How I hear you ask, do we create lean performance measures? Let's have a look. And the key to creating lean performance measures is the performance measurement linkage chart. And you can see I've got an example there on the slide. And essentially, the lean performance measurement linkage chart is linking measures from strategic measures through to process output measures through to in process measures to ensure that the business strategy is reflected right the way through the business. And I don't want to go into too much detail about how to create a performance measurement linkage chart.

That is for our performance measurement course. However, you can see that we're using the organization strategies there to identify strategic measures which will show progress towards those strategies within identifying the critical success factors which are needed to be put in place to deliver those strategic measures. And that helps us then derive the process output measures for each of the organization's processes or value streams. Next, we have the critical success factors, which are needed within the process for enable it to perform well against its process output measures. And this leads to various goals throughout the process at the workflow level. And these in turn enable us to develop in process measures for key steps within the process.

And particularly these would be bottleneck steps or constraint steps. In the next slide, we see one of these performance measurement linkage charts that's been developed by a team within an organization. sticky notes are used because they can easily be moved about or reworded didn't changed. You typically make the performance measurement linkage chart with the management team from the organization. And it's quite an iterative process probably take half a day for a sort of midsize organization to come Prepare one. There's a lot of thinking about what the strategy means in terms of measures and how those can be cascaded through the organization.

So fairly intense session, but very interesting, very enjoyable and quite enlightening for people to be able to see how measures at the strategic level can flow into process output measures, and then can flow to in process measures measures within each process. That's very interesting for people. I start a set of performance measures. It's difficult to be prescriptive because every organization is different, but here are some measures which are often useful at the strategic level. Strategic measures might include KPIs for sales growth, for profit or contribution growth, for gearing or acid test ratio for market share and growth and market share for new product development and launch of new products for customer satisfaction. Customer growth, people development skills and safety, and also environmental and social responsibility issues.

As I say this is a starter set, not a definitive list. And your own organization strategy may require some different KPIs. But process output measures, as we've discussed, we want to focus on flow, customer value and improvement. And some of these measures help do that the first process output measure on the list here is probably the most important of all of them. And I strongly recommend that you use it in any process that you can, and it is the end to end flow time, also called delete time, or the time elapse time, from order entry to delivery for a customer. And this is a measure that gives you a measure of customer value.

How long is it taking you to fulfill customer orders, but also process stability? What's the amount of variability in the flow time Therefore in the process, second measure is another important measure quality, and this would normally be the right first time measure at each step in the process. And for the process as a whole. Scrap and rework are also proxies for quality, the level of scrap or rework in the process being an indicator of the quality, the right first time quality of the process. Next, we have on time shipment and on time delivery, again good measures of customer value and customer service. We have the number of active customers buying from the process, the number of customers spending over a certain amount in a certain period of time, a level of improvement activity and this might be measured in terms of the number of improvement groups you have ongoing.

The next suggested measure is the main reasons for complaints or returns and use this useful data for analysis because it shows us the issues with our process that are causing customer problems. In returns, and we can then go about addressing those problems. Next we have customer support performance. So this might be the time to resolve the customer's problem, for example, or the time to attend to customer premises. If that's our service proposition. Then we have customer satisfaction which will be based on surveys, we have employee turnover in the process, which is a gauge of the morale in the process.

We have the skills matrix performance, so that shows the balance of skills of the people in the process. We have safety and environmental issues, and we have contribution margin. As I say this is just the start set. Other measures may be appropriate to your particular organization and its processes. At this point, I also want to note that the throughput accounting KPIs we saw earlier, are also process output measures. And those were net profit which is throughput to Less operating expense, return on investment, which is net profit divided by investment, expressed as a percentage and useful for comparing value streams.

Productivity, which is throughput contribution divided by operating expense expressed as a percentage and investment turns, which is throughput contribution divided by investment expressed as a ratio. And I just want to point out that all of these throughput accounting KPIs are based on financial data. Whereas the lean performance process output measures are largely process measures. They are measures of physical things. And I think throughput accountings focus on financially based measures is perhaps a weakness. It's useful to have a balanced scorecard of performance measures as well as financial measures, because it gives us a broader aspect.

And that's one advantage that Lean Accounting measures have Over these throughput accounting KPIs and process output measures, and the data should be displayed within the work area within the process. And on this slide, we see an example of a continuous improvement board for a value stream. And we see there the measures across the top that have been chosen for this process. We see perrito chart or other analysis, we see the improvement projects that have been worked on and we see some other information the box school will come to their transition plan is improvement plan. The value stream income statement will also come to the current process Value Stream Map and a future state value stream. And on the next slide, we see a value stream continuous improvement board in action in the workplace.

