A conceptual model of performance measurement for power plant projects 1

Ali Naseri Gigloo

University of Technology Sydney, Master of Project Management student

Abstract

This study is focused on the importance of performance measurement in projects.

Projects are considered as temporary organizations with specific goals and
objectives. Generally, power plant projects are considered as high-tech and large-
scale projects and construction of them require a great amount of financial resource,
human resource, materials and equipment. Also, they are considered as one of the
strategic infrastructures of a country and any delay in these kinds of projects results
in huge cost overrun as well as negative social and economic impacts. So, it is
important to use a robust performance measurement system to help project
managers to manage them effectively to achieve goals and objectives of projects. In
this study, by using literature, a conceptual model of performance measurement was
developed and then by using the company vision, the KRAs of the project were
identified. Also, according to the project contract, the long-term and short term
objectives were identified. To assess the performance of process and systems a set
of KPIs identified.

Keywords: power plant projects, project success, performance measurement,

vision, KRAs, KPIs

Introduction

Each of the project stakeholders may have its interpretation of project success; a
project can be considered successful by its contractor, whereas it might be
considered unsuccessful by its client or end user (Toor & Ogunlana, 2009, pg.228).
These stakeholders may measure the project success on basis of its preference,
values and degree of effects by project, and this can lead to different results; the
project manager considers a project successful when it was done on time, within
defined cost and quality; the users will concern about immediate impacts of the
project; and investors may worry about its long-term profitability. Project success can
be divided into two interrelated dimensions as project management success and
product success. Project management success means achieving defined goals and
objectives; product success refers to values which the project deliverables will create
in future (Goatham, 2017, pg.1). Samset & Volden (2016, pg.300) categorized
project success into strategic and tactical successes (Fig.1).

1
This white paper is developed based on the author’s assignment submission to the subject
UTS15356 Project Performance Improvement, which is offered by the UTS’s Master of Project
Management (http://www.uts.edu.au/future-students/find-a-course/master-project-management).
 Effectiveness

Society
Sustainab
Strategic Relevance ility
performance
Success
Tactical
performance Cost
Project Quality

Time

Fig.1: Strategic and Tactical performance

Tactical success refers achieving the short-term performance targets, whereas

strategic success means meeting long-term objectives and whether the project
would provide a sustainable benefit and remain in an effective operational condition).
In other words, tactical performance is related to the execution stage of the project
and focuses on the time, cost and quality objectives, while strategic performance
covers a broader perspective and focuses on the long-term function of the product
and its effectiveness and sustainability (Samset & Volden, 2016, pg.300).

Literature view on the performance measurement

The business environment is very dynamic and organizations are faced with many
challenges; to survive within this challenging environment, they need a proper
performance measurement system to assess the functions and process to ensure
that they are in line with their strategies and objectives (Parida et al, 2015, pg.3;
Song & Lee, 2005, pg.360). Performance measurement can be defined as “the
process of quantifying the efficiency and effectiveness of past organizational actions”
(Star et al, 2016, pg.151) or “a set of metrics used to quantify both the efficiency and
effectiveness of actions” (Parida et al, 2015, pg.4). Using performance measurement
system brings benefits for organizations such as enabling them to identify goals and
objectives, resolve problems, monitor and adjust process, define progress steps,
measure efficiency and productivity of programs, process, people and sections, and
evaluation of goals and objectives (Star et al, 2016, pg.155). Performance
Pyramided Model is an appropriate framework to define a proper performance
measurement system (see Fig.2).
 Vision
Objectives

Market Financial

Customer Measures
Flexibility Productivity
satisfaction

Process
Quality Delivery time Cost

Operations

Fig.2: Performance Pyramid (Cross and Lynch, 1989, pg.25)

This model was introduced by Cross and Lynch (1989) to measure the cooperate
performance; it indicates that organizations are only competing on three fields:
customer satisfaction, flexibility and productivity; also, it specifies that the four critical
functional performance criteria are quality, delivery, process time and cost
(Kippenberger, 1996, pg.10). The top level of the pyramid is company’s vision which
refers to the future perspective of the company and its strategic area of work which is
determined by top managers. In the second level, in line with the vision of the
company, the goals of business units are defined and then strategies to achieve
these objectives are outlined. This process continues from the top to lowest level of
the pyramid. Also, for each level of the pyramid, in accordance with defined goals
and objectives, required measures are drawn (Cross and Lynch, 1989, pg.26). In
overall, this model shows a hierarchy of goals and measures in which the goals and
objectives are broken top-down and measures are rolled bottom-up.

