UNDERSTANDING KPI - PRUDENT SHIPMANAGEMENT

What is KPI?

The Shipping KPI System is used by shipping companies to: compare their ships performance against the industry standard and potentially identify where efficiency improvements could be made. communicate their ship operational performance, both internally and externally.

Why is KPI important?

Key Performance Indicators, or KPIs, are a pertinent part of measuring the successes and failures of your business. Also known as a flash report or dashboard, a KPI allows business owners and managers to get an overview of how their business – or individual departments – is performing at any given time.

To fully understand the KPI system we recommend reading the whole standard chapter by chapter:

INTRODUCTION

The Shipping KPI Standard V4.0

Released September 2020

The Shipping KPI Standard proposes a global shipping industry system for defining, measuring and reporting information on operational performance in order to:

boost performance improvements internally in companies engaged in the ship operation activities,
provide an efficient communication platform of ship operation performance to internal and external stakeholders.

The benchmarking, monitoring, reporting tool comprising Key Performance Indicators (KPI) and Performance Indicators (PI) has been developed. was developed and launched back in 2010 The Shipping KPI Costs is an additional feature added to establish the cost of a ship’s/fleet’s performance. The Costs comprise of Cost Categories (CC) and Cost Item (CI) to capture the cost information. A parameter of Cost Factor (CF) and Factor Item (FI) have been added to support in calculating the cost per day of each Cost Category.

CONCEPTS

Overview

The Shipping KPI Standard is built up hierarchical with 3 different levels:

Key Performance Indicators groups (KPI groups)
Key Performance Indicators (KPIs)
Performance Indicators (PIs)

There is a mathematical relation between the last two levels. In basic terms, Key Performance Indicators are calculated from Performance Indicators (lowest level) using a KPI formula.

On the lowest level you find the PIs, 63 in number, which are based on data capture (measurements or counters) directly from a ship or from the shipping management. Data is collected once and re-used within the Shipping KPI Standard in order to reduce the amount of data.

The 33 KPIs are scaled into a range from 0-100, where zero indicates low and 100 is outstanding performance. This makes it possible to compare ships with different characteristics or amount of data captured.

Finally, on the highest level the KPIs are combined into KPI groups for better categorization and visualization purposes. No form of calculation or aggregation is happening on this level.

KPI Groups

The old concept of Shipping Performance Indexes (SPIs) has been replaced from the concept of KPIs Groups. Compared to SPIs, KPI Groups do not express any aggregated performance in any area. No calculation is happening on this level. It’s just used as a grouping criteria.

1. Key Performance Indicators

2. Performance Indicators

3. Ship's Emission Monitoring

1. Key Performance Indicators

The Key Performance Indicators (KPIs) are expressions of performance within a specific area. The KPIs can be expressed in two ways; a KPI Value which is a mathematical combination of relevant Performance Indicators Values and a KPI Ranking which is an expression of the KPI Value on scale between 0 and 100 where a high ranking (100) is a result of high/excellent performance. KPI ranking can be also considered the actual position of the ship within its ranking criteria (4th out of 500).

Some PI Values can be included in the calculation of more than one KPI Value. Examples of KPIs are: KPI002 Budget performance, KPI010 Drydocking planning performance and KPI032 Ship availability

The objectives of KPIs are to:

measure for continuous improvement
measure for internal and external benchmarking
measure to set incentives

KPI accepted as part of the Shipping KPI performance hierarchy must be:

Observable and quantifiable
A KPI is a mathematical formula on basis of unambiguous, observable performance measurements.
Valid indicator of performance
A KPI expresses performance within an area which the Ship Manager needs to perform well. Also the Ship Manager needs to have complete control of the factors affecting the performance measured.
Robust against manipulation
A KPI must relate to a large extent to unambiguous descriptions of the needed measurements and not leave room for “favorable interpretations”.
Sensitive to change
A KPI will reflect actual changes in the Ship Manager’s performance well (by increase/decrease) over time.
Transparent and easy to understand
A KPI is interpreted by all users in the same manner.
Compatible
A KPI is harmonized with the rest of the performance hierarchy. The KPI must be compatible with other KPIs to prevent the decision-makers receiving contradictory control signals.

2. Performance Indicators

The Performance Indicators (PIs) are the building blocks giving the basis for KPI Value calculations. PIs are directly observable parameters (measurements) for each ship under management, e.g. PI026 Number of dismissals, PI022 Number of collisions and PI032 Number of fire incidents. In general the KPI standard is ship oriented. Performance Indicators (PIs) are captured and reported by ships. KPIs are also calculated by ship. But it turns out, that a few performance measurements cannot be expressed by ship but by Business unit (see relevant chapter below). A classic example is PI017 Number of cadets under training.

