Using KPIs to Gauge Investment Decisions

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When a problem arises, whether it is related to customer service or product quality, it is natural to assign someone to tackle it as quickly as possible. The solution addresses the problem for today. But is that adequate?

Rapid solutions are great but they might be short-term fixes. This is where KPIs come in handy.

With regular performance monitoring, you have a good handle on what is an acceptable level of performance. This acceptable level of performance provides guidance on whether you need to invest more time and energy to address an issue.

For example, a manufacturer has an average product defect rate of 1.2%.

When a customer brings in a malfunction unit, the manufacturer would replace that unit without questions because the replacement unit cost is more economic than the repair cost.

As long as the defect rate stays around 1.2%, the manufacturer would allocate resources to other more urgent needs, and not invest in improving quality control or product redesigns.

However, if the defect rate shot up and remained high, it is a signal that a trigger had caused persistent failures.

In other words, the defect rate serves as a decision point for carrying on business as usual or committing more resources to explore a long-term improvement.

Without KPIs, managers don’t have a gauge to determine how much effort should be invested.

With KPIs, you have guidance on what deserves attention, allowing you make better decisions.

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