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KPIs. The board needs you to meet them; your staff work towards them. They exist to help you improve your production performance and keep your people on track. They illuminate areas of underperformance so that you can resource these areas and achieve your business targets.
But what if the way we typically use KPIs is inherently flawed?
What do you mean, flawed?
Let’s start from the beginning, with a story.
It was the 19th century – the time of colonial rule in India – and the city of Delhi was suffering from a cobra infestation. The venomous snakes were everywhere, causing havoc to society and trade. To curb the problem, the British Colonial authorities implemented a system whereby anyone who delivered them a dead cobra was awarded a cash bounty.
This system worked – until it didn’t.
It stopped working because ingenious snake catchers started breeding the snakes so that they could earn themselves more bounty.
It stopped working because the officials eventually figured out what was going on, stopped paying the bounty, and breeders released the surplus cobras (which were no longer earning them money) back into the city.
What does this have to do with KPIs?
The above is the original story behind what has been dubbed the ‘Cobra Effect’ – a phenomenon, coined by German Economist Horst Siebert, that describes what happens when a well-intentioned, simplified solution to a problem ends up actually making the problem worse.
In the above situation, the solution aimed to fix a problem – paying a bounty for the killing of snakes – stopped working because the goal that was set drove the wrong behaviour.
In our modern-day business context, we often set goals as well, with arguably the most common ones being KPIs – or key performance indicators.
In this article, we’ll drill down on why we need to reframe how we look at KPIs in the mining sector. We’ll also discuss how to better set and allocate KPIs and how digital tools could be the key to helping you benchmark performance, unlock the true potential of your staff and ensure any KPIs you do set are really improving performance – enabling you to meet your regulatory requirements and stakeholder expectations.
But let’s start with the basics: how are KPIs traditionally used?
How KPIs are traditionally used in mining
KPIs, first used by Austrian writer, professor and management consultant Peter Drucker in the early 1990s, have long been applied in organisations as a standardised way of setting goals and linking operations to strategic decision-making. At the core of performance measurement and management, they provide quantifiable performance metrics that can be monitored and reported using dashboards, scorecards or other kinds of performance reports.
On a mine site, KPIs are typically linked to the Life of Mine (LOM) and assess against annual, monthly, weekly or daily efficiency and performance targets. In mining, it is frequently believed that tonnes are king (or queen!) and our approach is often to cut costs and push more tonnes, even if this has the smallest impact on creating value – or worse yet, can actually destroy value.
We’ll come back to this point later.
Essentially, by providing visibility of individual, team, departmental and organisational performance, KPIs are designed to enable decision makers to take the appropriate actions to achieve desired outcomes.
But do they really?
Do KPIs, as they are commonly used, give managers all the information they need to make the best decision for the business?
Let’s have a look at some common problems with KPIs.
What's wrong with KPIs in mining?
According to one Forbes analysis, a common problem with KPIs is that there is frequently a mismatch between organisational goals and individual goals. In fact, there’s often barely any understanding, by operators or workers on the floor, of what the company’s strategic goals are, of who the mine’s end customer is or which of the six capitals of value their work contributes to.
Unsurprisingly, staff are then left uninspired, not understanding how their work contributes to the bigger picture. As Mipac Solutions Manager Dominic Stoll notes:
“KPIs are too often used as a big stick to performance manage employees. What if we instead used them as a spotlight to identify what resources are required to enable and empower our employees to achieve – like additional time, education, tools or inspiration?”
A second problem with KPIs is that they are either too ambitious (to the point of being unrealistic) or not ambitious at all. They may also focus on what staff members can’t control, as opposed to focusing on what they can – neither of which arouses great feelings of motivation among staff to achieve.
Finally, KPIs – particularly in the mining industry – don’t focus enough on what the customer really needs.
What have KPIs got to do with your customers?
In short: everything!
Too often on site, we focus on our specific area of work rather than the bigger picture. We operate in silos. This is because KPIs force us to focus on the efficiency of one area, rather than looking at the bigger value chain. Our teams often don’t have the business’ end customer at the front of their mind, getting bogged down instead in the daily grind and the meeting of production targets.
Take, for example, the mining engineer who gets rewarded for achieving their KPI of reducing the cost of explosives, even though it takes at least 10 times more energy to crush and grind the resulting ore than it would have to increase the size of the blast. This focus – particularly at the start of the value chain – has flow on effects downstream and can result in a lower quality product for our end consumers.
The concept of mine-to-mill, or mine-to-mill-to-market, has been working to address this issue of silos for at least 20 years, but the problem is still rife.
The problem with focusing on throughput
In the mining sector, another common issue with KPIs is the focus on increasing throughput.
Whilst increased throughput is a commonly used measure of success, not least because it’s highly visible and enables us to celebrate the individual or team who achieved it, it may not be the most effective lever to pull (read: KPI to set) – if it isn’t actually delivering the most value.
