Metrics help guide the performance of an organization; therefore, it is important to choose them correctly and with due consideration. If the metrics are wrong, they will lead decision-making in a wrong direction. Incentive schemes based on metrics are a good example of this. If the metrics used when establishing incentives conflict with the goal, they will not guide action towards the right objective.
Metrics are a tool for business management
Metrics help make business related decisions. They provide clear information to support decision-making and reduce the need of going with your gut. Metrics increase the understanding of the object measured and help splitting challenging entities into smaller parts that are easier to control.
Metrics and reports work as a management tool. In addition to helping decision-makers and the management group in their work, metrics also increase the understanding of the employees and provide a context for the work. They deliver a message of what the organization wants to achieve, what the current situation is and what should be done. Consistent metrics provide the entire organization with a shared view of the present state and the goals to be achieved.
Business management requires both short-term and long-term metrics
To manage business activities, both long-term and short-term metrics are required. Metrics monitoring the achievement of long-term or strategic level goals are increasingly used in business management. Their purpose is to determine the direction in which to go.
Short-term or operative level goals and metrics guide daily activities. They split the long-term goal into parts and help ensure that changes take place in a controlled way and are implemented in good time before the end of the period.
The importance of short-term goals and metrics is emphasized particularly when major changes are made. In this case, it is advisable to keep the reporting interval shorter than is necessary in more stable conditions.
Consider the following when choosing metrics
Do not choose a metric based only on the easy availability of data. It is easy to start out using metrics for which the necessary data is conveniently accessible. However, it is often necessary to merge data from different systems to establish the right metrics that appropriately guide the performance. To establish the right metric that supports decision-making, the data collected from the different systems must also be cleaned up and modified.
Improvement of reporting processes and the use of reporting or BI tools also helps manage and utilize the “troublesome” data to enable more complete exploitation of the organization’s own data.
Metrics must always be chosen based on the business strategy and long-term goals. Metrics and the target values defined for them show the direction and pace of development. Long-term goals show the right direction and short-term goals indicate the next way to turn to. The KPIs (key performance indicators) derived from the goals thus function like the GPS: they show the present state and the necessary direction of development.
What kind of metrics are used in the management of an industrial company?
In the industry, the industrial internet of things (IIot) enables the collection of huge amounts of data from production activities. While this creates opportunities, it also sets challenges to business intelligence in industrial companies. Since the amount of data is so large, perception of the right things is particularly important.
Appropriately selected metrics improve the efficiency of management of manufacturing companies (read more).
Typical manufacturing and production KPIs include:
- Internal and external delivery reliability
- Lead time
- Utilization rate
- OEE (Overall Equipment Effectiveness)
At the operative level of production, on the other hand, the production volume of a certain machine or line can be followed up during a work shift compared to planned production.