The Performance Indicators are the only elements that must be reported manually or by means of implemented ICT solutions. Focus has been to provide the hierarchy with unambiguous definitions of measurable low level parameters based on existing measurements in the industry. Each PI may be used in the calculation of several Key Performance Indicators (KPIs). An example is the PI052 Number of recorded external inspections which is used as a denominator in the calculation of several KPI Values.

Costs

The Shipping KPI Costs is built up hierarchical with 3 different levels:

Cost Groups
Cost Categories (CCs)
Cost Items (CIs)

There is a mathematical relation between the last two levels. In basic terms, Cost Categories (CC) are calculated from Cost Item (lowest level) using a summation formula. On the lowest level you find the CIs, 37 in number, which are based on captured directly from a ship or from the shipping management. Data is collected once and re-used within the Costs in order to reduce the amount of data.

Cost Groups

Cost Groups do not express any form of aggregated calculation in any area. It’s just used as a grouping criteria. By default, the system makes use of the following group:

Costs

Cost Categories

Costs are reported with a list of predefined cost categories. The total cost of a ship is made up of the total of all (main) cost categories. Cost categories can be broken down into sub-categories. The sum of all sub-categories of a specific cost category equals the cost of the category itself. The system supports data entry of cost categories on all levels (cost category and cost item).

Cost Item

The Cost Item (CIs) are the building blocks giving for each category to calculate the cost.

Cost Factor

The concept of cost factor was introduced to facilitated the calculation of the cost per day by dividing the Cost by the ownership days.

Factor Item

The concept of cost factor was introduced to facilitated the calculation of the cost per day by dividing the Cost by the ownership days.

Ownership days

In order to calculate costs per day, the user must specify days of ownership (for ship owners) or days under management (for ship managers). The Ownership day added to specify the number of days of entering ownership/management.

Ship attributes - METAdata

Meta data is used for grouping and filtering during statistical analysis. It usually represents an attribute of the ship, like its length or the nationality of seafarers used during the reporting period.

A typical use of meta data allows a ship manager to benchmark its ships not against all other ships in the system, but for example only against ships of the same ship type.

KPI Rankings

Ranking is an implicit benchmark where performance is regarded as relative to who I am compared with. Each ship is compared with other ships on the same KPI based on its own ranking criteria, hereby creating a ranking result where each ship is given its rank.

It can be compared to a race, where the fastest runner is on place 1, the next person on place 2 etc irrespective of the absolute time. Something like a marathon with 100 runners, the first, the second, the third etc. To get a silver medal, it’s not important how fast I was, it only counts that I was behind the first.

For calculating the ranking of an individual ship for particular KPI in a particular quarter, the below steps are followed:

Calculate KPI value based on the KPI formula
Calculate position by comparing the KPI value of the ship with rest KPI values of ships having the same ranking criteria
Calculate ranking as percentage based on a global formula used for all KPIs which considers the total ships participating with the same ranking criteria and the actual position of the ship in this list

In case of calculating KPI rankings of multiple ships i.e of a Business Unit (BU), the system first aggregates PI values (not KPIs) of the ships belonging to the BU and then follows the exact same steps.

Important to note that, in order to calculate KPI rankings either on the ship or the BU level, the rule of 3 should apply on each individual KPI. In effect that means for calculating the ranking of a ship in a particular quarter for a particular KPI, its ranking criteria must contain at least 10 ships from 3 different accounts.

Period for reporting vs. Period for data capture

Performance data of ships is always reported quarterly, i.e. the period for reporting is always the quarter. In the normal case the reporting period is also the same as the period for data capture, so the data reported for Q1-2020 is also the performance data measured (i.e. captured) in Q1-2020. However in a few cases this does not appear to be practical. For example:

'Actual running costs and accruals' might not be known in time of reporting for a given quarter. It was therefore decided that PI011 Last year’s actual running costs and accruals is using last year's values.
'Officer terminations' are difficult to specify for a single quarter, due to the use of temporary contracts in the maritime industry and the return of officers at a later stage. It was therefore decided for PI041 Number of officer terminations from whatever cause to look at a rolling year period.

In conclusion it is important to check for each PI measured, which time period is specified in its documentation for data capture. Note: The BIMCO KPI Expert group is well aware that the variations in data capture period are adding to the complexity of the KPI standard. This was also confirmed by feedback of the participants. The KPI Expert Group therefore works on the practicalities of unifying the capture period, if possible also to a quarterly base.

