality products reach the customer

QUALITY COST CLASSIFICATION