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Management for Professionals Fiorenzo Franceschini Maurizio Galetto Domenico Maisano Designing Performance Measurement Systems Theory and Practice of Key Performance Indicators Foreword by Andy Neely Management for Professionals Moreinformationaboutthisseriesathttp://www.springer.com/series/10101 (cid:129) (cid:129) Fiorenzo Franceschini Maurizio Galetto Domenico Maisano Designing Performance Measurement Systems Theory and Practice of Key Performance Indicators Foreword by Andy Neely FiorenzoFranceschini MaurizioGaletto DepartmentofManagement DepartmentofManagement andProductionEngineering(DIGEP) andProductionEngineering(DIGEP) PolitecnicodiTorino PolitecnicodiTorino Turin,Italy Turin,Italy DomenicoMaisano DepartmentofManagement andProductionEngineering(DIGEP) PolitecnicodiTorino Turin,Italy ISSN2192-8096 ISSN2192-810X (electronic) ManagementforProfessionals ISBN978-3-030-01191-8 ISBN978-3-030-01192-5 (eBook) https://doi.org/10.1007/978-3-030-01192-5 LibraryofCongressControlNumber:2018957268 #SpringerNatureSwitzerlandAG2019 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartofthe materialisconcerned,specificallytherightsoftranslation,reprinting,reuseofillustrations,recitation, broadcasting,reproductiononmicrofilmsorinanyotherphysicalway,andtransmissionorinformation storageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilarmethodology nowknownorhereafterdeveloped. Theuseofgeneraldescriptivenames,registerednames,trademarks,servicemarks,etc.inthispublication doesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfromtherelevant protectivelawsandregulationsandthereforefreeforgeneraluse. The publisher, the authors and the editors are safe to assume that the advice and information in this bookarebelievedtobetrueandaccurateatthedateofpublication.Neitherthepublishernortheauthorsor theeditorsgiveawarranty,expressorimplied,withrespecttothematerialcontainedhereinorforany errorsoromissionsthatmayhavebeenmade.Thepublisherremainsneutralwithregardtojurisdictional claimsinpublishedmapsandinstitutionalaffiliations. Coverillustration:eStudioCalamar,Berlin/Figueres ThisSpringerimprintispublishedbytheregisteredcompanySpringerNatureSwitzerlandAG Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland Foreword Having been a student of performance measurement for over 25 years, it is a real treat tocomeacross abookthatsheds newlightonasubjectthat hasbeensowell explored. Numerous authors have tackled questions such as “How to design a performance measurement system?”, “How to ensure that metrics, behaviours and strategyarealigned?”,“Whatmakesagoodkeyperformanceindicator?”,“Howand whyshouldtargetsbeset?”and“Whatroledoincentivesplayindrivingorganiza- tionalperformance?”. Designing Performance Measurement Systems: Theory and Practice of Key PerformanceIndicatorsbyFiorenzoFranceschini,MaurizioGalettoandDomenico Maisano tackles many of these classic questions, but doesn’t rely on the standard treatments to do so. Instead, by combining historical insights with ideas from mathematics,qualityandprocessengineering,thisbookdoesnotsimplyshednew light on the subject, but rather it sheds new lights. The multiple perspectives and differentideaspresentedinthebookwillhelpyoulookatperformancemeasurement innewandinterestingways. The books consists of five chapters. The first explores the meaning of perfor- mance indicators, especially in the context of process performance. Exploring concepts such as the function and use of indicators, as well as different methods forclassifyingthem,thisintroductorychaptersetsoutthebreadthofmaterialtobe coveredintherestofthebook.Inthesecondchapter,Franceschinietal.lookatuses and abuses of key performance indicators. Drawing on a wide range of examples, from life expectancy to air quality, they explore the strengths and weaknesses of different types of indicators. The third chapter draws on traditional measurement theorytodevelop“indicatortheory”,arguingthatacoreconceptistheconditionof “non-uniqueness”forindicators.Inthefourthchapter,Franceschinietal.turntheir attentiontopropertiesofindicators,buildingontheideassetoutonindicatortheory. Finally,thebookcloseswithachapterdevotedtodesigningperformancemeasure- mentsystems,whichcoverssomeofthemajorreferencemodelsinusetoday,along withobservationsontheprocessofconstructingperformancemeasurementsystems. Overtheyears,Ihavereadliterallyhundredsofbooksandpapersonperformance measurement. I have worked with thousands of managers, seeking to help them design and deploy better measurement systems. In Designing Performance Mea- surement Systems: Theory and Practice of Key Performance Indicators, v vi Foreword Franceschinietal.introducesomenewandinterestingconceptswhichIamsure— like me—many students of performance measurement will find fascinating and rewarding. Pro-Vice-ChancellorforEnterpriseandBusinessRelations AndyNeely UniversityofCambridge Cambridge,UK August2018 Preface Inrecentyears,theuseofindicatorsasavehicletotransmitinformation,behavioural codes and rules of governance has dramatically increased. Indicators often accom- panythedailylifeofpublicandprivateorganizationsinmanyfields:fromthestock exchange to the meteorology and from the manufacturing processes to the sport specialties. Indicators regulate and influence organizations and their behaviour. In the broadest sense, they