Management by Measurement: Designing Key Indicators and Performance Measurement Systems
This chapter clarifies these general concepts, referring to recent international standards about quality-management principles and methods. It then shows a preliminary classification of indicators and a description of their general characteristics. Finally, an overview of the main state-of-art research fronts on indicators is provided.
The goal of the present chapter is to introduce the reader to some criticalities concerned with indicators, which are treated in an organic way in the rest of the book. These indicators are analysed individually, emphasizing their qualities and drawbacks.
Additionally, this chapter mentions some indicator properties that are formalized in detail in Chaps. Precisely, the first part of the chapter recalls the historical evolution of this concept, focusing on physical measurements and their unification. Subsequently, the attention shifts on the theory of measurement by Stevens and several other measurement theorists, who had the great merit of extending the concept of measurement beyond physical quantities, identifying important properties, implications, and mis uses.
Particular attention is paid to the concept of meaningfulness of statements using measurement scales. The concept of non-uniqueness of representation by means of indicators is also explained. The description is supported by several practical examples. Indicators are helpful tools to represent complex processes, supporting evaluations and decisions.
Description is accompanied by many pedagogical examples and an operational procedure to support the construction of indicators. The present chapter discusses a core problem of quality management for organizations: establishing and maintaining a performance measurement system. Flowing from the mission and strategic planning of one organization, a performance measurement system is supposed to include the data to collect, analyze, report and, finally, use to make sound business decisions.
The remainder of this chapter is divided into eight sections. Sections 5. Section 5. Description is supported by the use of practical examples. Substantive recommendations for actions, including their chances of success, are needed so that the better decisions can be made more quickly. Scheer, These trends describe the purpose of application of process controlling in the manufacturing area.
The application of process controlling based on process management principles for technological and diagnostics process control is one objective of our research. The main objectives of our research are design and verification of a control system based on business process management approach for control of process in the diagnostics and the electrical engineering and electronics manufacturing.
In the following case study, I shall describe the practical demonstration of process controlling application. Designed methodology concept helps to implement the process performance measurement system based on process controlling. The concept has been developed into two steps:. Analysis of processes and current needs of responsible managers, staffs, researchers and technicians.
The designed questionnaires can be used in this step.
We have obtained process attributes of key processes. Study, selection and modification of suitable methods and tools for business process management and performance measurement. The application of designed methodology is demonstrated on case study. Data collection for this case study was conducted these different techniques:. Questionnaire — This method was used for process analyses and mapping of process attributes.
The main problems were done via structured question to management and workers. Interview — This method enabled the collection information of management vision and requirements. Methodology framework is presented by Table 1. As we can see the table presents key steps and activities in defined order. The methodology concept is based on business process and process performance management theory. It means application of Business Process.
The information infrastructure can be applied for the methodology support. The information structure should be built on Service Oriented Architecture SOA which provides methods for systems development and integration where systems group functionality around business processes and package these as interoperable services. SOA also describes IT infrastructure which allows different applications to exchange data with one another as they participate in business processes.
Service-orientation aims at a loose coupling of services with operating systems, programming languages and other technologies which underlie applications.
The current management literature presents different methods for process performance management. Firstly, they are methods based on financial analysis of basic enterprise economic indicators for example Economic Added Value measurement, DuPont analysis. The Balanced Scorecard method sophisticated presents how to define and implement the key process indicators and metrics for performance evaluation. Many companies have adopted Balanced Scorecard as a way of evaluating managerial performance. This methods supplements traditional financial measures with three additional perspectives: the customers, the internal business process and the learning and growth perspective.
The basic idea is very straight forward. Kaplan and Norton began by arguing that "What you measure is what you get" and that "an organization's measurement system strongly affects the behaviour of managers and employees. They proposed a Balanced Scorecard that considered four types of measures:. The BSC method gives a definition of strategy as hypothesis summary about causes and results.
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The case study is focused on printed circuit board production. This production is one part of our department and its customers are other universities departments and small companies from the Pilsen region. The objective was to establish the performance measurement system focused on process time measurement and real processes current status analysis. This case study also presents application of designed methodology. Definition of core problem and strategy of company was first task. This chart shows causality of relevant undesirable effects of the analyzed situation.
The practical example is shown in Fig.
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The main problem is fall of profit related to production time, capacity and quality of process. On the other hand this situation might be described by a conflict diagram Fig. The diagram describes decision and optimizing problem of manufacturing - determination of optimum batch size. The conflict exists between increasing and decreasing of the batch size.
The increasing of production run D makes to cost reduction B and decreasing D of the batch size makes to high quality of products C. Both described situations have negative effect on the. These problems and conflict were solved by designing methodology effectively.
So cost reduction, quality improvement and time reduction were the main optimizing criteria according to methodology.
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Secondly, the business strategy and main key process indicators were developed according to Balanced Scorecard. From this model we can make performance dynamic execution it is part of last step methodology implementation. The process analysis and process modelling was the first important steps lead to process design. It contained following activities:.
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It means determination of targets, key processes fragments, key performance indicators KPI and their dimensions,. The main problem was fall of profit related to production time, capacity and quality of the process. Due to this fact, the process controlling application based on CPM leads to this core problem minimization. The information technologies make the important support for business process management nowadays.
As a part of this solution, a patented procedure is used to collect process relevant data from the operational IT systems available for reconstructs process automatically and calculates key performance indicators online and particularly for presenting the actual process measurement in the form of event-driven process chains eEPC. ARIS PPM imports all business transactions to be reviewed into the repository from one or more source systems via application-specific adapters.
To begin with, depending on the source system, the process-relevant runtime information about the activities performed is highly disparate in nature e.