Kaplan and Norton developed a performance measurement model called the

Balanced Scorecard model (BSC). This model is based on the idea that there is no
single performance indicator can determine all complexity of performance of
organizations; it deciphers the vision of organizations into goals and performance
measures in four categories: financial, customer, internal business and innovation
and learning (Watts & McNair, 2012, pg.228). Scholars have different opinions about
effectiveness of this model; some of them argue that it strongly ties organizational
strategy with measurement, but some others refer to its weaknesses such as lack of
proper connection between functions and strategic goals, lack of providing accurate
feedback, and lack of proper involvement of key users during the development
process, and argue that it does not a proper model (Star et al, 2016, pg.157).

Strategic Framework is another performance measurement model which was

introduced by a company in the UK working in the production of camera and imaging
equipment industry. According to this model, the vision of the company is divided
into several key result areas (KRAs). KRAs can be defined as “the key capabilities
we need to achieve our vision” (Sinclair & Zairi, 1995, pg.79). Also, KRAs are
interpreted into several key result measures (KRMs); KRMs can be defined as “the
goals we must achieve to develop and sustain our key capabilities”. Proper actions
are required to deliver performance in the KRMs, and this process might be
developed into detailed KRAs, measures, targets and actions down to the
operational level (Sinclair & Zairi, 1995, pg.80).

Performance measurement includes both “hard” and “soft” metrics; the term of
metric, measure and performance indicator (PI) can be used interchangeably (Parida
et al, 2015, pg.5). PIs can be defined as “instruments that tend to denote the health,
progress and/or success of a project, process, or area of service delivery; they focus
on resources and processes that are most likely to lead to successful outcomes and
are usually short, focused, relevant, measurable, repeatable, and consistent” (Star et
al, 2016, pg.154). PIs are used to underline deficiencies in an organization and to
analyse it carefully to find issues which caused the indicators to be low; in other
words they are used to measure the performance of processes and systems through
comparing the actual conditions with reference ones and finding the gap between
them (Parida et al, 2015, pg.6). In addition, they are not declared in financial terms;
they are assessed on a short-term basis; they are related to specific activities and/or
teams; and the activities that they are associated impacts organization’s success
factor(s) (Star et al, 2016, pg.154).

KPIs are defined as “the compilations of data measures used to evaluate the
performance of an operation” and managers use these tools to evaluate
performance of staff of special task; the assessment process includes comparing the
actual and anticipated performance in terms of efficiency, effectiveness and quality
of products and skills (Yeung, 2007, pg.120). Also, KPIs characterize a set of
measures which focus on the aspects of organizational performance that have a
huge impact on the current and future success of the organization (Star et al, 2016,
pg.154). The difference between PIs and KPIs can be described as PIs are at the
functional level; however, when they are accumulated to the higher levels are called
KPIs. In fact, KPIs can represent the performance of KRAs (Parida et al, 2015, pg.7),
and also “once the KRAs are agreed, then measures (KPIs) can be developed to
support them” (Yeung, 2007, pg.121). According to Yeung (2007, pg.122), in the
process of developing KPIs in projects, following factors should be taken into
account:
1. KPIs focus on the main aspects of outcomes
2. The number of KPIs should be limited
3. KPIs should be used systematically in projects to obtain a desirable result
from them
4. Data gathering process should be simple and easy
5. The size of samples should be enough to reduce the effects of specific
variables of projects.
6. All measures and indicators should be understood and accepted by the
project team.
7. KPIs should be refined and improved continuously

This literature view provides a conceptual approach regarding the process of

performance measurement in organizations. To do this, it is important that the vision,
KRAs, strategy, long-term and short-term goals and objectives organizations be
defined clearly. It also needs to define an appropriate set of KPIs to assess the
performance of process and systems appropriately. The performance measurement
system should be implemented systematically to help managers to find potential
difficulties and deficiencies and remedy them.

