Key Performance Indicators by Captain Bill Lunn MD

Key Performance Indicators by Captain Bill Lunn, MD Mar. Man Ltd, Chairman Intermanager’s Best Practices Committee Lloyds Ship Management Conference Limassol, Cyprus, 11 -12 th August 2006

Contents • • KPIs: What they are and what they are not! Do we need KPIs? What constitutes a good KPI? Sharing KPI information outside our own companies: possible problems • Common methods of measuring KPIs • Intermanager’s KPI project: looking at reasons why the industry needs to set common KPIs 2

Definitions • A regular measurement based on data which indicates the performance of a process or a business line. Performance indicators may allow for a trend analysis over time and could incorporate escalation procedures once a particular threshold or trigger level has been exceeded. www. riskdimensions. com 3

A Good KPI • Easily and accurately measured • Quantitative, rather than qualitative. • Not unduly influenced by external factors. • Neutral, e. g. often expressed as a percentage or ratio • Relate to one unique process. • Not limited to top level processes. 4

Use of KPI’s in Shipping - historically • Voyage Abstracts • Coded messages • Charterers • Insurers 5

Use of KPIs in shipping - today • The need for KPIs is a consequence of the measuring and monitoring, and continuous improvement processes embedded in the ISM Code and ISO 9000: 2000 • All responsible ship managers have developed company specific KPIs to support their quality improvement processes • The development is also driven by the changes taking places in other industries where focus is shifting from detailed process regulation to goal based regulation (outcome) 6

The Ship Manager’s challenge • In the future, reporting of KPIs will be required by owners, charterers, oil majors, insurance companies, P & I clubs, Port state authorities (incl. individual ports), Flag state authorities, etc. • Each “stakeholder” will develop his own definition for how KPIs should be calculated and reported • Too many KPIs will be requested 7

KPI standardization problem (one example) Retention Rates: How should we calculate these? Possibilities: • On same vessel • On sister vessels • On same ship types • With same Owner • With same Crew Manager • Length of service • Promotion – reset to zero 8

Consequences - worst case? • Additional manpower required to present the same information in many different ways • Extensive data collection and reporting requirements on vessel and crew • Opportunities for confusion and mistakes leading to misrepresentation of facts • Difficult to mobilize organizational focus on the right issues • Inability by stake holders to compare reports from different organizations Quality improvement efforts “strangled” by red tape 9

Preferred scenario • That the shipping industry will operate on a common standard for measuring, calculating and reporting Key Performance Indicators (KPIs). • An acceptance by all stakeholders that performance in ship operation can be adequately established with a limited number of Key Performance Indicators (KPIs) Self regulation is the preferred solution! 10

The main challenge: • To agree on a set of KPIs that: – gives a representative picture of the quality of the ship’s operational performance, and is: - limited in number uniquely defined transparent economic to collect No pan-industry agreement can be reached without a tool to measure the “value” of the various contributing factors to safety and environmental protection 11