Standard for operational Key Performance Indicators (KPIs) An Industry Initiative for excellence in ship management June 2005

2 Use of KPIs in shipping The need for KPIs are a consequence of continuous improvement processes embedded both in the ISM Code and ISO 9000:2000 Responsible ship managers have developed company specific KPIs to support their quality improvement processes Driven also by the changes taking places in other industries where focus is shifting from detailed process regulation to goal based regulation (outcome)

3 The Ship Manager’s challenge Reporting of KPIs will be required by owners, charterers, oil majors, insurance companies, P& I clubs, Port state authorities (incl. individual ports), Flag state authorities, etc. Each “stakeholder” will develop his own definition for how KPIs should be collected, calculated and reported Too many KPIs will be requested

4 KPI standardization problem (one example) Lost Time Injury (LTI) rate: (Normally calculated as incidents per million manhours) Variables: What is manhours? – Working hours including or excluding overtime? – Time onboard (24 hours) or excluding time ashore? What is an incident? – Any injury or only injuries requiring medical treatment? – Only work related injuries? – Only incidents where work time is lost? (1hr, 8 hrs, ?) – Only incidents where signoff is the result?

5 Consequences - worst case? Additional manpower required to present the same information in many different ways Extensive data collection and reporting requirements on vessel and crew Opportunities for confusion and mistakes leading to misrepresentation of facts Difficult to mobilize organizational focus on the right issues Inability by stake holders to compare reports from different organizations Quality improvement efforts “strangled” by red tape

6 Preferred scenario 1. That the shipping industry will operate on a common standard for measuring, calculating and reporting Key Performance Indicators (KPIs). 2. An acceptance by all stakeholders that performance in ship operation can be adequately established with a limited number of Key Performance Indicators (KPIs) Self regulation is the preferred solution!

7 The main challenge: To agree on a set of KPIs that: – gives a representative picture of the quality of the ship’s operational performance, and is limited in number uniquely defined transparent economic to collect No pan-industry agreement can be reached without a tool to measure the “value” of the various contributing factors to safety and environmental protection

8 How to establish consensus? One way forward is to use methodologies capable of measuring value of different contributing factors as perceived by multiple stakeholders to rank the importance of such attributes for safety, quality and environmental protection The Conjoint Value Hierarchy (CVH) methodology developed by Intellectual Capital Services, Ltd. is one such methodology capable to perform “multi attribute/ multi stakeholder” value measurements

9 The CVH methodology - Pilot Project Best practice guidelines launched by ISMA in 2004 Pilot initiated in January 2005 Supported by 18 leading ship management and ship owning companies (the Sponsor Group) Conducted with resources from the Sponsor Group under the guidance of Intellectual Capital Services, Ltd Pilot study concluded in April 2005 Findings: The pilot project indicated good correlation between the output from the CVH process and what representatives from the Sponsor Group considered to be prime attributes for operational excellence in ship management

10 The Sponsor Group Anglo Eastern Ship Management Ltd. Barber Ship Management / Wilhelmsen Maritime Services AS Chemikalien Seetransport GmbH Columbia Shipmanagement Ltd. Dobson Fleet Management Ltd. DS Schiffahrt GmbH Eurasia Group Fleet Management Ltd. Hanseatic Shipping Company Ltd. Jebsen Management AS Navigo Management Co. OSM Group AS Stolt-Nielsen Transportation Group B.V. TESMA Holding Thome Ship Management Pte. Ltd. V. Ships Shipmanagement/ V. Ships Inc. Viken Ship Management AS Wallem Group Ltd

11 CVH Pilot Project - Conclusion The CVH methodology has potential to become an instrument for establishing consensus among important stakeholders on a “Standard for operational KPIs”.

12 The way forward The Sponsor Group decided to communicate the findings and the conclusions of the pilot project to other stakeholders in international shipping with the aim of establishing an industry driven process for developing a “Standard for operational KPIs” The communication process will be spearheaded by International Ship Managers’ Association, but each Sponsor Group company will utilize its own market network to gather support for a “KPI Standard”

13 Communication model Main strategy: Broad Involvement Parties to involve: – Universities and research organizations – Class societies, standardization org. (ISO) – Maritime authorities International level (IMO, EU, others) National level (Port States, Flag States, others) – Industry organizations (ICS, INTERTANKO, others.) – Major stakeholders (Oil majors, OCIMF, others.) – Management consultants

14 An important contribution to safety! Increases transparency Puts focus on improvement processes Enables more targeted safety inspections and operational follow-up Allows benchmarking and value comparison Enables evolving of minimum acceptable performance standards in shipping