How to define your businesses quality metrics and KPI’s
The difference between KPIs and quality metrics
We are often asked what the difference between a key performance indicator (KPI) and a quality indicator is. While there is overlap between the two, a KPI is a quantifiable measure that evaluates the success of your company in achieving its business goals. A quality indicator, on the other hand, is a metric that shows how well your products or services meet customer and industry expectations.
When defining your KPIs and quality metrics, you want to keep in mind:
- That you identify the areas of your business that are most likely to inform success
- You have a blend of lead and lag indicators, for example, adherence to budget is a lag indicator, and customer satisfaction is a lead indicator.
- You establish clear and achievable goals for each metric that are SMART.
- You have a system for tracking and monitoring your metrics on an ongoing basis.
There are a variety of different quality metrics and KPIs that businesses can track, but it’s important to choose ones that are relevant to your specific industry and business goals. KPIs and quality indicators generally fall into the following categories:
- Quantitative or numeric indicators – indicators that can be measured and analysed as discrete numbers, such as ratios, percentages, or whole numbers. These are generally appropriate for financials, digital marketing, and delivery of products.
- Qualitative indicators – these indicators relate to opinions and non-discrete data and are used to understand trends and themes within your business. They are generally helpful in understanding the long-term success of the business and are generally appropriate for customer experience, staff satisfaction, and the effectiveness of processes and procedures.
- Lag indicators – indicators that inform past performance. This informs how effective your planning processes are and can provide insights into whether your planning has been too ambitious or too risk averse. These have a lot of cross over with quantitative indicators, for example in finance.
- Lead indicators – indicators that inform future performance. This informs how you may perform in the future, for example, if you conduct a staff engagement survey and there is high engagement, it is likely you will retain your staff, which will assist in implementing and reaching your business goals.
- Input versus output indicators – input indicators inform the resources you used to produce an outcome and an output indicator informs the efficiency or effectiveness of the input resources. This is more utilised in product-based businesses but can also be helpful for service businesses. For example, you purchase 1 tonne of flour, which should produce 1700 loaves with your recipe, but you are currently only producing 1300 loaves per tonne. For services, your team have a target of 40 billable hours per week but are currently sitting at 30 billable hours.
After you have established clear and achievable goals for each metric that are a mix of comparable indicators (i.e. lead/lag, input/output), you need to create a system for tracking and monitoring your metrics on an ongoing basis. This will allow you to identify trends and make necessary adjustments to improve your business quality over time. It will also help you decide if tracking certain indicators offers no value. You can track your indicators through spreadsheets and manual data, but there are many types of project management, quality management and industry-specific software to help you track your KPIs against a dashboard.
By tracking and monitoring your quality metrics on an ongoing basis, you will be able to identify trends and make necessary adjustments to improve your business quality over time. This will ultimately lead to increased customer satisfaction and improved bottom-line results.
One final note on business quality metrics: don’t forget to review and adjust your metrics on a regular basis. As your business grows and changes, so too will the areas that you need to measure. By reviewing your metrics on a regular basis, you can ensure that you are always focusing on the most important aspects of your business.
If you are unsure on how to develop your KPIs, or you don’t know how to utilise your systems to do this properly, we have consultants who are able to conduct quality management process mapping workshops and provide recommendations on the metrics for your business.