Key Performance Indicators Pros & Cons- Valutrics

Management uses performance measurement primarily for monitoring purposes,
and many performance indicators have been developed to support operational decisions.
These indicators are, at best, descriptive signals that some action needs to be
taken. To make them more useful, put in place decision rules, which are compatible
with organizational objectives. This way, you can determine your preferred course
of action based on the indicators’ values.
To clarify trends when the activity level may vary over time, or when comparing
organizations of different size, you can use indices to measure maintenance perfor-
mance. Campbell classifies these commonly used performance measures into three
categories, based on their focus:

1. Measures of equipment performance (eg, availability, reliability, and over-
all equipment effectiveness)

2 Measures of cost performance (eg, O&M labor and material costs)

3 Measures of process performance (eg, ratio of planned and unplanned work,
schedule compliance)

However, the underlying assumptions of these measures are often not considered
when interpreting results, so their value can be questionable.
For example, traditional financial measures still tend to encourage managers to
focus on short-term results, a definite drawback. This flawed thinking is driven by the
investment community’s fixation with share prices, driven largely by this quarter’s
earnings. As a result, very few managers choose to make (or will receive board
approval for) capital investments and long-term strategic objectives that jeopardize
quarterly earnings targets.
Income-based financial figures are lag indicators. They are better at measuring
the consequences of yesterday’s decisions than indicating tomorrow’s performance.
Many managers are forced to play this short-term earnings game. For instance, main-
tenance investment can be cut back to boost the quarterly earnings. The detrimental
effect of the cutback will show up only as increased operating cost in the future. By
then, the manager making the cutback decision may have already been promoted
because of the excellent earnings performance. To make up for these deficiencies,
customer-oriented measures such as response time, service commitments, and satis-
faction have become important lead indicators of business success.
To assure future rewards, your organization must be both financially sound and
customer oriented. This is possible only with distinctive core competencies that will
enable you to achieve your business objectives. Furthermore, you must improve
and create value continuously, through developing your most precious assets: your
employees. An organization that excels in only some of these dimensions will be, at
best, a mediocre performer. Operational improvements such as faster response, better
quality of service, and reduced waste won’t lead to better financial performance
unless the spare capacity they create is used or the operation is downsized. Also,
maintenance organizations that deliver high-quality services won’t remain viable
for long if they are slow in developing expertise to meet the emerging needs of the
user departments.

You won’t fulfill all these requirements by relying on a few measures
that represent a narrow perspective. You need a balanced results presentation to measure
maintenance performance. The balanced scorecard proposed by Kaplan and
Norton offers the template for the balanced presentation.

The balanced scorecard had been implemented in numerous major engineering, construction,
microelectronics, and computer companies. Their experience indicates that the scorecard’s
greatest impact on business performance is to drive change process. The
balanced scorecard promotes a strategic management system that links long-term
strategic objectives to short-term actions.

A strategic management system built around a balanced scorecard is characterized by three keywords: focus, balance, and integration.
Focus has both strategic and operational dimensions in defining direction, capability
and what the business or its activities are all about, while balance seeks an equilibrium
for making sense of the business and to strengthen focus. Integration is critical, ensuring
that organizational effort knits into some form of sustainable response to strategic
priority and change.

By directing managers to consider all the important measures together, the balanced scorecard guards against sub-optimization. Unlike conventional measures, which are control oriented, the balanced scorecard puts strategy and vision at the center and emphasizes achieving performance targets. The measures are designed to pull people toward the overall vision. To identify them and to establish their stretch targets, you need to consult with internal and external stakeholders—senior management, key personnel in maintenance operations, and maintenance users. This way, the performance measures for the maintenance operation are linked to the business success of the whole organization.