KPI Evaluation: 100 Widgets Produced = Sun Shining

Jul 23, 2014

First of all, someone hurry up and produce 100 widgets because the sun is not shining here in Northwest Ohio today. Typical Ohio weather! Yesterday it was over 90 degrees and sunny and today it’s cloudy, possible chance of rain and we will be lucky to hit 70! Some people like this weather and if it was fall I would too, but I do prefer the hot days of summer personally!

Typically comparing the sun shining to producing 100 widgets produced would be quite useless. I am sure there is some place where that comparison may make sense, but its clear these two things have nothing to do with each other. I would say they do not even fall in the apples to oranges category because at least those are both fruit!

When you are putting together and using Key Performance Indicators (KPIs) it is important that they are relevant and are giving you good, timely, information. Determining if you are meeting your production standards would make sense over a period of time, an hour, a shift, a day, etc. Looking at that by the minute or by the month most likely would not make sense.

Typically you want to make sure you have goals set for production, recovery, scrap, utilization, etc. Comparing those over relevant time periods and in a relevant bubble is crucial. If your time frame is too short you may be falsely lead to believe everything is accurate. If your time frame is too long you may have an ongoing issue that you could have interceded on before overspending.

It is also important to have financial metrics to make sure you are making goals for cash flow, profit, receivable cycles, etc. Again looking at these in a the correct time frame and comparing the correct things are vital. If you are looking at the receivable cycle you of course would not care about the payables you have. Of course if you do not collect on your receivables you may not be able to pay your payables, but the actual AR cycle does not have anything to do with payables.

Do not just compare things or look at metrics for the sake of looking at metrics, you are wasting your time if you are not comparing accurate and timely data. Determine what makes sense for you and your industry and step back and ask yourself do these things have anything to do with the other and what is it telling me and would a different comparison or different time frame give me better or worse information.

Categories: Cost Accounting