The importance of measuring the right KPIs
Finding the right balance between high profits, low costs, quality products/services and safety standards is not an easy process. Companies continue to face problems when trying to adjust to one of these components, rather than the other. An example in this direction is British Petroleum (BP).
Its top priorities since 2007 were safety and operating performance. To attain them, a set of key performance indicators (KPIs) was established. However, because the inappropriate KPIs were tracked, the company failed to meet its safety objective. Even if its performance indicators were showing progress, an undesired event occurred, indicating that not much improvement was made after all. An explosion took place, killing 11 workers and leading to the spillage of millions of gallons of oil into the environment.
Investigations showed that BP made a series of decisions that created the premises for such a disaster. Of course, the Board denied that the accident reflected a corporate disregard for safety, referring to it as a “very complicated industrial accident”. However, David Michaels, assistant secretary of labor for occupational safety and health maintains that “the way safety is measured is generally around worker injuries and days away from work, and that measure of safety is irrelevant when you are looking at the likelihood that a facility like an oil refinery could explode”.
The main lesson to be learnt is the importance of monitoring the right KPIs. It is useless to track KPIs just to show where the company is doing very well. The role of performance indicators is to identify areas of improvement and to generate progress. Failing to focus on what really matters can lead to undesired results. This is why KPI selection is the most challenging aspect of working with KPIs. To address this issue, KPI selection techniques can to be used. They support the decision making process in terms of the appropriate indicators a company needs to set.
References:
- Hershman, L (2010), BP: A failure of focus and metrics
- The New York Times: DealBook(2013), BP’s record, a history of boldness and blunders
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