Key Performance Indicators’ are quantitative measurements that help an organization measure progress towards projects and identify areas for improvement. When defined properly, KPIs serve as a useful diagnostic tool to understand which project initiatives are working most effectively and which are not. Without a succinct and relevant set of KPIs, organizations are often burdened with non-actionable, voluminous data. Stakeholders become frustrated and progress made with projects optimization programs stall.
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Moreover, as project management matures as a discipline, emphasis is increasingly placed on evidence-based practice and the reflective practitioner. Innovative research into topics of professional concern is needed to facilitate continuous improvement (Crawford-et al. 2006; Winter et al.-2006). With this in mind, a look at the Stakeholders’ Perception of Key Performance Indicators in the Oil and Gas projects beyond the Iron triangle of Time, Cost and within Specifications is been researched on as it relates to project success. This study offers a detailed research proposal into the topic.
As a:
‘…temporary endeavour undertaken to create a unique product…’
…the research proposal subscribes to PMI’s (2004:5) definition of a project. Integration of the research elements with the concepts and practices of project management is therefore appropriate. Accordingly, the approach of Project Proposal will be aligned with PMI’s life-cycle stages as illustrated in Figure ( )
Undertaken to initiate, define and plan a piece of independent research, Project Proposal encompasses the early life-cycle stages of the Overall Research Project (ORP) with continuation into the execution phase contingent on client acceptance of proposal findings. Figure ( ) illustrates the relationship between Project Proposal and the ORP.
This chapter, the Project Research Plan (PRP), comprises the initiation and planning phases of Project Proposal. It is a preliminary framework describing the essential features of the ORP. The work packages involved are depicted graphically in Figure ( )
Project Context
Key Performance Indicators’ (KPI) are tools widely used by organizations for making and monitoring strategy-based decisions. They define a group of strategic objectives and provide an organization with information as to whether objectives of their on-going projects are being achieved or not. Recently, the project management literature reports changes in the theoretical constructs of performance measurement over the last ten years. More emphasis has been laid on time, cost and the quality as key indicator for measuring the performance of a project. Bourne et al (2000) stated that over the last decade, dissatisfaction with these traditional performance indicators led to the development of multi-dimensional frameworks and Performance Measurement System models, such as balanced score card (BSC) model (Kaplan and Norton, 1992). The emergences of these new PMS’s were seen to address the limitations of the old “Traditional” KPI’s. This paper looks at other Key Performance Indicators beyond the iron triangle of Time, Cost and Quality.
Statement of Research Question
Research into key performance indicators beyond the iron triangle of Time, Cost and according to Specifications led to the formulation of the research questions:
What are stakeholders’ perception of key performance indicators beyond the iron triangle of time, cost and quality?
To what extent is stakeholders’ perception of key performance indicators beyond the iron triangle of time, cost and quality applied in the Oil &Gas projects?
What is the impact of the application of stakeholders’ perception of key performance indicators beyond the iron triangle on project success in the oil and gas sector?
Test the effectiveness of Key performance indicators beyond the iron triangle of time, cost and according to specifications as it is applied to the oil and gas projects, by different project stakeholders’ in different countries.
Rationale
Organization
Developing and implementing Key Performance Indicators’ correctly can be approached from different point of views, Firstly, KPI’s can be directly related to the organization’s project strategy and/ or directly contribute to the organization’s strategic objectives, these requirement enables KPI’s to be measured both on project and organizational level. When determining KPI’s for a particular project, it is of importance that there is an appropriate mix with respect to the way KPI’s can be viewed by project managers and the organizations where these projects are carried out. This will enable the determination of KPI’s which represent different aspects of the organizations strategic intent and also enable consensus performance measurement across the project life cycle by all stakeholders.
Key Performance Indicators and Project Success
Project Definition
Aims and Objectives
In light of the context and rationale outlined above the intention of the-research is:
To capture the perception of various stakeholders about KPIs beyond the iron triangle of time, scope and quality in Oil and Gas projects,
The aim will be achieved through the following objectives:
Critically review the theory of both stakeholders’ perception of key performance indicators and the traditional measurement using the iron triangle-and the relationship between these two concepts.
Identify or develop appropriate conceptual frameworks against which stakeholders’ perception of-key performance indicators and the traditional iron triangle of time, cost and quality can be evaluated.
Describe the methodology of how the proposed research will be-undertaken.
Synthesise findings into the extent of application of stakeholders’ perception of key performance indicators beyond the iron triangle of time, scope and quality in the oil and gas projects.
