It goes without saying that metrics play a pivotal role in business process analysis. They help define the performance levels expected of their processes and operations. Not only that, the right process metrics allow you to identify inefficiencies, evaluate the impact of process changes, and drive continuous improvement.
To give you a deep-dive into the topic of process metrics, we've asked Operational Excellence Sherpa Peter Evans to open his book on process measurement best practices based on 30+ years of leading process excellence in leading businesses such as General Electric, LEGO Group, Maersk and Virgin Media.
You'll find everything from process metric types to examples and a few of Peter's best practices. It's a meaty topic, so let's get started!
Why are metrics important in business process management?
Process metrics provide the data and insights to objectively evaluate how business processes are working and whether they're aligning with the company's goals.
Not only that, process metrics also facilitate evidence-based decision-making, enabling enterprise leaders and teams to make informed decisions to manage business operations, process redesign, and strategic planning.
In Peter Evans’ view you need to see metrics from a holistic perspective. "In my operational excellence world, I worry about strategy, I worry about people, I worry about process, and I worry about performance. Not only that, I worry about our customers and I worry about our suppliers. I would want to see a set of measures that reflect that at every level of the company."
How are KPIs different from process metrics?
While they're often used interchangeably, Key Performance Indicators (KPIs) and process metrics have slight differences. KPIs can be seen as a subset of metrics, often tied directly to the organization's strategic objectives typically within a defined timeframe, like monthly or quarterly targets. Quite simply, the KPIs are a snapshot of the overall health and success of the business.
On the other hand, process metrics are specific measures that focus on the performance of particular business processes. They monitor and evaluate the efficiency, effectiveness, and flexibility of a process, helping businesses to identify where improvements are needed. Process metrics can be time-bound targets, but they can also be used to measure continuous improvement.
Who should decide process metrics?
According to Peter Evans, there is no simple answer to 'who should decide process metrics.' It's neither a top-down or bottom-up decision, but more of a cascade of action-oriented measurements based on strategy across different levels of the organization.
"I wouldn't want the company board to be setting process metrics. I would want them to set strategy. In addition, I would want them to communicate the strategy and test whether the strategy is being measured and delivered against in operations. On a high level, you should have a set of metrics that test that strategy is being delivered. Then the cascade measures needs to align with the cascade of strategy built across the organization to ensure you're all focused on the right things."
Case study: see one of Peter's detailed case examples of how corporate strategy influenced process analysis execution and improvement at GECAS.
What types of metrics and KPIs can you use to measure processes?
Process metrics can be broadly categorized into five types:
- Process efficiency metrics - that measure the resources used in completing a process.
- Process variance metrics - that measure variation in standard processes over time.
- Process effectiveness metrics - that measure the success of a process in achieving its desired outcome.
- Process control metrics - that valuate conformance to business rules and regulatory standards.
- Continuous improvement metrics - that measure the impact of process improvements over a longer time period or against agreed objectives.
Process efficiency metrics
Efficiency metrics are used to measure the performance and productivity of a business process. They evaluate how well a process uses resources, including time, money, and manpower, to deliver outputs. By looking at these metrics, businesses can identify areas where waste can be reduced and process speed can be increased.
Examples of efficiency metrics include:
- Cycle time: This is the total time taken to complete a process from start to finish. A shorter cycle time may signify a more efficient process.
- Cost per transaction: This measures the total cost to carry out a process for each transaction. By reducing this cost, businesses can increase the profitability of each transaction.
- Resource utilization: This measures the percentage of available resources that are used in a process. Higher utilization generally signifies more efficient use of resources.
Process variance metrics
Variance metrics evaluate the consistency of a process. They measure the difference between the actual process performance and the expected or standard performance. By analyzing variance metrics, businesses can understand the degree of unpredictability or risk in a process.
Examples of variance metrics include:
- Standard deviation: This measures the amount of variation or dispersion in a set of values. A low standard deviation indicates that the values are close to the mean, implying a more consistent process. Standard deviation can be measured as part of process variation analysis, or through various Six Sigma initatives.