And this means that everyone that works in the process can see the performance at any time. And because they're involved in improvement teams is to help them get greater engagement with the data greater understanding of the data. And it reinforces that concept of everybody working together to improve the process coming on now then to the in process measures. These the measures which are placed within the working process to measure performance at certain key points in the process, particularly the constraint steps, or high value steps, or steps where there's may be a high level of risk. So I start a set of in process measures includes the day by the hour production schedule, which is about adherence of production to the schedule that's been issued. We have work in progress versus Standard Work in progress.

And in lean when you stabilize a process, that means you can predict how much work in progress that will be at each stage in the process. And that's what's called Standard Work in progress. And of course, comparing what's actually work in progress at each stage. With that standard shows whether or not the process has been stabilized. Or is being applied in the way that was expected. Next we have measures of quality.

And for process steps this will usually be the number of items scrapped, or the number of items needing rework. That's a nice easy measure to have just have a box by the side of the process step where all the scrap and rework can be put and then counted. We have operational equipment effectiveness, which is a combination of measures, which monitors the equipment availability, we have preventative maintenance and adherence to plan so essentially has the preventative maintenance plan being met. And we have skills matrix as the level of skills of the staff in the process, at the level that it should be. And we also have safety there any safety incidents being highlighted and monitored, and the next slide gives us a picture of an in process measurement board by the side of the process. Where the measures are being applied.

And this data is recorded by the team that work in the process. And they are responsible for analyzing the root cause of any issues, and working together possibly with colleagues from other parts of the process, possibly with a supervisor to resolve those issues. And of course, this means making time available for improvement. So part of the job of the people that work in the process is process improvement activity, and regular time is assigned to that activity. We saw a few moments ago that the throughput accounting KPIs are based on financial measures. But in the lean performance measures, there are relatively few cost base measures.

So why are there so few cost measures? Well, generally financial measures are lagging indicators. They show the outcome of the organization's processes after the event, but they don't show us where the problems in the process are. Why they occur. Secondly, operational measures are directly linked to performance. They're directly linked to the flow of work through the process.

Financial measures, by contrast, require a conversion factor, you have to convert them from the operational measure into financial data using some cost conversion factor. And this obscures the results and makes them harder to understand and interpret by the people working in the process on improvement. And thirdly, the measures that we use should give a balanced view of the process and operational measures are the key to driving process improvement. W Edwards Deming quote is relevant here. He said costs are not causes. They come from causes, which is to say that the cost is the outcome of the process.

It doesn't tell us where how or why the problems arise. And what we need in lean performance improvement is to know the answer. root causes of the issues so that we can resolve them. How then do we measure and manage performance in Lean Accounting? Well, the focus of performance measurement and measurement in Lean Accounting is improvement, not judgment of people. So at the process level, performance measures are reported weekly, and their purpose is to guide and support the Process Manager and his or her team in continuous improvement.

The tools of weekly performance management are performance measurement boards, as we've seen, with the data from the measures, timely root cause analysis carried out by the team in the process, a process improvement team analyzing problems in the process, and putting together improvement proposals and the weekly process or value stream box score, which we will come to later in terms of measuring and managing performance at the end process level. These measures are reported daily and quite often every two to four hours. managers and supervisors or team leaders support the process team to identify and resolve issues that have been identified. So the tools of daily in Process Performance Measurement are in process measurement boards as we've seen, timely root cause analysis, which again implies time being made available for the people to undertake root cause analysis and time for improvement activity. A team working in the process are given time to analyze problems identify root causes, and come up with solutions.

However, significant problems or large scale problems are going to be escalated to the process improvement team. The focus of lean performance measures, as we saw earlier, is processed stability with its elements of flow, customer value and so on. And the data provided by the lean Performance Measures gives what's called the voice of the process, the voice of the process being the performance of the process in its current state, and all the aspects of that performance. The requirements set by the customer are called the voice of the customer. And it's where the voice of the process does not meet to the voice of the customer, that we have problems and must make improvements. Because if the voice of the process does not meet up to the requirements of the customer, as defined by the voice of the customer, then we are not meeting customer expectations and customer satisfaction is going to be low.

The key to performance improvement in Lean Accounting is that managers and their team support employee root cause analysis and problem solving, making time available providing training and problem solving skills supporting and facilitating improvement activity. The focus of the Process Manager and his or her team, my Beyond enhancing customer value, making what the customers want, on time and in perfect quality. The lean performance measures that we've just reviewed, are all focused on helping the Process Manager, the value stream manager and his or her team. identify issues and problems in the process that affect the flow and customer value and working with the team to improve those issues. It's not about judging people or blaming people for mistakes, identifying who's responsible for problems. It's about a focus on improvement, and empowering and engaging the whole process team and improving their process.