Analyse the results of the study and offer future-recommendations
Scope
There are numerous ways to define the scope of a project; these include defining deliverables, defining functionality and data and or, defining the technical structure. Ideally each looks at the situation from a different perspective and will elicit different information, but for the purposes of this research the scope will define the deliverables. The work required to achieve the aim and objectives of the research project forms the project scope (Carmichael 2003). The scope of this research proposal is explained in the Work Breakdown Structure (WBS) in Figure ( ), includes writing a proposal, carrying out a primary and secondary research, analysing results-and make recommendations for future research.
Deliverables
The tangible outputs of the ORP are outlined below
Deliverable – Initial Project Research Plan
Description –
• Project context and rationale
• Project Requirements
• Project Definition
Deliverable – Literature Review
Description –
An analysis of existing literature with respect to theoretical l issues
Deliverable – Methodology (Project Approach)
Description
Discussion of methodology to be adopted in search for evidence and evaluation of data collection and analysis methods.
Deliverable – Project Proposal
Description
Evaluation and synthesis of findings and final research plan
Assumptions, Constraints and Considerations
Few projects begin with absolute certainty. As projects are planned and executed, some issues and facts are known, others must be estimated. The project framework must take account of factors considered to be true,-factors that may impede project progress, and any external, validating-factors (Hill 2004; Carmichael 2003). Assumptions, constraints and considerations form the basis for project planning, filling in the gaps between known proven facts and total guesswork.
These assumptions, constraints and-considerations are outline below;
Assumptions:
• The scope of the project can be delivered within time and budget
• The research plan on which the project is based is valid
• Valid and up-to-date literature can be sourced
• The resources available will be sufficient to successfully implement the project
Constraints:
• A primary research will be carried out in the proposed topic and may require resources that may not be available to the researcher.
• Lack of industry experience of researcher
• Stipulated date for the submission of this project may prevent further and extensive research
Considerations:
• Stakeholders’ perception of KPIs’ beyond the iron triangle has received widespread attention from experts in the industry
• Project failure rates due to this factor are deemed unacceptable
• Stakeholders’ perception of KPIs’ in oil and gas projects cannot be over-emphasized.
Benefits
In the past the success of a project was judged by the iron triangle KPIs’ of time, cost-and conformance to requirements (Atkinson 1999). However, while the criteria-derived from the ‘iron triangle’ remain valid they are far from exclusive and have received much criticism (Turner 1999; de Wit 1988; Jugdev and-Muller, 2005; Atkinson 1999; Shenhar et al 1997). Moreover, since projects do not share the same objectives, avoiding the “one size fits all” approach for utilizing KPIs is highly recommended. To avoid this common pitfall, stakeholders’ perception should be understood on how their organization defines project success. Explicitly, we identify areas of interest for key stakeholder groups and identify all the data sources – from web analytics to competitive benchmarking data to offline CRM systems – to develop a complete set of KPIs.
A common thread in this paper is the emphasis on-stakeholders’ perception of KPIs’ beyond the iron triangle.
Propositions
The project context, rationale and summary of literature generate the following propositions.
Stakeholders’ perception of KPIs’ beyond the iron triangle should be consistently applied to oil and gas projects.
Stakeholders’ perception of KPIs’ beyond the iron triangle will influence the achievement of project-success in oil and gas projects.
The validity of these propositions will be evaluated over the course of the study.
Risk Management Plan
The Risk Management Plan will help the researcher to identify risks and implement a plan to reduce them. It will also;
Identify preventative measures to prevent the risk from occurring.
List contingent plans to reduce the impact, should the risk occur
Schedule these actions within an acceptable timeframe
Monitor the status of each risk throughout the project
decision making
Table 1 – Risk Matrix
RISK
Prob-ability
Impact
Rating
Preventive Measure
New Rating
Secondary Research
Literature on which to base review is difficult to access
3
5
15
Begin literature search early, ask library staff for assistance, avail of inter-library loans.
5
Aim becomes blurred following literature review
3
4
12
Ensure topic is sufficiently narrowed to maintain focus
8
Information overload causes delays
2
4
8
Evaluate and prioritise literature in terms of its relevance; Adhere closely to schedule
4
SAFETY RISKS
Technical difficulties cause loss of report
3
4
12
Ensure all research and drafts are backed up on external hard-drive and in cyberspace
4
Technical difficulties cause delays
4
3
12
Ensure sufficient time allocated to activities to so that there is some slack allowance. Do not leave printing until last day.
