KEY PERFORMANCE

INDICATORS

BY:
RICKY SMITH,
CMRP, CMRT, CRL
Key Performance Indicators

Key Performance Indicators

By Ricky Smith CMRP, CMRT

When identified and aligned properly, key performance indicators (KPIs) can save a plant,
a job, a career. If management truly understood the power of KPIs, things would change
quickly. In fact, managing without KPIs gives one the feeling of being lost with no hope (a
reactive environment).

Think of a car with the windshield painted black. The driver cannot see where the car is
going but has a glimpse of where it has been, through the rearview mirror. The driver
cannot tell if the trip is successful or not until either it’s too late—or disaster strikes. The
car could go into the ditch (high cost or worse) or never reach the destination (business
goals not met). So, too, for a company blind to KPIs.

This is a serious problem, and it costs companies around the world billions of dollars as a
result of what, we consider, a lack of management control. Peter Drucker, the industrial
revolutionary, stated: “You cannot manage something you cannot control, and you
cannot control something you cannot measure.”
DEFINING AND UNDERSTANDING KPIs

Let us first get down to basics and define KPIs. Within maintenance, we first define the
performance we want to measure.
[Link] it the performance of the equipment?
[Link] it the performance of the spare parts warehouse?
[Link] it the performance of the maintenance function?

This may seem like a simple question, but often I see companies that do not understand
their KPIs as they have not defined the specific area of business for which the
performance is being measured.

Assume we want to measure the performance of the maintenance function. One of two
kinds of KPIs must be chosen for measuring any particular function of a business: leading
indicators or lagging indicators (also referred here as leading and lagging KPIs). Leading
KPIs lead to results, such as scheduled compliance; lagging KPIs are the results, such as
maintenance cost (effected if scheduling is not working).

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Key Performance Indicators

We use leading indicators to manage a part of the business, while lagging indicators
measure how well we have managed. With leading indicators, therefore, it is possible to
directly and immediately respond when a poor result is found. With lagging indicators,
we get value from knowing how well we performed but have little opportunity to
immediately affect underperformance.

Instead, when we see an unacceptable lagging indicator, we typically must drill down to
the leading indicators to uncover the cause of the underperformance and from there, we
can implement appropriate changes.

Leading indicators for the maintenance function are those that measure how well we
conduct each of the steps in the maintenance process. For example, a leading indicator
for the work planning element of maintenance process could be the percentage of
planned jobs executed using the specified amount of labor.
If the planner is estimating labor correctly, we see a high percentage of jobs completed
using the planned amount of labor hours. A maintenance manager who finds that the
value of the KPI is lower than expected can speak with the planner about how best to
improve the results immediately, possibly for the remainder of that day. With all KPIs, by
definition, we measure past performance, so we do not suggest that leading indicators
can be tweaked to improve past performance. But, if we are managing using leading
indicators, we can respond immediately when needed.

THE BASICS OF MAINTENANCE AND RELIABILITY

So leading indicators measure how well we perform our jobs, while lagging indicators
measure results. We manage using leading indicators, and we react to results using
lagging indicators.
In the maintenance example, a lagging indicator measures the results of how well we
managed the maintenance function. In a situation where the maintenance function is
well managed, we expect an appropriate balance between the cost of maintenance and
the plant availability. A lagging indicator therefore could be the actual maintenance cost
for a month, as a percentage of the budgeted maintenance cost for that month.

If the actual maintenance cost for last month is found to be 110% of budget, we can do
very little to directly influence the performance of this KPI today. Instead, we look at all
the leading indicators, probably including those that measure the performance of the
maintenance process, to determine whether those values give us a signal for managing
the problem.

2
Key Performance Indicators

Unfortunately, in the quest for excellence, we often are attracted to outside consultants
that offer “benchmarking” services, claiming to provide all the KPIs we need to effectively
run the business. Be careful, when considering these services, that you are not signing up
for a laundry list of lagging indicators, since they will not help you with managing; they’ll
just quantify the problem you already acknowledged when you sought outside help.

Figure 6.1 shows how leading indicators for the maintenance process can provide
Management capability, while the lagging indicators show us how well we managed the
maintenance function.

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Key Performance Indicators

Leading indicators such as Percent of Rework and Percent of PMs Executed on

Time affects the overall performance of the maintenance process, which results in a
certain level of performance.

The lagging indicators in this case, which are affected by these leading indicators, are
Maintenance Cost as a Percent of Budget and Plant Availability. At least one of
these lagging indicators will suffer if there is sufficient underperformance in the leading
indicators. This example shows the alignment of the maintenance process as KPIs
transition from leading to lagging.

Figure 6.1 does not show the specific KPIs used to manage the maintenance process.
Instead, some of those are listed in Table 6.1, along with the world-class target level,
where applicable.

In the same way as in the maintenance example, KPIs can be used in other areas of the
business. This approach is particularly interesting where multiple functional areas play
roles in each goal, such as plant reliability. Plant reliability is a shared responsibility of the
maintenance, production, and engineering. Leading indicators for each departmental
process would feed the lagging indicators for the department function, which would then
summarize to the plant level, as shown in Figure 6. 2.

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Key Performance Indicators

THE PROBLEM

The problem is that management should learn to manage operations through KPIs (both
leading and lagging). In over 30 years, we have seen many plants shut their doors forever.
The closings were blamed on many reasons, but the one thing all had in common was
that none had properly managed with the KPIs. The metrics or indicators they managed
with were ones like:
1. Cost
2. Asset Availability
3. Equipment Downtime
4. Overall equipment effectiveness.
All these measurements or indicators, while useful for measuring performance, cannot be
used to manage the maintenance and reliability process. They are simply the results of all
the previous actions in the maintenance and reliability process. Again, one cannot
manage results. One can manage only the processes leading to the results. A company
that uses any of these metrics to manage its operation, without leading indicators, is in a
reactive mode.

Companies must ask themselves some very basic questions:

1. Does the company differentiate between those KPIs that can be used to manage
(leading indicators) from those that measure results (lagging indicators)?
2. Does the company measure the performance of the maintenance process, which it
easily can manage when needed?
If leading indicators show underperformance, then that underperformance will affect the
lagging indicator, which could be reliability, cost, capacity, and the like. People must
understand the relationship between a leading and lagging indicator and their effects on
the maintenance and reliability function.

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