Up Time Magazine - December 2008/January 2009 - (Page 11) cost for the product class. This information may be acceptable for reporting manufacturing performance, but it has little value in enabling the plant personnel to change their behaviors to improve the performance of the operation. The information in the variance reports is both too little (providing a broad plant-wide perspective) and too late (after the month is over) to be of any value to the people actually working to keep the plants operating. Monthly accounting systems for reporting of manufacturing and business performance represented a compromise introduced to industry out of necessity. The tools just did not exist to measure plant performance as the plant was running. Over many years, industry got lulled into believing that monthly financial reporting was a best practice that should never be challenged. Accounting professionals earned Masters Degrees on how to do monthly accounting. Once degrees are conferred on how to do any practice, it is very challenging to ever question the validity of the practice again. Therefore, when digital computers were generally introduced into industrial operations during the 1960s and 1970s, nobody seemed to raise the question as to whether accounting and performance measurement systems might be able to be developed to account for operations as originally intended – as the products are made - in real time. Since monthly accounting measures from in cost accounting systems proved to be fairly useless in directing the actions of the operations and maintenance teams, a number of leading industrial companies started to develop a different set of operations performance measurements to supplement the accounting systems by providing more actionable feedback to plant personnel. The measures produced by these systems are commonly referred to as key performance indicators (KPIs). These KPIs were not developed to replace the accounting measures, rather they were developed because engineers and managers did not view the measures produced in the accounting systems as adequate for directing performance and improving actions in the plant. KPIs were typically developed to measure different operational silos within plants, such as maintenance, operations and engineering. By focusing on specific functions, they tend to offer better resolution, as well as better timeliness, than accounting measures. However, by being functionally focused, they also tend to discourage cooperation between organizational groups. Even though daily measures provided a great leap forward from traditional www.uptimemagazine.com monthly measures, frontline personnel often find daily measures too long a timeframe to offer actionable feedback. A single operator may make hundreds of specific actions each day, and an overall daily measure does not provide the timeliness for them to understand the performance impact of any specific action. To make matters worse, KPIs tend to have little credibility with accountants, whose job it is to measure the business performance. Although many KPIs may report in monetary terms, accountants often have great difficulty reconciling the values reported though the KPIs with the values in the accounting reports. When this happens, the accounting information clearly takes precedent. I actually heard one CFO say, “If one more engineer comes to me with one more KPI telling me how much value he has created, I’ll fire his $&*!” One other deficiency with KPIs is that they have evolved to support management reporting rather than actionable feedback. Reporting measures are used to report performance to managers, while actionable measures are used to provide guidance to people so they can take better actions through better decision making. Both reporting measures and actionable measures are important to plant operation. However, the actionable measures have been found to drive positive changes in behavior, which results in performance improvements, which will, in turn, improve the reporting measures. Dynamic Performance Measures The value of an effective and comprehensive performance measurement system cannot be overstated when it’s working to drive increased levels of performance from plant assets. Industry has reached the point where the performance measures that encourage the organizational silo mentality have to be abandoned in favor of measures that drive collaboration between traditionally competing functions. A new approach to performance measurement is required that combines the goodness of accounting and operational measures, provides performance measures for every person in the operation, within the time frame in which they do their job and for the same domain for which they are responsible. Such performance measures are referred to as dynamic performance measures (DPMs, See Figure 1, next page). The first issue that has to be addressed in developing a DPM approach is the availability of 11 http://www.alignmentsupplies.com http://www.uptimemagazine.com
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