9
Chapter 2
Literature Review
1.1 Introduction
A literature review looks at the literature relevant to a particular field or topic. It gives an overview of what was said, who the authors are, what the prevailing theories and hypotheses are, what questions are being asked, and what methodologies are appropriate and useful. In order words, it is not in itself primary research, but rather it reports on other findings of other researcher/s.
Cooper, H. M. (1988)
“… a literature review uses as its database reports of primary or original scholarship, and does not report new primary scholarship itself. The primary reports used in the literature may be verbal, but in the vast majority of cases reports are written documents. The types of scholarship may be empirical, theoretical, critical/analytic, or methodological in nature. Second a literature review seeks to describe, summarise, evaluate, clarify and/or integrate the content of primary reports.”
In the course of this chapter the literature review will satisfy the-following research objectives:
1. Critically review the theory of both stakeholders’ perception of key performance indicators and the traditional measurement using the iron triangle of time, scope and quality-and the relationship between these two concepts.
2. Identify or develop appropriate conceptual frameworks against which stakeholders’ perception of-key performance indicators and the traditional measurement using iron triangle can be evaluated.
1.2 Stakeholders’ view of project success
Key performance indicators in becoming increasingly relevant in oil and gas projects, underlying relationships among KPIs’ that contribute to the overall project success can provide important insights for success for future projects. Moreover, as project success means different to different stakeholders, a project that may seem successful to the client may be a completely unsuccessful venture for engineers, contractors or end users. This can be observed particularly in the oil and gas projects, where number of stakeholders is usually large, and its’ therefore not surprising that different participant’s think differently while they analyse the performance of a project.
‘….Bryde and Brown (2005) argued that
Stakeholders have distinct vested interests in a particular project and therefore the perception of success may also vary across various project stakeholders.’
Savindo et al. (1992) relates
‘….the success of a project to the expectation of its participants which may be owner, planner, engineer, and contractor or operator.
According to Munns and Bjeirmi (1996)
‘…… a project can be considered successful when it is able to achieve some specific objectives; have definite start and end dates; and is completed within a specified time period and according to a set specification.
Nguyen et al. (2004) also supports the
‘…….. traditional perspective that a construction project is successful when it is completed on time, within budget, in accordance with specifications and to stakeholders’ satisfaction.
It is important to reconcile the interest of both the primary and secondary stakeholders in view of the project success. This can be view as a critical success factor as it will enable effective communication among the stakeholders’ and on time release of resources, it will also reduce change variations, help estimate the task and monitor the actuals vs. the estimates, ensure comprehensive risk management, minimized construction aggravation, disputes & conflicts, facilitate efficiency, time management and other project management methodologies.
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Key Performance Indicators and Performance Management
An effective performance management system will depend on the key performance indicators used to define the performance of the project from a number of perspectives. It is important to design these KPIs’ as to relate directly to the various perspectives that a project is trying to achieve. The relationship that exists between the performance management system and the metrics (KPIs’) used to measure performance is shown in figure 1. This illustrates that a project cannot to have an effective performance management system if the (KPIs’) used do not relate to the strategic goals of the project. The design of key performance indicators has been the subject of research for some time now and a number of interesting studies have illustrated the benefits and potential pitfalls of these performance metrics. Letza (1996) stressed the dangers of measuring the ‘wrong things right’ when the sole purpose of an exercise is to design key performance indicators, which might not necessarily relate to the projects strategy. This usually occurs when a large number of key performance indicators are present in a project where “everything is measured but little that matters.” Ghalayini & Noble (1996) observed that this is not only unnecessary but it is performed at a great expense to the project/organization, in terms of the efforts made to capture and manage the necessary data. Neely et al. (1997) have offered that “the design of a performance measure is a process…[with] inputs … and an output.” In providing a structure to support this process they have suggested the ‘performance measure record sheet.’ The various elements of this sheet are based on research and a number of case studies, and they include the following; Neely et al (1997), Title, Purpose, Relates to, Target, Formula, Frequency of measurement, Frequency of review, Who measures?, Source of data, Who owns the measure?, What do they do?, Who acts on the data?, What do they do?, Notes and comments.
The performance measure record sheet offers a solid framework for designing performance measures, but it does not necessarily provide a framework by which performance measures can be evaluated to the extent to which they relate with strategy and with other performance measures.
