Key Results Areas and Key Performance Indicators

In the previous article, we saw how the “Lead 2 Cash” journey might be structured in terms of the Sub-Processes that make up the journey. Examination of the possible routes shows that there is no one simple route, simply because the route taken depends on the customer’s requirements, so a couple of alternative routes might be as follows:

1. Response to ITT/RFP, Order Processing, Order Management, Product/Service Provisioning, Delivery/Despatch, Invoicing, Credit Control, Payment Processing, Management Reporting
2. Marketing Planning, Lead Generation, Bid Management, Order Processing, Order Management, Product/Service Solution Desin, Product/Service Provisioning, Delivery/Despatch, Invoicing, Credit Control, Payment Processing, Management Reporting

We can see from this, that whilst there are common Sub-Processes involved, the key measures will depend on the path taken. So how do we cope with this? The solution is to take each Sub-Process and identify the measures that are critical to that Sub-Process. We call these Key Performance Indicators or KPI’s.

Bear in mind that there will be variation in the Time, Costs, Quality and Number measured in each Sub-Process. This is because it never takes the same time or costs the same or produces the same quality or processes the same number every time a process is followed. Knowing the variation in these indicators allows a business to understand what the overall measures are for any particular “Lead 2 Cash” journey. This allows for better control of the business and can prevent a business from making promises it cannot keep (e.g. promising a delivery date when there is no realistic way all the Sub-Processes can be followed properly to deliver at that date). If the business does not know the capability of its processes, Time, Cost, Quality or Quantity will usually be compromised.

So let’s take a Sub-Process (Say Order Processing) and see how it might be broken down into some meaningful steps. All processes will have the following attributes:

* Planning/Re-Planning
* Doing/Re-Doing
* Checking/Re-Checking
* Acting/Re-Acting

All processes have entry points and exit points, they use resources (such as people, technology, money, time, materals, data etc). Proceses ultimately have to produce something (The product or service) and in addition will produce information about what has happened in the process (Records, such as reports, charts, information, evidence of activities etc).

A simplifed view of a process would be as in the diagram below:


Note that here we are looking at the time intervals for each step in the process (e.g. T0-T1, T2-T3 etc) and the time intervals between the steps (e.g. T1-T2, T3-T4 etc). The time intervals between steps typically occur when work is passed from one person to another and when totalled together can have a major contribution to the overall total time taken to pass through the process. This is where most of the delays are likely to be. These may be down to the next person in the chain being busy doing something else or to the way in which the work is passed on (Internal post, placed in an In-Tray, Hand-Delivered etc). Remember that time is money. The amount of time taken can have a significant impact on the overall cost of processing an order.

We can do the same for the costs of each step. Each step requires people, who are a cost, technology, materials, parts etc. When we start to total these up, we can begin to see where the major costs are in a process and then begin to look at ways of bringing down those costs.

Quality can be less easy to measure as there is sometimes a level of subjectivity in how it is measured. Consider “Customer Satisfaction”. How to measure this? We can ask customers, but the reality is that not all customers are interested in providing the information in a meaningful way. In other cases, it is easy to measure, for example, the percentage Pass or Failure rate of a production process.

Number is the final measure, so we can measure the number of orders received per day, per market sector etc. We could measure the number of orders that are accepted and the number rejected. Rejections or failures in a process require additional work to be done, hence increasing costs.

One thing to beware of is measuring everything. What is important to management are the critical measures of business performance (the KPI’s), linked to the Key Results Areas (KA’s) or objectives of the business.

If we take the Order Processing example above, the measures that interest Management might be as follows:

* Number of Orders by product (or customer, or market sector)
* Value of Orders by product (or customer, or market sector)
* Order Processing Time (T0-T7)
* Cost to process an order
* Percentage of Orders processed without problems

Once we know these measures, we can track them, analyse them and then determine what actions to take (if needed) to improve the process.

In the next article, I shall look in more detail at the principles involved in how to capture a process.

Improving Lead2Cash for SME’s Article 4

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