Case study

Introducing the Hormozgan power plant project

The aim of this project was establishing of an open cycle power plant in four units
with a capacity of 648 MW in ISO condition in the south of Iran. The area had
suffered from power shortage and according to the study was conducted by the
ministry of energy, construction of this power plant was vital to stabilize the power
network and also supply the electricity for the local area. The client was Iranian
power development company (IPDC) and MAPNA Group was responsible to
construct this power plant under an EPC contract. It should be noted that the
MAPNA-MD1, as one of the MAPNA Group subsidiaries, was the general contractor
for the project and other companies in MAPNA Group were supplied the main
equipment of the power plant and technical services. The project was started in June
2012 and duration of the contract was 33 month. According to an agreed schedule,
the first unit of the power plant must be commissioned after 24 months of the project
start date and other units with an interval of two months of each other. I, as a
member of the project team, was responsible for planning and project control
activities.

Scope of work of the Project

Normally, an open power plant consisted of Power Block, Common, and General
(civil) sections. In this project, power block consisted of four units each with a
capacity of 162 MW in ISO condition. The common section included fuel, fire-
fighting, water, substation and relevant electrical and control systems. Also, the
general section consisted of all civil work of the project as primary earthing, industrial
and non- industrial buildings, cable and fuel routes, landscaping, green area, internal
roads, lighting etc.

The main stakeholders of the project

Figure 3 shows the key stakeholders of the project. It should be noted that there is a
kind of top-down government system in Iran and the stakeholder’s decisions and
actions were mainly affected by this.
 IPDC
Ghoods
niroo MAPNA
(consult Group
ant)

Environ
Area mental
people organiza
tion

Project
Local
power Sub-
supply contract
compan ors
y

Govern Supplier
ment s
Power
plant
operator

Fig. 3: Key stakeholders of the project

Fig.4 shows a conceptual model of performance measurement of the project which

was developed by using literature review. It has a systematic approach towards
performance measurement and entails defining of the project vision, KRAs,
strategies, goals and objectives, and relevant KPIs.

Vision

Defining Key Result Areas (KRAs)

Defining Goals and Strategies Control

Context of and
the project Feedback
Defining KPIs

Performance Measurement

Fig. 4: The model of performance measurement of the project

First of all, the context of the project should be studied to find the influential internal
and external factors of the project. As the project was financed by the government,
the influential factors were mainly limited to the project main stakeholders. The
project did not have a special vision and the company’s vision was used to shape the
system. The vision of MAPNA–MD1 Company, as the general contractor for the
project, was “By 2021, we will be a reputable EPC company in the domestic market
with sustainable presence in our target international markets, focused in the Middle
East, North Africa and regional countries” (company’ website).

Normally, power plants were designed to work about 30 years in a safe and normal
condition. So, the project might be fulfilled all its stakeholders’ expectations
successfully to be considered as a successful project. Some of these stakeholders
were involved in the construction period and some others were involved in the
operation period of the power plant. So, on this basis, the KRAs of the project would
be as following:
• Project Benefits
• Stakeholders Management
• Project Management
• Human Resource Management
• Safety and Environmental Sustainability
• Social Commitments
• After Sales Service

These KRAs are used to help the project team to focus on the most important areas
of the project to fulfil the vision of the project. The number of the KRAs should be
limited to be managed easily and properly and also represents the main areas of the
project. Table 1 shows the KRAs of the project along with defined objective, goals,
strategies and KPIs for each of them.