Selection of KPIs’ for Oil and Gas Project
The Selection of key performance indicators (KPI’s) can represent one of the major challenges that oil and gas organizations and project managers have to face for developing an effective performance measurement system (PMS). Some project managers and organizations interpret the selection of key performance indicators as a multiple criteria decision-making (MCDM) problem, involving a number of factors and related interdependencies because, these performance indicators needs to be ‘good’ and designed in a structured way and, in so doing viewed by all project stakeholders’ as sustainable. Engaging key stakeholders in identifying and selecting key performance indicators helps ensure the validity of the indicators eventually selected. Moreover, research shows that in the selection of KPIs’, it should have the characteristics described in the following in table ( )
Indicator Criteria
Definition
Measurable
The indicator should measure as directly as possible what it is intended to measure.
Specific
Key performance Indicators need to be defined so that project team members understand them in the same way. Instructions on how to put into practice the KPIs’ and definitions of all key terms should be explicit and clear.
Useful
KPIs’ needs to facilitate the project understand what it is measuring. The KPIs’ should provide information that helps the project understand and improve its operations and results.
Practical
Resources involved in data collection and analysis are important considerations. Though its’ difficult to estimate, the cost to collect indicators should not exceed their usefulness.
Culturally Appropriate
KPIs’ must be relevant to the cultural context. What is appreciated in one culture may not be in another. KPIs’ are reviewed and approved by persons familiar with the cultural context.
Adequate
There is no “correct” number of KPIs’. The number of KPIs’ selected should depend on the expected result being measured, the available resources, technical capacity of the project and more so, its strategic intent. It is essential that the project balances its need for information with the resource, time, and technical demands of data collection, management, analysis, reporting, and usage.
KPIs should not:
Conflict with other measures without prioritizing.
Produce misleading information.
Be or viewed as trivial.
All the above characteristics should be taken under consideration for the process of the KPIs development.
Key Performance Indicators; the Iron Triangle of Time
The success of a project was traditionally judged on the basis of its-completion-on time, within budget and in conformance to requirements (Atkinson 1999). These ‘iron triangle’ criteria indicate the degree of-efficiency of project execution (Pinkerton 2003). However, time, cost and quality are short-term process-orientated-measures that stem from the narrow perspective of project personnel-(Turner 1999; Waterridge 1998; de Wit 1988; Jugdev and Muller 2005). While valid, they are not exclusive and if considered in isolation may lead to misleading assessments-of project success (Shenhar, Reiner and Wideman-1996; Pinto and Slevin 1998).
Figure () Illustrates the Iron Triangle Key Performance Indicators
Key Performance Indicators; Beyond the Iron Triangle
Performance measurement in oil and gas project has been dominated by the conventional measures of time, cost, and quality. Atkinson (1999) named these three measures together as the ‘iron triangle’. Regardless of the simplistic nature of performance measurement through the iron triangle; practice and research have departed from this approach and new direct and indirect measures are being employed for project performance measurement. For instance, Low and Chuan (2006) argue that the measure of project success can no longer be restricted to the traditional indicators which include time, cost, and quality. They support the expansion of success measurement towards project management success or product success or both. This mix in the yardstick for measuring success criteria is also believed by various scholars who offer that project success is different from project management success. Pinto and Slevin, (1988) suggest that subsequent to the measures of iron triangle, customer satisfaction is absolutely imperative while Bryde and Brown (2005) suggests overall satisfaction of stakeholders should also be considered in performance evaluation criteria. Other project management scholars for example, Belout and Gauvreau (2004) see the ability of project team to manage project risks and resolve problems encountered on the project as an avenue to evaluate project success. Freeman and Beale (1992) reveals that five most frequently used criteria to measure project success include: technical performance, efficiency of execution, managerial and organizational implications, personal growth and manufacturer’s ability and business performance. Cox et al. (2003) in his study of professionals at different managerial levels differentiates between quantitative and qualitative measures of success. They include resource management, quality control, Unit/MH, $/unit, cost, on time, % complete, earned man-hour, lost time accounting, and punch list in their Quantitative performance indicators. In addition, most of these measures also appear in the estimating/costing systems utilized by the majority of oil and gas firms while carrying out their projects. Cox et al. (2003) ranked health and safety, turn-over, absenteeism, and motivation among Qualitative performance indicators. However, Cox et al. (2003) also offered that qualitative indicators are not considered as highly reliable performance and productivity evaluation tools due to their perceived difficulty and/or inability to be measured. Turner (1993) offered the following criteria to measure the success of projects: the facility is produced to specification within budget and on time; the project provides a satisfactory benefit to the owner; the project achieves its stated business purpose; the project meets pre-stated objectives to produce the facility; the project satisfies the needs of project team and supporters; the project satisfies the needs of users; and the project satisfies the needs of stakeholders. Westerveld (2003) suggested that, in addition to the conventional measures of cost, time, quality, and scope, emphasizes the following KPIs: client’s appreciation; project personnel appreciation; users’ appreciation; contracting partners’ appreciation; and finally stakeholders’ appreciation.