- Range: This is the difference between the highest and lowest values in a set. A smaller range suggests less variance and more consistency in the process. The Pareto principle can visualize range in process performance, where typically 80% of outcomes are resulting from 20% of causes.
Effectiveness metrics measure the ability of a process to achieve its intended results. They focus on the quality and outcomes of a process, rather than its efficiency.
Examples of effectiveness metrics include:
- Customer satisfaction or CSAT: This measures how well a product or service meets or exceeds customer expectations. Higher customer satisfaction scores often indicate a more effective process.
- Error rate: This measures the number of errors or defects produced during a process. A lower error rate suggests a more effective process.
- Quality rate: This is the proportion of output that meets a specified quality standard. A higher quality rate suggests a more effective process.
Process control metrics
Control metrics are used to monitor compliance and conformance within a business process. They help to ensure that processes are operating within acceptable parameters and complying with relevant regulations and standards.
Examples of control metrics include:
- Compliance rate: This measures the extent to which a process complies with a set of standard rules or regulations. A higher compliance rate indicates a more controlled process.
- Risk incidents: This measures the number of times risks identified in the process have occurred. Fewer risk incidents imply a better-controlled process.
Continuous improvement metrics
Improvement metrics assess the impact of changes made to a multiple business processes. They help to quantify the benefits of process improvements, which can include cost savings, improved efficiency, better quality, or higher customer satisfaction.
Examples of continuous improvement metrics include:
- Cost: This measures the cost efficiency or effective savings realized from implementing process improvements. Total cost of ownership calculations or should-cost modelling can help analyze and drive the cost benefits of continous improvement.
- Improvement in cycle time: This measures the decrease in cycle time after implementing improvements. A larger decrease in cycle time indicates more effective improvements.
- Reduction in error rate: This measures the decrease in error rate after implementing improvements. A larger reduction indicates more effective improvements. In services, error rate can also be measured by the amount of re-work.
Each type of process metric provides a unique perspective on a process's performance, and together, they offer a comprehensive view of process efficiency, effectiveness, variability, control, and improvement.
How to use process metrics to improve operational excellence
Process metrics provide a tangible method to monitor the progress of strategic goals, making it easier to track and manage operational success.
Process metrics start with strategy
Peter Evans’ suggestion is clear and simple. "I always take an operational excellence view of things, which says that all things need to be connected. You start with purpose and strategy and then move on to performance. The process performance you're looking for needs to relate directly to your strategy, whatever that is."
Using metrics to improve operational performance
Operational performance directly correlates to a company's success, marking its significance in every field of business. Different industries have varied KPIs and metrics reflecting their operational performance. However, certain metrics are universal and beneficial for all types of businesses.
Operational efficiency metrics
These metrics help determine the time and resources required to deliver a product or service. They include metrics like cycle time, throughput and capacity utilization.
Quality metrics measure the level of quality delivered through your operations. They include indicators like defect rates, return rates, amount of rework and customer satisfaction scores.
Cost metrics identify the total cost of producing a service or product. They can help manage expenses and enhance profitability. Examples include cost of goods sold (COGS), operating expense ratio (OER), and cost variance.
Especially in service-based teams and functions you may have metrics related to the capacity and tasks assigned to teams and individuals. The objective here is to ensure that everyone has sufficient resources to complete their tasks successfully.
Case example from claims handling
Process metrics don’t always have to be complicated to be effective. Peter shares an example from his time visiting an insurance company claims handling operation where they used a traffic light system to indicate how team members were feeling. In this case the measurement was simply how much work or capacity everyone had at a given time.
“If the color was red on a particular day it meant the employee needed help and others would be tasked to support. In total, 12 teams had the color coded signs in use - either green, amber or red to indicate active workload and capacity. If you were green and somebody else was red, it was your duty to go and help that team. Plain and simple.”
The virtuous circle of process metrics and a customer focus
Process metrics and a customer-centric focus go hand-in-hand. Or, as Peter Evans describes, they should work like a 'virtuous circle.'