Table 1: The KRAs, Objectives, Goals, Strategy and KPIs of the project

KRAs Objectives Goals Strategy KPIs

Value engineering, using
15% local suppliers to save
reduction in 5% reduction each transportation costs, Actual against plan,
total project year innovation, Using CPI, SPI
cost appropriate cost control
system
Using skilled engineers,
Using local suppliers,
Engineering 15 days Controlling of
9% reduction decrease, manufacturing process
in project Procurement 45 days effectively, Using Actual against plan,
duration (90 decrease, packaged systems to CPM
Project
days) Construction 30 days avoid extra civil and
Benefits
decrease erection work, Using
robust project control
system
Applying engineering
standards in design,
Maximum 3 revisions Using robust quality
Number of revisions,
Increasing for drawings, 20% control system, using
number of defects
quality of reduction in failed high-quality equipment,
/rework, number of
activities tests, 10% reduction Using proper suppliers/
failed tests
in rework and defects contractors, Using of
lesson learns, executing
construction activities
 according to defined
standards,
Supplying
power to 30 years power proper operation, defining
Number of overhauls,
local people supply in safe and appropriate maintenance
inspections
and normal condition strategy
industries
20% decrease in
Stakehold
number of Establishing
ers Stakeholders Number of meetings
claims/conflicts with communication channels,
Managem satisfaction and contacts
stakeholders each meetings
ent
year
Using project
Number of reports,
management standards
meetings, effectively
such as PMBOK,
Project Achieving the managed risks,
variation of plans < knowledge management,
Managem project recorded lesson
5% each year using project control
ent objectives learns, time and cost
system, using computer-
indexes, less paper
based systems,
work
communication
Number of training
Increasing of level of
hours per person,
satisfaction of
Human number of lay-offs,
Effective use employees by 10%
Resource Training, job rotation, job satisfaction rate,
of human each year,
Managem promotion, average salary level,
resource decreasing number
ent number of conflicts
of conflicts 15% each
among team
year
members
Decreasing the
Providing a casualty rate by 10%
Safety Using HSE plan, training,
safe working each year, less Number of casualty,
Environme measuring pollution
condition, pollution occurrence, level of greenhouse
ntal levels, observing safety
less decreasing gases, pollution
Sustainabi and environmental
environment greenhouse gas occurrence
lity standards.
al issues emissions by 10%
each year
70% of the project
Engaging in people are local
Percent of local
social people in
people working in
Social activities and construction and Recruiting local people,
project and power
Commitm providing job operation periods, supporting social and
plant, social events
ents opportunity donating of 1% of sports event financially
costs, sports events
for local power plant income
costs
people to charities and
social events
Communication with
Guarantee power plant owner, Communication,
After 20 years spare parts
and providing training programs, training hours, spare
Sales and technical
after sales providing technical parts costs, number of
Service services
services services, inspection and inspections
overhaul facilities

Impacts of using performance measurement in the project

Executing a power plant project is a complicated process and many contractors and
people are involved in it. This temporary organization is complicated and must be
managed effectively to achieve its objectives. It is important that all process and
functions of the project be assessed appropriately to find potential deficiencies and
resolved properly. Some of the advantages of using an appropriate performance
measurement could be as following:
• Performance measurement focuses on results instead of behaviours and
functions, and individuals are assessed based on their outputs.
• It aligns the project activities and process with the project goals and
objectives and reveals any variations and deficiencies.
• It provides a clear perspective of the project and enables managers to act
systematically.
• As outcomes are assessed against defined standards and possibly best
practices, it provides meaningful measurements to study results and
evaluate the quality of the project deliverables.
• It is contributed to the motivation of individuals, promote the performance
improvement culture as well as facilitate learning process in the project.

Conclusion

Each project stakeholder may have its interpretation of the project success which
might be different from other ones. Basically, projects will consider successful if they
achieve their time, cost and quality objectives. To achieve these objectives, it is
important that projects manage successfully in their lifetime continuously. Therefore,
they need an effective performance measurement system to assess and guide them
towards achieving goals and objectives. Performance measurement is a systematic
approach which evaluates the performance of the project process and systems and
helps project managers to find the gap between the actual and planned outcomes. In
this regard, the project vision, KRAs, strategies, long-term and short-term objectives
must be defined clearly to provide a benchmark for performance measurement
process. It also, needs a set of key performance indicators to monitor results, show
areas of project issues and deficiencies and helps project managers to rectify them.

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