In a study of “micro-projects” – projects having a total cost of less than $15,000 – in the developing countries, Sohail and Baldwin (2004) offer 67 performance indicators for monitoring of micro-contracts. These performance indicators are divided into general indicators (such as ‘number of disputes’ or ‘incidences of delay in the supply of materials, and tools and plant’), time indicators, cost indicators, quality indicators, indicators for inter-organizational co-operation and partnership, and finally, indicators related to socio-economic issues (such as enterprise development, poverty alleviation, and empowerment). Project management literature review shows that the performance measurement of oil and gas projects is slowly, over the years moved away from the traditional measures (Iron Triangle) of(cost, time, and quality) towards a rather mix of quantitative and qualitative measures. Currently, an attempt is made to capture the perception of oil and gas project leaders about a mix of different quantitative and qualitative Key Performance Indicators in managing projects across the sector.
Figure () Illustrates Key performance indicators beyond the iron triangle of Time, Scope and According to specifications (Quality)
Key Performance Indicators and Project Success
Although subject of much debate, a definition of project success remains-elusive (PMBOK; Liu and Walker 1998). Obstacles to consensus include differences in stakeholder perceptions; variations of perceptions over time; and issues of definition transferability (Bannerman 2008; Baccarini 1999; Freeman-and-Beale 1992). For this study two concepts of project success are necessary; success criteria and success factors.
Key Performance Indicators as Success Criteria for Oil and Gas Projects
Success criteria are:
‘…the measures by which success or failure of a project or business will be-judged’ (Cooke-Davies 2001:186).
Project success criteria have undergone considerable revision over the past 50-years (Jugdev and Muller 2005). Three clusters of criteria are discussed below.
Project Objectives – The Iron Triangle and Beyond
The success of a project was traditionally judged on the basis of its-completion-on time, within budget and in conformance to requirements (Atkinson 1999). These ‘iron triangle’ criteria indicate the degree of-efficiency of project execution (Pinkerton 2003).
However, time, cost and quality are short-term process-orientated-measures that stem from the narrow perspective of project personnel-(Turner 1999; Waterridge 1998; de Wit 1988; Jugdev and Muller 2005). While valid, they are not exclusive and if considered in isolation may lead to misleading assessments-of project success (Shenhar, Reiner and Wideman-1996; Pinto and Slevin 1998).
Stakeholders’ Perception
Subsequently, it came to be accepted a ‘successful’ project must satisfy-stakeholder needs and expectations (Atkinson 1999; Baccarini 1999). Within the broad stakeholder group, the client has been identified as the most important (Shenhar and Levy 1997). Accordingly, there is a need:
‘…to include customer satisfaction as one of the pillars of project success’ (Pinto and Slevin 1998:382).
Benefits to Organisation
Recent attention towards the strategic value of project management (Pinto 2007; Greene 2004) has led to conceptualisation of projects as:
‘…powerful strategic weapons, initiated to create economic value and competitive advantage’ (Shenhar et al 2001:703).
In this light an evaluation of project success must consider:
‘…how the project’s products and services provide business value’ (Jugdev-and Muller 2005:19).
Success criteria have therefore broadened to include: contribution to-strategic-mission (Cleland and Ireland 2002), profit for the owner (Turner 1999), business success and preparation for the future (Shenhar and Levy 1997).
Key Performance Indicators as success Factors for Oil and Gas Projects
KPIs’ represent a particular value or characteristic that is measured to assess whether a project’s goals and objectives are being achieved. They reflect the success factors, stakeholders’ perception and needs, and the expectations of the project. For Key Performance Indicators’ and their measures to be effective, the project’s goals need to be specific, measurable, agreed, realistic and time-based.
Success factors are:
‘…elements of the project context or management process that can be-controlled or influenced and will increase the likelihood of a-successful-project’ (APM 2006:19).
While it must be acknowledged that it is:
‘…usually a combination of many factors, at different stages of the project life-cycle, [that] result in project success or failure’ (Belassi and Tukel-1996:142),
…understanding of the success factors drive the KPIs’ and more so the project to successful completion.
Summary
The proposed research has been validated by the literature to some extent. Stakeholders’ perception of KPIs’ beyond the Iron is fundamental and absolutely imperative to the successful completion of projects in the oil and gas sector. However, to minimise ambiguities’ in this subject, an empirical understanding of the subject will be inevitable. The validity of the literature will be evaluated through the proposed-primary research.
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