"When you break down process measurement and go deeper and deeper from the point of view of the customer you create a virtuous circle. For example, in customer services, start by defining what is a reasonable response time for a complaint. Start from there and then work back to what measures and resources need to be put in place to make it happen. When you start with the customer first you find ways to measure what matters and deliver results."
Deep dive: see one of Peter's detailed example of how customer journey mapping improved the key measurable goal of net promoter score (NPS) in the telecommunications industry.
How to use metrics to redesign existing processes
Process metrics are an indispensable tool in business process redesign as they provide an evidence-based framework for identifying inefficiencies and measuring improvements. Metrics can help you re-engineer key processes and provide a tangible way to measure the results of your changes.
Process re-engineering can be complex and resource-intensive. Without metrics to guide your decisions and validate your efforts, you might end up investing a lot of time and money into changes that yield little improvement in operational performance.
As Peter Evans puts it, "processes start from input > process > output, while key measures work from output > process > input in the opposite direction. It's good to start from the desired outcome and go in the other direction. Start with the output and decide what is the acceptable level of achievement."
Here is a simple five step method for utilizing metrics in process improvement and redesign:
- Identify inefficiencies. Metrics can help identify processes that are underperforming or inefficient. These become the primary targets for redesign.
- Set goals and benchmarks. Once the problematic processes have been identified, metrics can be used to set goals and benchmarks for the redesigned process.
- Measure the impact of process redesign. After the processes have been redesigned, the same metrics should be used to evaluate the effect of these changes. This helps ensure that the changes made have led to improvements and helps identify any additional tweaks that might be necessary.
- Monitor and adjust. Post-redesign, continue using the metrics to monitor the processes regularly. This allows for early identification of any new inefficiencies and ensures that the redesigned process remains effective over time.
Case example from telecoms customer services
To prove his point, Peter shares one example from the telecoms sector customer services function. As Peter was tasked to analyze the performance of a customer service unit, he observed how performance was initially largely measured around the core metric of average handling time. However, this single focus lead to a number of undesirable practices, such as taking on the easy customer cases and delaying the resolution of more difficult complaints. Ultimately, when difficult complaints were not resolved, this had a negative impact on customer satisfaction. The reputation of the company was plummeting on the back of poor service.
Peter's solution was to first analyze and undertand the process from the customer's perspective. Then, they segmented complaints by type, giving a different flow for difficult and easier cases. They took less experienced customer service agents to handle simpler matters, such as billing queries. Then, they took more experienced agents and gave them responsibility and unique metrics to handle more complicated challenges. By breaking down the metrics and workflows between simpler and more difficult cases, the performance of the customer services function ultimately improved.
How to choose the right business process metrics
Selecting the appropriate business process metrics is a crucial aspect of any business's strategic planning. These metrics not only guide the decision-making process but also provide a basis for continuous improvement. The right metrics can offer clear insights into efficiency, quality, and profitability, assisting in identifying areas for improvement.
1. Identify your business goals. What are you trying to achieve? Your business goals will guide your choice of metrics.
2. Determine the processes that align with these goals. Identify the processes that directly impact your goals. These are the ones you want to track.
3. Select your key metrics. Choose relevant, measurable, and understandable metrics that align with your business goals and processes.
4. Implement, track, and review. Implement your chosen metrics, track them regularly, and review them to ensure they're providing the insights you need. Be prepared to tweak or change your metrics if they're not giving you the information you need.
What makes good process metrics and KPIs
Metrics themselves don't improve processes - but the appropriate measurements can help you diagnose existing processes and set you on a path to process improvement.
How do you know you've set the right metrics?
The metrics you choose should be relevant to the specific business process you're analyzing. They should directly reflect the efficiency and effectiveness of the process and provide actionable insights.
A good metric is quantifiable. It's vital to choose metrics that can be clearly measured and tracked over time. For example, you might measure the time it takes to complete a certain process, the cost involved, or the number of errors made.
Simple and understandable
Metrics should be easy to understand and interpret. If a metric is too complex or obscure, it won't effectively communicate the information needed to make improvements.
