First Edition Dated September, 2000 17
processes. Measurements help management understand where they are and
whether they are making strides in achieving organization goals.
The purpose of performance measurement is to identify areas needing
effort and to monitor progress.
Performance measures should reflect both effectiveness and efficiency.
Effectiveness
Effectiveness is measured through customer satisfaction, either internal or
external.
External measures could include delivery timeliness, customer rejection
rate, warranty costs, and product reliability.
Internal effectiveness measures could include first pass yield, rolled
throughput yield, number of engineering changes, timeliness, product
defects at any stage of the process, and amount of scrap, rework,
reinspection, errors, mistakes, and flaws.
Efficiency
Efficiency is measured by the time and resources needed to produce a
product, whether it is a physical product or the outcome of a business
process.
Examples include cycle time, number of inspections/tests per day, amount
of work in process, number of people or amount of time required to
complete a specific paperwork process, excess inventory level ("Just in
case" inventory) and costs per unit.
Both types of performance measures should have business and economic
implications, and quality improvements should be translated into economic
measures wherever possible. Of course, many quality improvements are not
directly measurable (e.g., reputation, new business prospects, customer
loyalty). Some improvement activities may be valuable to do from a business
perspective and may be measurable, but it may not always be possible to link
them directly to the bottom line (e.g., research and development spending).
The performance measures should be developed using a top-down approach.
That is, high-level customer-oriented measures should be developed and
flowed down into the organizations producing the work, with each level
supporting the next higher level performance measure. The number of
