Executive oversight requires a set of Key Performance Indicators or KPIs that will provide executives with information to make decisions at the corporate level and ensure projects are being performed in a consistent manner with the proposals they have approved. To identify the right KPI or KPIs, we will keep the iron triangle in mind and review the role of the executive on projects. They are interested in making sure the company’s resources are used efficiently. Therefore, we need to focus on the company’s resources; people, equipment, reputation, and money.
What’s needed for resource efficiency?
People
The first resource, people, can be identified as a Key Performance Indicator with full-time equivalents (FTE). Each project is planned to utilize a specific number of people during any period and a total over the course of the entire project. The planned FTE usage can be compared with the actual usage to identify a level of productivity for executive oversight (See part 1). This KPI provides the executive with the opportunity to evaluate which projects should be receiving resources, and help them prioritize projects. This also closely resembles the staffing measurements reported in normal operations.
Equipment
Equipment is the second factor that executives should have an interest in monitoring. This resource could be machines in the shop, computer time, or construction equipment. There are many ways to measure this usage, machine hours, a percentage of available capacity, or idle time. The key is to identify the indicator that closely matches the KPI used for the operational side of the business.
Reputation
Reputation is not something everyone will think of as a factor to measure for projects, but it can be critical for the company as a whole. Therefore, it is important for the executive to be kept aware of the status of the reputation. This is where we can talk about risks, although they may manifest in other areas of the KPIs as well, such as cost or schedule. Each project should be evaluated to identify any benefits to the reputation the project is bringing and what risks to the company’s reputation the project brings. This will be a more subjective evaluation, with reporting on a Likert scale (i.e., 1 to 5, 1 being a high risk to the reputation, 3 being neutral, and 5 being a large benefit to the reputation).
Money
Money is the most important KPI to report, as everything boils down to the all-mighty dollar. For this resource, we can use the earned value indicators, budget, and actual comparisons with which we are all familiar. Keep in mind that these factors only address the expense side of the balance sheet that executives are used to seeing. Therefore, we must add a Key Performance Indicator that addresses the revenue side. I recommend using the economic indicator used when originally evaluating the project, return on investment (ROI), return on equity (ROE), payback period, etc. It is important that the projects update and report on this KPI to ensure the project will still provide the value expected.
Additional KPIs that are important to report to executives include the delivery date. When will the company begin seeing the revenue stream? In the oil and gas industry, this can be “first oil” or “first production.” In other industries, this can be the “in-service date,” “handover date,” or “in production.” This date can be reported as either the current expected date, a variance from the plan, or the delivery duration. The specific KPI should coincide with how the executives are viewing similar operational information.
The Purpose of Key Performance Indicators (KPIs)
KPIs should be identified to monitor the source of funding for projects. For example, if funding is provided through outside sources, such as bonds or loans, it is critical to monitor financing costs. Projects can also be financed with cash from a capital investment account of company funds. Knowing the source and monitoring the finance charges allows executives the opportunity to rebalance projects to reduce overall finance charges to the company.
Executives can use these KPIs when making business decisions, such as authorization of work, prioritization of work, and cancellation of work. When Key Performance Indicators identify the necessity, the executive can request a more detailed report, focusing their time and efforts on projects that require additional attention. Using KPIs allows executives to focus on the big picture while allowing the project leaders the flexibility to manage the individual projects.
KPIs provide executives with the information to perform their role of oversight of the company. They provide information in a format that allows quick analysis, leading to timely decisions. At the same time, proper KPIs keep the daily decisions and actions in the hand of project leaders and provides them with the flexibility required in the ever-changing project environment.