For one, you can’t push tonnes if your asset isn’t available. Similarly, there is no point in producing more if you’re off-spec and your client won’t buy your product.
Increasing throughput requires increasing other variable costs such as mining, logistics, energy, etc. On the other hand, increasing recovery has a greater unit cost benefit because you don’t need to increase the tonnes you mine. Also, consider that availability typically drives profit more than cost savings, just like increasing recovery typically drives profit more than increasing throughput.
Of course, this is a four-way balance. For example, you shouldn’t spend $1M to increase availability by $1. However, it does make sense that our KPIs should be prioritised from safety to availability to product specification to product output (a combination of recovery and feed rate) to cost control.
And yet, that’s not always how our senior leaders in mining think. Instead, we too often get told to cut costs and up the tonnes – which don’t necessarily create the most system value.
Let’s look more closely at how we can set better KPIs in mining.
How to set better KPIs
To better set KPIs then, we suggest following this 4-step approach:
Step 1: Conduct a customer-supplier-stakeholder analysis.
As a supplier (internal or external), you need to understand not only who your customer is, but what it is they need and – for the purposes of this article – how to deliver them what they need.
Understanding the supplier-customer relationship will help you to operate in such a way that you deliver what your customer needs – with the leading task or process that an individual can control (to ensure this need is being met) becoming the KPI.
As a sanity-check and to ensure your customers really need what they’re saying, we suggest confirming that your KPI contributes to delivering the six capitals (see Image 1 above) and follows lean principles of being value-adding or value-enabling and definitely not non-value-adding (e.g. creating waste).
Step 2: Think about your targets.
To evaluate the targets you set for your KPIs, it’s worth thinking about the three Bs:
- Baseline: What are you achieving now? Remember, you can’t ask your people to do better than what they are doing now without providing them with additional resources (technology, time, tools or education).
- Benchmark: What are leading companies in your sector or adjacent sectors achieving? How can you incrementally strive for that
- Bottom-up: What is the minimum required to achieve your corporate objectives (e.g., target profit)?
Step 3: Allocate KPIs to the correct roles.
When allocating KPIs to particular roles, it’s important to remember the circle of control: what can person A control and/or greatly influence vs what person B can control and/or influence? What can’t they?
Leading KPIs – or inputs – should be based on what a single responsible person can control at least 80% of the time. Lagging KPIs, like recovery, on the other hand, are typically achieved as a result of more than one person working together and should automatically be achieved if the leading KPIs are allocated correctly and achieved.
After all, there is no magic recovery improvement button you can ask the Metallurgy Superintendent to push. Instead, operations, maintenance, metallurgy and reliability need to work together to understand what drivers contributed to recovery deviating and what collectively needs to be done to mitigate the deviation. The Metallurgy Superintendent can’t achieve that on their own.
Once you understand your customers, have carefully considered your targets and considered which KPIs should be allocated to each person, aim to allocate no more than five KPIs to each role.
Step 4: Make sure your KPIs follow the SMART model
As a final step, you need to ensure the KPIs you set are SMART:
- Specific: is the KPI clear and concise?
- Measurable: can the task or process be measured manually or from an instrument?
- Attainable: is the target, set point or range realistic to achieve?
- Relevant: is your KPI really key? How often is it expected to deviate? Will your six capitals suffer if it deviates? Any more than five KPIs per role is too many!
- Time based: is your KPI monitored within shift, day, week, month or year?
An extension of the time-based requirement is considering whether your KPI will endure the march of technology and generations of self-interest (e.g., management turnover or organisational restructures).
How digital tools can help you achieve KPIs
Digital tools can be the magic wand that turn your dry KPIs into motivating and inspiring targets. Why? Because they enable your people to:
- Know how they’re tracking
- Visualise how their KPIs contribute to corporate objectives
- Realise quickly when they’re deviating off-track
- Get real-time recommendations on how to get back on-track
- Interrogate similar situations and actions taken previously to accelerate problem-solving
- Collaborate as a team
- Understand long-term impacts
- Identify long-term countermeasures to prevent the reoccurrence of issues
Are you using digital tools to your advantage to set better KPIs and control them?
Did you know?
Mipac’s MPA solution has been specifically designed to deliver on the above, empower your people and provide you with a framework for selecting and controlling the correct KPIs.
With its innovative suite of apps, MPA gives you essential insights into your performance that aid decision-making and help drive outcomes. This platform is not one-size-fits-all but instead offers a customised approach that is uniquely tailored to suit your organisation’s needs.
If you’re interested in understanding how MPA can assist in clarifying KPIs and driving positive performance outcomes, then visit our MPA page here to discover more or get in touch with us directly for a chat.
Sources
Meet the expert
Dominic Stoll, Mipac's Digital Solutions Manager, is an experienced minerals process engineer with more than 14 years’ practical experience across a variety of plant, project, commissioning, consulting education, management and commercialisation roles. Dominic has significant experience integrating people, business, and technological leadership across the mining value chain, delivering end-to-end solutions that unlock client value.
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