A process for developing Key Performance Indicators (KPIs)

Since writing The Maintenance Scorecard several major organizations have adopted this approach. This has included companies in the infrastructure, utilities and manufacturing industries. It has been an incredible journey for myself and one that I have learned a lot from. The reason for this post is because I thought that it would be good to detail the process that I generally use for setting up The Maintenance Scorecard (MSC) in large corporations. First the disclaimer - this post does not mean that I do not believe metrics and measures cannot be developed at the local and departmental levels. They obviously can be and they will achieve benefits at that level. However, the maximum value they can deliver is when they are tied into corporate goals and objectives and driven from the top down. Period. But how do you do that? The following is a seven step process that I have used many times to help companies to implement metrics into their organizations. There are generally a lot of pre-discussions that need to take place such as why the balanced scorecard approach is not appropriate for asset intensive industries, and how to set the perspectives correctly for our use and so on. But these are issues for another time.

1. Where are you going?

What are the stated goals of the company? These do not need to be specific to asset reliability or asset management. Moreover they must include all areas of corporate performance. My experience is that these will probably cover issues related to safety, the management of the environmental integrity of the assets, revenue, capital spending goals, and other areas of profitability. Establish very clearly what are the goals of the company, what time frame is being set to achieve these goals, and how will they be measured. Sometimes this can be gleaned from company documents and press releases. But more often than not you will need to establish these through facilitation and discovery. (A reason why the MSC method is best when applied before the following years planning)

2. How can maintenance (read: reliability / asset management etcetera)  help you to achieve those goals?

If the above represents the goals of the organization, (increased market share, increased profitability, reduction compliance risks, reductions of quality variances etcetera) then how can reliability, or the management of your physical asset base, contribute to these? Again, right now don't think too much about measures. Instead think about things like how could the asset base support consistent quality? How could it support reductions in environmental excursions? What can be contributed to increasing the profitability? A lot of this will be pretty straight forward and most of the attendees will be able to volunteer opinions about how this could happen. (With the spark of facilitation of course) But sometimes there may be a need for Production Weibull Analysis, Crow Amsaa applications and other gap / forecasting tools. This will help to determine the potential impacts of slight changes in reliability; allowing everyone to speak from a quantified standpoint.

3. What will it look like when you get there?

Finally - the measures! When we get there, e.g. when the physical assets are being managed in a way that will enable us to reach our corporate goals - what will this look like? Do we need an OEE of 97%, or a through put rate of 94%? What about risk? Can we establish what the level of risk should look like? (1:100,000?) What about productivity, can we put in place metrics ont he overall productivity and effectiveness of our maitnenance efforts? And if we can do, what number would we need to achieve in order to get where the company wants to go. This step, and those leading up to this step, are vital. The alternative, putting in place common use metrics and driving the company towards industry benchmarks is also okay some organizations. But it is a broad brush, we may not need to produce at industry leading rates, or we may be pressured to produce higher than that. Also, and more importantly, our present situation may mean we have a slightly different focus. For example, raging competition in manufacturing means that efficiency in operations is almost king all the time. Whereas companies with recent bad PR issues related to safety or the environment will be in a hurry to demonstrate effective management of these issues. (Such as the BP refinery explosion of course) Other may be suffering from quality of service related issues, and so on. There are many, many ways to measure maintenance. And these steps will make sure you develop the right indicators, with the right targets, for you to achieve our goals. As a guide for this area, the MSC takes an approach designed to match how the CEO thinks of the asset base:
  1. How much are we producing? (Productivity)
  2. How much is it costing us to do so? (Cost Effectiveness)
  3. Are we hurting or killing anybody in the process? (Safety)
  4. Are we breaching environmental standards or relations in the process?  (Environment)
  5. Are we producing at a consistent level of quality? (Quality)
  6. How can we continue to do this into the future? (Corporate Learning)

4.  Where are we today?

Develop the gap analysis. If step 3 is where we want to go, where are we today? This is often the first step to be done outside of the workshop. Determining actual levels of performance could be a large step or a small one depending on the present ability to measure the right areas of performance. It requires analysis and measurement (where possible) of data, asset performance, quality, utilization, risk profiling and where ever else you have determined that performance needs to be monitored.

5. What is needed to bridge the gap between where we are and where we are going?

At about step 4 or 5 it becomes clear whether the goaqls of the company are actually achievable given the present physical assets and their condition, or not. By step 6 we should be determining exactly what initiatives, strategies and improvement projects we need to take in order to achieve the goals of step 3 given the present performance of step 4. This call for experienced heads to ponder what could be done, how it could be done, by whom and how long it will take. It will also require a measure of how much it is going to cost to do it. Again we get to the stage where we can see exactly what will be required for us to achieve our corporate goals. The MSC gives companies the ability to work through their plans and goals to arrive at the minimum cost effective level of improvements and initiatives in order to meet corporate goals. Or, it provides the information required so that expectations can be changed if that is what is required. Once decided, a second layer of metrics can be created. Those measures that tell you the progress and success of the initiatives that you have chosen to bridge the companies performance gap.

6. What skills, capacities and capabilities do we need to achieve this?

You now have a good idea of where you are going, and the measures you wish to use. You also have a good idea of the initiatives you are going to take and how to get there. Now you need to consider what you will need to be able to do all of this. This last line of measures and metrics focuses on issues such as training of resources, completion of work processes, implementation of software and training in its use, in short - all of the additional skills you will need to drive this effort. The MSC is not a measurement tool - it is a strategy development and improvement tool. And it has changed the fortunes of major companies around the world. I hope this is of use to you.
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  • <p>StrategyDriven contributors believe performance measures serve to align an organization’s efforts to the achievement of its mission. As part of a company’s evaluation and control program, they quantifiably monitor important characteristics of the company’s products and services and the performance of the individuals and processes creating them. Performance measures support managerial decision-making by providing useful information regarding:</p> <p>* how efficient and effective are the company’s processes and the individuals implementing them * if product or service improvements are necessary * if the company’s customers and stakeholders are satisfied * if the company is meeting its stated goals</p> <p>Performance measures best serve an organization when they are understandable, broadly applicable, uniformly interpreted, and economic to apply. They should cascade through and organization’s hierarchy such that achievement of lower tiered performance goals support higher tiered goals that in turn ultimately support achievement of the company’s mission.</p> <p>Posts in StrategyDriven's Organizational Performance Measures category discuss the leading practices of companies that successfully use performance measures to drive organizational alignment and operational performance.</p> <p>I hope you and your readers will visit the StrategyDriven website and share your thoughts and insights with us.</p> <p>All the Best, Nathan Ives Principal Contributor and co-Host, StrategyDriven Podcast StrategyDriven</p> <p>www.StrategyDriven.com</p>


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