Hitting the Mark: The Importance of Setting the Right Key Performance Indicators
Written by Jimmy Jia
Key performance indicators (KPIs) are only as effective as their alignment to the goal. No one knows this better than marathon runners. When I lived in Boston, one of my favorite events to watch was the Boston Marathon, considered by many to be the most prestigious marathon in the world. My friends who ran would proudly talk about their results and compare the experience to a previous run, overall time, minutes per mile, and what place they finished. Each of these metrics were important, especially for my more competitive friends who were already looking forward to their next race.
Elite runners will care about the overall finish (a cross-sectional KPI) because of the cash prize for the first 15 finishers, regardless of how fast each ran. If the top finisher sets a new course record, there is an additional $50,000 bonus (an absolute KPI). Serious runners may care about their personal record (a longitudinal KPI) because they may have set a personal improvement goal. That personal improvement goal may be to average less than 6-minutes per mile (an intensity KPI) for the entire race. A casual runner might be thrilled just to have qualified for the race (an absolute KPI). As you can see, setting the right goal informs which KPI to pay attention to. The KPI then dictates the training regime to follow prior to the race.
These categories of KPIs are the same ones faced by energy managers in their quest to improve the performance of their buildings. They need to know overall building consumption, how the building consumed per unit time, how similar buildings compare, and whether the building was effective in serving the needs of the company. Let’s take a look at these categories of benchmarks in more detail:
- An absolute benchmark compares your current operations to zero. For a building, an absolute benchmark KPI might be how much you consume, how much you spend, etc. This is important because it informs your starting point and gives you a reference of what to improve. These are the simplest benchmarks to set and measure.
- A cross-sectional benchmark compares you to your peers. Understanding how similar buildings consume energy informs you whether you’re ahead or behind your competitors. Care should be taken to find true comparables. External forces, such as regional climate variations, size of building, usage of building, will all affect the peer group. That is why a marathon sets different qualifying time by age and gender – it allows the racers to be compared against similar athletes.
- A longitudinal benchmark compares yourself to a time in your past. For an energy manager, this is the year-over-year measure of how a building may have improved over time. Sometimes, one may need to account for seasonal weather effects, production cycles, major construction demands, or other one-time variations.
- An intensity benchmark uses a per-unit measure for comparisons. An often-overlooked metric in the energy sector, this one measures kWh per unit production. This metric can be used when a company is expanding production and, although total energy usage may increase, the cost per unit might be decreasing.
Energy managers need to be clear on their goals in order to understand which benchmark to optimize for. If the goal is to reduce the energy budget, pay attention to absolute targets. If the goal is to be competitive in your market, focus on the actions and consumption patterns of your peers. If the goal is to improve efficiency, show continuous improvement of your consumption over time. If the goal is to improve profitability, demonstrate the improvement in the per-unit energy consumption of your production.
Each of these goals can affect the decision matrix and priorities of what improvement to make. As an example, a cost-cutting solution may be to defer maintenance on production equipment to save money during periods of austerity. On the other hand, a per-unit cost reduction solution may be to invest in new equipment that produces more for less. Both decisions are correct, depending on your situation.
Thus, as energy managers, you’re in the race for the long term. Your job is never finished. The value of Buddy Ohm is that it allows you to set clear benchmarks, no matter where you are in your energy use reduction journey. Using the Reducing energy consumption, cost and carbon emissions guide, learn how you can use Buddy Ohm to set and measure these goals and targets.
Every milestone you reach can be improved for the next cycle. Set your metrics wisely. Think like a long-distance runner. Demonstrate continuous improvement. Win the race.