Saturday, April 02, 2016

What are the most important Key Performance Indicators (KPI) to be measured?

One of the most commonly asked questions about Project Management is "what are the most important Key Performance Indicators (KPI) I should choose?" The answer as usual is: it depends.
However, assuming that you are building an identified minimal viable product (MVP), for which you will be continuously delivering minimal marketable features (MMF) to create or maintain a minimal marketable product (MMP) or a minimal marketable service (MMS), here is what I think the starting point should be:
  1. Defect Ratio: Because without quality there is not sustainable productivity. To measure it, calculate what percentage of the total MMF are defects both for total open and closed per period MMF to understand the quality of your service or product.
  2. Work In Progress (WIP): Because context switching works against human productivity. To measure it, inspect the cumulative flow diagram (CFD) for increased MMF WIP slope in relationship to closed MMF slope. To be precise, divide the gradients for a ratio. Both slopes should be the same to ensure optimal WIP limits are in place. That means the ratio should be 1. Forcing the Personal WIP limit to 1 is ideal, beyond 3 is chaotic.
  3. Delivery Frequency: Because to avoid entropy you need to deliver as soon as it is done without piling up. To measure it, inspect the CFD for changes in closed-issues slope. The slope should be either constant or increasing, never decreasing. Deployments per period could give you a good measure of how often the company delivers.
  4. Demand versus throughput balance: Because delivery is done through a funnel where the mouth and stem sizes signal the need for adjustment of one of the three iron triangle measures: resources, scope and schedule. To measure it, calculate the open issues divided by target issues. This ratio should be maintained or decreasing, never increasing.
  5. Prioritization time: Because finding out what the customer wants is crucial but time consuming, any time over-spent on this is a nonsense waste. Prioritize based on available slots from the already prioritized backlog queue to keep a small weekly scope-framed value-cost-of-delay-risk multi-var-dimensional analysis. Measure it assigning to each prioritized MMF the time it took in arriving to its choice. Make the prioritization choice based on the results from a radar chart using relevant variables as axis and deciding what is most important based on resulting taxonomies.
  6. Variability: Because predictability is the ultimate goal for continuous delivery of MMF (without continuous delivery the cost of delay and risk goes up). Measure it looking at the control chart for cycle and lead time. The objective is to narrow the standard deviation.
  7. Throughput: Because it is what the business unit can offer in terms of resources and capabilities. Calculate it using the number of MMF completed. Its result is a quantitative measurement of the output.
  8. Productivity: Because the objective is to deliver products or services that are effective (needed) and efficient (optimal use of resources). Calculate effectiveness as the ratio between current hours spent in the value stream and total hours paid. Calculate efficiency as the ratio between expected hours per MMF and your current hours per MMF. The team is more productive when both effectiveness and efficiency are high.
I can't see how a modern organization can achieve sustainable growth and a high capability maturity without using these essential metrics. To me, they are a must to reach operational effectiveness. What is left is Industry comparison. If you have numbers for the below, feel free to share them confidentially with me (nestor.urquiza at gmail). I would like to build Industry standards out of this survey:
Main Industry: ?
Defect Ratio: ?
Personal WIP: ?
Deployments per month: ?
Total MMF open at the end of the month / Total MMF closed per month: ?
Average prioritization time per MMF: ?
MMF cycle time standard deviation: ?
MMF lead time standard deviation: ?
MMF closed per month: ?
Hours spent in value stream / Hours paid: ?
Expected hours per MMF: ?
Current average hours per MMF: ?

Acknowledgement: I wouldn't have dared to think profoundly about metrics without entering the world of lean thinking. I entered this world after reading some W. Edwards Deming literature, getting introduced to TPS, Toyota Kanban and finally studying the blue book from David J. Anderson (a real revelation and source of constant reference for me).

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