Identify and Develop Key Performance Indicators for High

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Acknowledgements, This master thesis is authored at Lund University School of Economics and Managements. within the subject of Management Accounting, I would like to express my gratitude towards Kockums AB and all of its employees for the. opportunity I ve been given A special thank to Johny Westerg rd and Anders Jansson their. help opened my eyes to understand the complexity within the engineering and construction. I would also thank my supervisors at Lund University Associate Professor Per Magnus. Andersson and Professor Stefan Yard for their guiding support and valuable ideas. Lastly a very special thanks to my family for the support encouragement and extensive help. Lund 2013 05 23,Simon Wester,Master Thesis in Management Accounting. Title Identify and Develop Key Performance Indicators for High Technological Engineering. and Construction Projects,Author Simon Wester, Supervisors Associate Professor Per Magnus Andersson and Professor Stefan Yard. Date 2013 05 23, Key words Situational Key Performance Indicators Kockums AB Project Management Iron.
Triangle Construction Industry Complex Projects, Background There is an ongoing trend amongst management within engineering and. construction business to adopt Key Performance Indicators KPI Since this line. of business requires timely information in order to take the adequate decisions. and actions to ensure that no delays occur Kockums AB operates within the. defence industry with development design and production of naval vessels This. company is currently developing KPIs in order to enhance the control over its. Purpose The purpose of this paper is to identify critical activities and develop situational. key performance indicators in the design phase for advanced high technological. engineering and construction projects, Method The selected research approach is a qualitative approach since the complexity. of Kockums AB s productions and processes requires a deeper understanding to. identify and develop KPI s In this report the collection of information has been. obtained by interviews with employees and by accessing internal documents at. Kockums AB, Conclusions Kockums AB is currently developing five KPIs for its operations within the. design phase but there are several critical success factors which Kockums AB. must address before introducing the KPIs to its operations Furthermore there is. a need to include a base of standard KPIs and complement within situational. KPIs It is also decided that the traditional targets of project quality budget and. time must be extended to include employee satisfaction in order to ensure the. sustainability of the competence of the company,1 Introduction 7. 1 1 Problem Discussion 7,1 2 Background Kockums AB 10.
1 3 Purpose 12,1 4 Delimitations 12,1 5 Disposition 12. 2 Methodology 13,2 1 Research Approach 13,2 2 Motivation of the Case 14. 2 3 Interviews 14,2 4 Primary and secondary data 15. 2 5 Source Criticism 15,2 6 Validity and Reliability 16. 3 Theoretical Framework 18,3 1 Project Management 18.
3 1 1 Operational control 20,3 1 2 Strategic control 21. 3 1 3 Stage Gates 21, 3 2 Performance Measurement System in Construction Organisations 22. 3 2 1 Key Performance Indicators 22,3 2 2 Key Performance Drivers 23. 3 2 3 Critical Success Factors 25,3 2 4 Key Success Factors 26. 3 2 5 Performance Prism 27,3 2 6 Balanced Scorecard 30.
4 Case Study of Kockums AB Project Management 33,4 1 Organisation 33. 4 1 1 Executive Committee EC 35,4 1 2 Project Sponsor 35. 4 1 3 Steering Committee 35,4 1 4 Project Management 35. 4 1 5 Work Breakdown Structure 36,4 1 6 Milestones 38. 4 1 7 The Company s Internal Project Process 38,4 1 8 Decision Gates DG 38.
4 1 9 Tollgates TG 39,4 2 The Company Business Control Process 39. 4 2 1 Market Process 40,4 2 2 Tender Process 40,4 2 3 Design Process 41. 4 2 4 Production Process 41,4 2 5 Verification Process 41. 4 2 6 Through Life Support process 42,4 3 Visual Boards Meetings VBM 42. 4 3 1 The Streamline 43, 4 3 2 Management Control and Reporting System MCRS 44.