Aligned with business goals
Ensure that your metrics align with your overarching business goals. If your business aims to improve customer satisfaction, for instance, consider metrics related to customer feedback, resolution times, or return rates.
Case example from accounts payable
Peter's case example of a good business operations metric comes from his time at both LEGO Group and GECAS (GE Capital Aviation Services) where payment on time to suppliers was a key measurable goal and matter of integrity for the organization.
Starting with the measurable output of payment within 30 or 60 days Peter's Operational Excellence team reverse engineered the accounts payable tasks and process steps to identify key bottlenecks.
When was the invoice received, how quickly was it processed and what approval measures are needed? These types of questions give answers in the form of static process metrics to measure average cycle time. According to Peter, they typically also reveal a Pareto effect where 80% of problems are caused by 20% of actions.
With the desired output in mind and metrics to measure every step of the way, root-cause analysis can provide additional details to some of the bottleneck areas. In accounts payable delays or re-work can be caused by missing key invoicing details or purchase orders.
Other times, process delays can be caused by lack of consistency or by process bloat, where over time processes become more complex. With the right process metrics in place, these bottlenecks or process conformance challenges can be identified and removed over time.
Five best practices for effective process metrics
Peter has a few things to watch out for when aligning operational metrics with process improvement.
Tip 1: Look for a balanced scorecard
One best practice Peter Evans suggests is utilizing the Balanced Scorecard model developed by Dr. Robert Kaplan and Dr. David Norton.
"From a matter of principle, I look for a balanced scorecard. You have a number of quadrants that you should worry about, not least of all customer. Of course shareholder or stakeholder, depending on how that works. Your operational metrics need to all balance out with these different perspectives."
Tip 2: Don't just rely on standard metrics
Peter recommends that you shouldn't measure things just because they are industry standards. To prove the point, he mentions the example of typical call center metrics, such as average handling time.
"You often see organizations that are very heavily balanced to measuring everything that moves, but actually when you dig deeper you find the metrics not connected to anything. Things such as average handling time in call centers actually matters if it can be tied into positive behavior and performance.
Depending on how it's managed and how it's measured and how it's rewarded for is not necessarily good and don't necessarily deliver on your strategy. In fact, they can go exactly against your strategy. If the metric is to close phone calls down, that's what people will do. Irrespective of whether the customer has been served or the case has been handled."
Tip 3: Measure for a reason with a consequence
In Peter's view "measurement is really important, but you do it with your head on. Everything you measure needs to be for a reason with a consequence. You need to ask not only 'what am I measuring,' but also 'what action will I take' and 'what am I going to do if things are not going right?' You don't just create a nice shiny pack of metrics because that's what your boss wants, but you create metrics in order to act and actively manage your performance."
Tip 4: Combine metrics with related documentation
Another best practice Peter shares is pairing measurement with process documentation. In some companies this may come in the form of standard operating procedures (SOPs), but also on a tactical level this can also be documentation about how tasks are performed.
"You can go and see if that 'one best way' is being followed in teams, along the lines of Frederick Winslow Taylor. You may find that processes are not being adhered to because someone has found a better way of work. You might also find that things have been added over time, or work has simply become more difficult over time. All of those things link together. You need to measure and visualize this variance in processes in order to manage it."
Tip 5: Prioritize leading indicators
Peter's list of process measurement best practices is practically endless, but here is one more key tip: he suggests you prioritize leading indicators over lagging indicators if you want to see impact on operational performance and process improvement.
Leading indicators are measurable factors that reveal potential issues before they become operational challenges. They can be used to predict and anticipate future events or trends, and optimize capacity proactively based on market and supply dynamics.
One example of a good leading indicator Peter shares is from his time at Maersk, where they would predict the need for shipping containers at a port before a ship would arrive. Knowing in advance the expected demand for shipping containers helped Maersk optimize fleet capacity proactively.
In this article we went through how to effectively use metrics in business process analysis with examples and five best practices shared by Peter Evans.
To summarize, process metrics are quantifiable measures used to determine the success or progress of a business process. They serve as a critical tool for assessing current performance, setting objectives, and evaluating improvements.