Generally speaking, one of the biggest problems associated with continuous improvement and problem solving is the selection of the most appropriate performance measures or performance metrics.
Example – Measures Used in the Sport of Baseball
We can use a broad variety of performance measures or performance metrics to assess the success or failure of individual baseball players as well as their teams. These ratios will vary depending on a player’s position.
The world of commerce and industry uses a multitude of financial performance measures or performance metrics at the organizational or enterprise level. These include ratios such as return on net assets (RONA) and return on investment (ROI).
These ratios and other nonfinancial ratios such as market share and name recognition index are dependent variables that numerically describe the level of success or failure of an organization for a specific period of time, for example, one quarter of a fiscal year.
But how organizations achieve these levels of success or failure is of greater importance (see figure below). Independent variables such as customer satisfaction indices, defect rates, and supplier capability indices provide this information. When these factors reflect well on an organization, their dependent variables are much more likely to reflect overall enterprise success.
These can be treated as dependent variables with an entirely new set of independent variables such as conveyor speeds, temperature settings, spindle speeds, work-in-process (WIP) levels, and more. The independent variables are direct measures of the processes that constitute the enterprise systems creating products and services that generate organizational income.
The most difficult question for most people is what performance measures or performance metrics to use for their system, their process, or their particular step or operation within a process.
The easiest way to respond to this question is to rephrase the question so that it reads: “What’s important to either the internal or external customer that can be measured or counted?”
If this question can’t be answered directly, then try, “What’s important to the customer that can’t be directly measured or counted, but can be assessed indirectly using one or more proxy measures or counts?”
A sequence of top-down performance measures or performance metrics can demonstrate this approach to continuous improvement.
Relationships of independent and dependent variables as performance metrics
Excerpted from Jack B. ReVelle’s Quality Essentials: A Reference Guide from A to Z, ASQ Quality Press, 2004, pages 127–129.