4 3 3 Earned Value Management 44,4 4 Five KPI 45,4 4 1 KPI Price 45. 4 4 2 KPI Man hours 47,4 4 3 KPI Material 49,4 4 4 KPI Delivery Accuracy 50. 4 4 5 KPI Deviations 52,5 Analysis 53,5 1 Organisation 53. 5 2 Identify Critical Activities 56,5 3 Key Performance Indicators 59. 6 Conclusion 62,6 1 Findings 62,6 2 Recommendations 64.
6 3 Suggestion for Further Research 66,Bibliography 67. 7 Appendix 1 73,7 1 Stage of TG 73,7 2 Stage of DG 74. List of Figures,Figure 1 Interviews 15, Figure 2 The Project Life Cycle Phases Macheridis 2005 18. Figure 3 A Typology of Projects Business Develop and Modifications Project S derlund 2008 19. Figure 4 Suggested KPI for Construction Projects Cha Kim 2012 25. Figure 5 Level of Categorization Najmi et al 2012 30. Figure 6 Organisational Responsibility 34,Figure 7 Line Management KAB 2013 34. Figure 8 Project Organisation for Design Contract KAB 2013 36. Figure 9 Work Breakdown Structure Activities Elements KAB 2013 37. Figure 10 Work Breakdown Structure KAB 2013 37,Figure 11 Project Process KAB 2013 38.
Figure 12 The Company Business Control KAB 2013 40. Figure 13 Design Process KAB 2013 41,Figure 14 Visual Boards KAB 2013 43. Figure 15 8 Steps for EVM 45,Figure 16 Earned Value Management Price 46. Figure 17 Earned Value Management Man Hours 48,Figure 18 Earned Value Management Material 50. Figure 19 Delivery Accuracy 51,Figure 20 Recommendations 65. Abbreviations,ACWP Actual Cost for Work Performed,BAC Budget At Completion.
BSC Balanced Scorecard,BCWP Budgeted Cost for Work Performed. BCWS Budgeted Cost for Work Scheduled,CEO Chief Executive Officer. CFO Chief Finance Officer,COO Chief Operative Officer. C SCSC Cost Schedule Control Systems Criteria,CSF Critical Success Factors. DG Decision Gates,EAC Estimate At Completion,EC Executive Committee.
ERP Enterprise Resource Planning System,ETC Estimate To Completion. EVM Earned Value Management,FMV Swedish Defence Materiel Administration. ICO Installation Check Out,KAB Kockums AB,KPD Key Performance Drivers. KPI Key Performance Indicators,KPO Key Performance Outcomes. KSF Key Success Factors,PMBoK Project Management Body of Knowledge.
PMS Performance Measurement System,PoC Percentage of Completion. R D Research Development,RFI Request for Information. RFQ Request for Quotations,TLS Through Life Support. ToR Terms of Reference,VBM Visual Boards Meetings,WBS Work Breakdown Structure. 1 Introduction, This section presents the problems regarding the performance measurement system and.
project management subsequently followed by background information regarding the case. study of Kockums AB The section continues by an argumentation that will constitute the basis. for this paper s purpose Furthermore it will present a description of the papers further. disposition,1 1 Problem Discussion, Today s modern business climate is rapidly changing due to the expansive globalization. which results in growing competition that increases the pressure on companies within all. sectors to make their operations and organisations more efficient in order to ensure a high. profitability and thus a long term survivability The Performance Measurement System PMS. constitutes a critical part within the business management toolbox in terms of supporting. clarification controlling and achievements of the organisation s objectives It is also expected. to provide a balance between short and long term performance of the organisation Simons. An ongoing trend amongst management that has grown in popularity is to adopt a PMS such. as Key Performance Indicators KPI Performance Prism and Balanced Scorecard BSC in. order to improve the efficiency within the company and the linkage of the company s strategy. throughout the organisation Neely et al 2002 Davis Albright 2004 Kaplan Norton. 2001 Cheng et al 2007 Hall 2008 Franco Santos et al 2012 However the definition of. PMS is highly debated among scholars According to Neely et al 2005 efficiency and. effectiveness are vital parts within the PMS on the contrary Franco Santos et al 2007. chooses to combine different definitions in order to obtain a sustainable PMS definition. Furthermore Franco Santos et al 2007 classifies the PMS into three perspectives namely. the operations strategic and accounting The intentions of the combined perspectives are to. present valuable information consequences and function This is in line with Shank 1989. and Nanni et al 1992 perception that states PMS may be included with policies and actions. to facilitate communications between activities and the strategic goals In addition the key. task of the PMS can be divided into five parts measuring the business performance. communication align the strategic targets affect the behavioural status of the organisations. and to learn and improve the ongoing business Franco Santo et al 2007. In