Ship vs. Fleet wide reporting

In general the KPI standard is ship oriented. Performance Indicators (PIs) are captured and reported by ships. KPIs are also calculated by ship. But it turns out, that a few performance measurements cannot be expressed by ship. A classic example is PI017 Number of cadets under training. Some cadets get trained on one ship and deployed later at another one, some cadets are not on ships at all. So the cadets employed with a ship manager are an investment into the future, where not only a specific ship benefits, but a whole fleet of ships. To address this the term of a Business Unit (short BU) is used. A BU is an organizational sub-entity of a shipping company responsible for a subset of the ships. This could be a branch, a country office or a region etc. All fleet wide defined PIs are measured by BU.Again in conclusion it is important to check for each PI measured, if it is measured for a single ship or across all ships in a BU. In effect the ships within a BU share the same value for such PIs.

KPI Profiles

A KPI profile is a record of KPIs that is used to store the interested KPIs of the ship operator. Depending on the structure and the company needs, account managers are entitled to select and assign KPI Profiles to ships from a list which combines built-in and custom KPI profiles. Also, the KPI profile refers to the explicit visual representation of ships performance data.

KPI Profile concept provides a set of benefits such as:

Simplifies the way users perceive the KPI Standard
Limits the KPI Standard as per the company needs
Reduces the data entry volume
Customized visual representation of the ship’s performance

Primary Vs Secondary KPIs

A primary KPI is selected by the account manager to be in the KPI Profile. Primary PIs are the PIs, which should be entered in order to calculate the primary KPIs of your KPI profile.

Similarly, a secondary KPI is excluded from the KPI profile and secondary PIs should be entered to calculate the secondary KPIs.

KPIs

Key Performance Indicators

KPI Groups are used to combine a set of related KPIs best expressing the organizations/vessels ability to perform in a certain area.

8 top-level KPI groups are defined:

Key Performance Indicators

The Key Performance Indicator (KPI) is built combining a set of PIs. As the KPIs is a mathematical combination of PIs no additional data gathering is required. In the model 33 KPIs are defined. The KPIs are expressed in two forms: The calculated KPI Value and a conversion of the KPI Value into a 0-100 KPI Rating. The following KPI were defined:

Performance Indicators

The Performance Indicator (PI) is what is directly observable or measurable within the company (as an example; number of incidents, fuel consumption, exposure hours etc.). In the Shipping KPI model over 63 PIs are defined today.

The following Performance Indicators were defined:

Primary Personnel

Technical

Ships’ Emission Monitoring

The mandatory Energy Efficiency Design Index (EEDI) for new ships and the Ship Energy Efficiency Management Plan (SEEMP) for all ships are effective regulations for CO2 emissions and provide, in BIMCO’s view, tangible contributions to the global efforts to combat climate change.BIMCO supports the initial IMO GHG Strategy adopted at MEPC 73 in April 2018. Reduction of GHG from a ship is monitored within the framework of its SEEMP. It is likely that the SEEMP will be enhanced in the future to provide an even stronger framework for managing a ship’s GHG emissions. Therefore, the following KPIs have been removed in order to avoid duplicate reporting to mandatory and voluntary regimes:• KPI005: CO2 efficiency expresses the energy efficiency of the ship by comparing emitted mass of CO2 to the ship’s total transport work• KPI021: NOx efficiency expresses the amount of NOx emitted relative to the transport work performed.• KPI030: SOx efficiency expresses the energy efficiency of a ship by comparing emitted mass of SOx emitted relative to the transport work performed.The BIMCO Shipping KPI’s Environmental Performance is sought to express a company’s ability to avoid spills and reduce emissions caused by the ship’s operations that impact the environment. This is recorded for every single ship.NOx and SOx are substances regulated by the IMO MARPOL Annex VI. Ships’ engines are tuned to meet the applicable NOx limits while seeking to reduce fuel consumption. SOx are regulated by limits on sulphur in fuel. Operating on fuels with lower sulphur levels than specified for a ship’s operating area is not sustainable from an economic point of view.Both NOx and SOx limits are differentiated by area of operation. Taking the average NOx or SOx emissions per transport work will thus reflect mostly a ship’s area of operation rather than its environmental performance.”

Ship Attributes Ship Attributes is used for filtering during benchmarking and grouping during statistical analysis. Similar to Performance Indicators all Ship Attributes is collected per ship on a quarterly period.

The following ship attributes were defined:

Custom Data

Not all meta data is interesting for all participants of the standard. Some data is even completely company specific and not suitable for benchmarking in the first place. Still the system allows a company to submit and store such custom data for internal use and therefore defines a few custom fields.