often give the impression to be the real driving force of socialsystems,economyandorganizations. The need to establish long-term objectives, rules and behaviours in order to achieve the planned results puts indicators in the spotlight of stakeholders of organizations. Indicatorstake on therole ofreal “conceptualtechnologies”,capableof driving organizational management in intangible terms, conditioning the “what” to focus and the “how”; in other words, they become the beating heart of the management, operationalandtechnologicalprocesses. Designing a performance measurement system is not an easy task. It requires a multidisciplinary approach that integrates knowledge from different process areas, people and information technologies and suitable scientific methods to ensure appropriateacademicrigour. This monograph describes in detail the main characteristics of indicators and performance measurement systems and summarizes methods and approaches for identifying,constructingandanalysingindicators,combiningtheoreticalandpracti- calaspects. The book is intended for academics, professionals and consultants involved in data analysis and indicator management. The description is relatively simple and does not necessarily require familiarity with advanced mathematics. The book can also be used in programmes for professionals, including senior executives, quality engineers,productionengineersandprocurementspecialists.Professionalscanalso usethebookforindividualstudy. This book is organized into five chapters. The first chapter deals with the basic conceptsofindicatorsandprocessperformance.Thesecondchapterdealswiththe criticalaspects,problemsandcuriositiesthatcanarisewhenrepresentingageneric system by means of indicators. The third chapter develops an original theory of indicators, showing that measurements can be seen as “special” indicators. The vii viii Preface concept of “non-uniqueness of representation” by means of indicators will also be explained. Then the fourth chapter analyses in detail the properties of indicators. Description of the third and fourth chapter is supported by a number of practical examples and applications. Finally, the fifth chapter describes how performance measurementsystemscanbedesigned,implementedandmaintainedovertime. The content of this book is largely based on the monograph Management by Measurement: Designing Key Indicators and Performance Measurement Systems, produced by the same authors and published in 2007 by Springer-Verlag, Berlin Heidelberg. Authorswishtogratefullyacknowledgethesupportofallcolleaguesandfriends whohavecontributedtotherealizationofthebookwithstimulatingsuggestionsand helpful comments, including Emil Bashkansky, Luca Mastrogiacomo and Sergio Rossetto. Turin,Italy FiorenzoFranceschini July2018 MaurizioGaletto DomenicoMaisano Contents 1 QualityManagementandProcessIndicators. . . . . . . . . . . . . . . . . . 1 1.1 GeneralConcepts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 QualityManagementSystems. . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.3 TheConceptofProcess. . . . .. . . . .. . . . . .. . . . .. . . . .. . . . .. 4 1.3.1 Definition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.3.2 ProcessModeling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.3.3 ProcessEvaluation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.4 ProcessIndicators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.4.1 FunctionsofIndicators. . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.4.2 AimsandUseofIndicators. . . . . . . . . . . . . . . . . . . . . . . 10 1.4.3 Terminology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.4.4 CategoriesofIndicators. . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.4.5 AGeneralClassificationofIndicators. . . . . . . . . . . . . . . . 12 1.4.6 ComparisonofEconomicandProcessIndicators. . . . . . . . 13 1.4.7 IndicatorsandResearch:StateoftheArt. . . . . . . . . . . . . . 16 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2 UseandAbuseofIndicators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.2 HumanDevelopmentIndicator(HDI). . . . . . . . . . . . . . . . . . . . . 22 2.2.1 LifeExpectancyIndicator(LEI). . . . . . . . . . . . . . . . . . . . 23 2.2.2 EducationalAttainmentIndicator(EAI). . . . . . . . . . .. . . . 23 2.2.3 GrossDomesticProductIndicator(GDPI). . . . . . . . . . . . . 24 2.2.4 CalculatingtheHDI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 2.2.5 RemarksonthePropertiesofHDI. . . . . . . . . . . . . . . . . . 25 2.3 AirQualityIndicators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2.3.1 TheAmericanAirQualityIndicator(AQI). . . . . . . . . . . . 30 2.3.2 TheATMOIndicator. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 2.3.3 TheIQAIndicator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 2.3.4 CommentsontheMeaningof(sub)Indicators. . . . . . . . . . 42 2.3.5 ComparisonofAir-QualityIndicators. . . . . . . . . . . . . . . . 42 ix

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Given our rapidly changing world, companies are virtually forced to engage in continuous performance monitoring. Though Key Performance Indicators (KPIs) may at times seem to be the real driving force behind social systems, economies and organizations, they can also have far-reaching normative effec
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