For years, key performance indicators (KPIs) have been used by the insurance industry to measure claims-related performance. With the business relationship between insurers and body shops closer than ever, collision repairers are adapting the approach and making it their own.
“Performance measurement.” If you’re a collision repairer, you’ve heard the phrase many times over. You work in an industry filled with numbers and numbers are made to be measured. Gross profit percentage, turn rate, labor hours, door rate . . . they’re just a few of the figures successful body shops monitor, and have been monitoring, for decades.
Precise measurement of business indicators became widespread in the early 1980s, corresponding with the development of business technology designed especially for collision repairers. Computerized estimating and management systems allowed owners and managers—even those not inclined to be disciplined—to quickly and accurately track performance. Out of this mini-revolution rose the practice of job costing—the analysis of labor, parts and materials costs on individual jobs that allowed assessment of job profitability in real time, with cumulative reporting as a by-product.
Job costing remains a cornerstone of shop business analysis to this day, but over time, performance measurement has evolved. More specifically, collision repair measurement methodology has been influenced by the direct repair program (DRP) relationships. The influence even extends to terminology, with KPIs—an acronym common in the insurance and financial services industry to denote important measurable criteria—now used commonly in the collision repair industry.
Is this a good development or a bad one? As is the case with so many industry issues, it depends on the perspective of each individual business.
Finding common ground
Certain KPIs represent a language of measurement that provides common ground between collision repairers and insurers. For years insurers have used powerful computers, analytics and reporting—beyond the scope of those available to most smaller businesses—to drill down and look across performance in a variety of claims performance categories. Many of these focus on the operational aspects of the collision repair facilities participating in the insurer’s DRP programs and may include such categories as:
- Average cycle time. The time between the drop off of a vehicle in need of a repair and when that repaired vehicle is returned to the customer.
- Repair versus replacement. A comparison on a given repair order between the labor/dollar costs for repair against labor/dollar costs for replacement labor and parts.
- OEM parts use versus alternative parts use. The ratio of new parts from the manufacturer to like-kind-and-quality (LKQ) parts from other sources, including recycled and aftermarket parts.
- Percentage of supplements to estimates. How many supplements the shop is writing in comparison to the total number of estimates it writes. A number of measures can be used here, including supplement lines versus estimate lines, estimate dollars versus supplement dollars, or a simple ratio of supplements to estimates.
- Customer Satisfaction Index (CSI). The measure of approval by a shop’s customers, usually a numerical figure collected by a third-party resource. Can also include subjective customer comments elicited through phone calls by the same data collection agency.
The above KPIs are not the only shop performance categories an insurance company measures, but they are fairly common and cited often as examples. In each category, the insurance company sets a measurable standard—a benchmark—that the body shop is expected to achieve, say a certain percentage of alternative parts on a job with a particular make/model of car. Different insurance companies will set different benchmarks for comparable categories.
Some, like cycle time and CSI, are of high concern to all repairers—even those not participating in a DRP—while others may seem, at first, less important to a collision repair business than such internal measurements as flagged hours to shop hours, and ratio of flat rate hours sold to clock hours by department per job.
If so inclined, collision repairers might view a KPI such as OEM parts use versus alternate parts use as somewhat controversial, given past debate about the suitability of non-OEM parts on certain types of repairs. This line of thinking can be taken one step further, with objections raised on the grounds that subscribing to insurance generated standards and benchmarks are a further step in the codification of insurance company control over the way body shops do business.
For reasons like these, there are plenty of collision repair businesses that do their best to avoid engaging in any DRP relationships. But for the multitudes of owners who willingly attract and maintain business through DRP relationships—or who wish to attract more business from them—these KPIs and the criteria that are attached to them must be taken into consideration, and can be used to the benefit of the collision repair business.
“It makes sense to monitor these KPIs, even if what isn’t being measured doesn’t ‘feel’ relevant to the shop at first,” states Janet Chaney, who provides business and marketing consultation for a group of Arizona-based repair businesses. “By monitoring one’s performance through the filter of ‘shared’ KPIs you can avoid unpleasant surprises, perhaps a site review where you find out, after the fact, that you’ve fallen short in key areas. On the other hand, if you’re actively monitoring the same measures the DRP representatives monitor, you can make adjustments on the fly and stay ahead of the game.”
In addition, Chaney sees shared measurement as a marketing opportunity for shops. “If you’re a salesperson trying to drum up business with insurance company prospects,” she says, “the fact that you can demonstrate the ability to accurately track KPIs of interest is a compelling sales advantage.”