conclusion the PMS consists of two critical functions which is to align the strategic targets. to measurement and subsequently supervise the ongoing performance However there are two. reasons why it is especially challenging to develop measurements for organisations The first. reason is to define the performance effectiveness and efficiencies The second reason is to. achieve adequate measurements and metrics due to the lack of definitions Philips et al. The technology based and service providing companies of today are using projects more. extensively in order to increase the effectiveness of their operations change and development. Flyvbjerg et al 2003 Artto Wikstr m 2005 Davies 2004 In addition many companies. will also choose to operate their business solely as projects Macheridies 2005 The main. issue is to break down the scope of work into packages which requires interaction and. integration together with planning in order to meet the contracted deliveries The integrated. solution between work and material constitutes a fundamental part within projects and this in. turn increases the demands of integrated organisational solutions Consequently the project. management s central task is to manage the project within this complex environment Thus. the control of both the project and the project oriented activity is critical to achieve long term. profitability and resource selection for a company s business S derlund 2008 According to. S derlund 2008 there is an absence of literature within the field of project management. control Furthermore the practitioners are currently applying inadequate project models and. there is a confusion regarding the progress and resource consumption. Adams Neely 2000 presented the performance prism as a result of an extensive research. Marr Schiuma 2003 Najmi et al 2012 in the recent years in the area of framework and. models of performance measurement This model seeks to explain five inter related aspects. 1 stakeholder satisfaction 2 stakeholder contribution 3 strategies 4 process and 5. capabilities According to Neely et al 2002 one of the most common misunderstandings. regarding the design of performance measurements is the requirement of derived strategy to. the measurements Instead the most important task is to judge the stakeholders needs before. formulating the strategy hence this framework suits companies that prioritise the creation of. value for the stakeholders A main advantage in applying such a model is that it challenges the. current strategy previous to the design of the measurements Consequently the newly. formulated strategy will have a strong link to the organisations According to Tagen 2004. the performance prism will contemplate new stakeholders which are regularly ignored in the. design of the measurements The main critic towards the performance prism is the lack of. review procedures Najmi et al 2012 However it is suggested by Najmi et al 2012 and. Kaplan Norton 2004 that BSC can offer a review as the primary process which is. performed by recurrent workshops and meetings, Historically project managers within the construction business are usually focused on the idea. of developing performance measurement system in order to facilitate the status determination. of the project in terms of activities and targets Haponava Al Jibouri 2009 Traditionally. the main purpose can be derived from the theory of benchmarking applied within many. organisations in order to enhance the product or processes and increasing the comparability. Hapovana Al Jiborui 2009 However the PMS are mainly applied for review reason. consequently making them unsuitable for status reporting more commonly known as the. lagging problem i e drivers vs outcomes Haponava Al Jibouri 2009 Walsh 1996 In. construction projects it is extremely important to gain control and recognize the potential. critical phases in order to ensure the success of the project The main limitation for these. types of projects are constituted by the iron triangle which consists of three aspects time cost. and quality Walker 1995 Belassi Tukel 1996 Lendyuk Rippa 2009 Lauras et al. 2010 Recently an increasing popularity have occurred to extend these indicators to include. more aspects as e g productivity and risk Cha O Connor 2006 Cha Kim 2011. As stated above traditionally the limitations of the project measurements are based upon the. key performance indicators in the design phase for advanced high technological engineering and construction projects Method The selected research approach is a qualitative approach since the complexity of Kockums AB s productions and processes requires a deeper understanding to identify and develop KPI s In this report the collection of information has been obtained by interviews with

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