Von Tress advises that DRP guidelines, which at first seem irrelevant and controlling, often end up proving to be significant. “It’s helpful to remember that the basic goal of the insurance company and the repairer is the same: keep customers happy,” he says. “Take supplement frequency, for example, a common KPI guideline for DRPs. I’m not saying don’t write supplements for hidden damage after tear down, but I also know unwarranted supplementing does result in problems, like administrative burdens and delivery delays. If you start digging into the percentage of supplements to estimates, something maybe you wouldn’t have otherwise done, you may uncover useful information—maybe an estimator in need of training on writing a thorough estimate prior to tear down.”
Plotting a course with KPIs
If one accepts that it’s worthwhile to keep tabs on KPIs specific to DRPs, how does one go about accomplishing it? In this day of multiple-shop organizations, a collision repair business may enter into close to 20 different agreements, each with different benchmarks for different categories, which may vary depending on factors such as geographic area and vehicle year/make/model. Adding to the complexity is that benchmarks are frequently adjusted, meaning the shop finds itself chasing moving targets.
It’s a potentially impossible situation, and to deal with it collision repairers are again turning to technology. Industry information providers have started to provide data, analytics and report sets—partially generated from the information their estimating systems collect—that are designed with the DRP repair facility in mind. In most cases these applications are engineered with multi-shop organizations in mind, enabling KPIs to be tracked across the organization, with the capability to match up individual sites to each other. Performance against a composite of relevant competition is often offered, too. If the business is performing well against its peers, the feedback proves useful when marketing the organization.
But the technological strides don’t end there. A powerful new breed of software tools is beginning to hit the market, allowing owners, managers, estimators and other shop personnel to assess performance on the fly. At the heart of these systems are dynamic rules-based engines that store the parameters and thresholds from multiple KPIs across DRPs, and apply them on a real-time basis to shop processes and procedures. When something falls outside guidelines, it is flagged immediately on the user’s desktop.
“It’s hard to assess just how far these systems have come because there are so many of them and they are recent entries to the market,” explains Tony Passwater, president of AEII, a provider of collision repair consulting, training and product development products and services. “But in theory they provide exactly what is needed. You import the estimate into the software and go from there. The shop sets the rules, whether they match up with the DRPs or not. In that way they have control over the criteria.”
Pete Tagliapietra, president of Nu Gen IT, a provider of this type of software, emphasizes the shop’s control over settings. “It’s not just about shared KPIs—a collision repair business decides on the rules that get input to the system,” he says. “Their primary goal needs to be writing a right and proper estimate. The system’s built-in discipline keeps them on the path to that goal. It provides the means to analyze how each DRP is working out in terms of profitability, so a shop can be selective about its partners. It’s a good negotiating tool. The instant feedback makes it a useful training resource, as well.”
These software packages are designed to help streamline DRP administration and paper flow, long a thorn in the side of the collision repair industry. “Say a service writer enters an estimate into the system that crosses the total loss threshold,” states Von Tress. “In theory, not only will the application flag the crossing of the dollar threshold, it knows what forms have to be filed in that particular situation and prompts the user for them. At a minimum it prevents paperwork from falling through the cracks.”
As sophisticated as these measuring aids may turn out to be, Passwater warns that they should never be considered fail-safe. Sometimes it may be a technical glitch such as a system disallowing an OEM wheel bearing on an older car, because it reads the line item as “wheel.” In many cases, it’s the human element involved.
“Everyone’s heard the saying, ‘garbage in, garbage out,’ and that can be a problem,” Passwater explains. “Take cycle time. Ask someone what it is and they’ll say the time elapsed between repair authorization and delivery. But there’s a ton of variables that should be considered between those absolutes. Do you count weekends? Do you factor in a painter’s extended shifts? Was the customer unavailable at the scheduled time of pickup? If not identified, these kinds of subtleties can distort what you’re trying to measure. You have to be discerning and somewhat subjective when you apply the rules.”
Von Tress uses CSI as an example to make a similar point about qualifying measurement. “Most of the third parties used for reporting on customers are excellent,” he begins, “but you still run into discrepancies. A customer feedback card may come back with a set of perfect 10s, yet the customer writes in that she would not refer the shop. What’s going on, then? Is the data collection faulty? Did someone at point-of-delivery try to pre-stage the customer’s answers, which caused underlying resentment expressed in their reluctance to provide positive word-of-mouth?”
No doubt these rough spots will be ironed out in the future, although it is difficult to predict exactly how performance measurement is destined to evolve, or how it will affect the way collision repairers conduct business. While some believe the advent of shared KPIs foreshadow increased insurance industry influence and control, there are others, like Von Tress, who predict the opposite will happen.
“When an insurance company sends a representative out to talk to the shop, it costs time and money,” he says. “It makes even less sense when you consider the conversation is going to cover past history, which may not be relevant and certainly can’t be changed.
“I think, given the developing complexity and intelligence of measurement software combined with movement toward a common set of KPIs, the in-person site review will be soon rendered obsolete. I think a case can me made that shared KPIs may, in the long run, actually help position the shop to control more of its destiny.”
