Key Performance Indicators:
Proactive Opportunity or a Reactive Reality

February 12th, 2007

Based on recent industry trends, I have noticed that the focus of the proactive Environmental, Health and Safety (EHS) professional has moved beyond compliance activities. Emphasis is now placed on finding ways to add business value and increase a company’s shareholder value through enhanced EHS performance.

Managers can see that this shift in focus is evidenced in the recent trends for risk portfolio management. Analyst groups offer evidence of links between EHS risk management and financial performance. Stock trends highlight upward trends for companies with strong EHS performance records.

One example is translating injury and illness data into key performance indicators (KPI) that provide proof of your company’s commitment to employee and community safety. OSHA requires that this data be collected anyway. Using the data for performance metrics is a natural progression.

Company press releases and annual reports are full of EHS key performance indicators. These neither provide business value nor drive improved performance since most data a) indicate what has already happened, b) represent situations that may no longer exist and c) often become the end result, not a tool for further evaluation and decision-making.

If corporation officers want to spend money on environmental protection, they must have realistic expectations of value those investments will generate, and that they are appropriate for the size and character of the corporation. We already know that environmental professionals in many companies struggle just to maintain regulatory compliance. This applies to companies of all sizes, although the challenge is greater for small and mid-size organizations.

Traditionally, the most effective “non-regulatory” environmental initiatives are those that require disclosure and executive management involvement. The Toxics Release Inventory (TRI) had a major influence on pollution prevention programs after business management discovered how much was being released in association with their company’s facilities.

Today executives and plant managers must sign off on their environmental reports. That has brought environmental issues to the forefront of corporate governance.
KPIs show where a company is headed and give production managers tools they need to take action ahead of significant performance downturns and where they need to produce performance measurements.

Examples of ‘next generation’ KPIs that could affect your operations in the near future:

• Measurements of performance trends, not merely performance. Leading indicators can be derived from trends in wastewater discharge overages, spills, audit findings, reportable injury rates, near misses, or workman compensation claims for a particular condition, among others.
• Periodic surveys of relevant opinion leaders. Targeted surveys could provide insights into both short and long term EHS trends.
• Sustainable development metrics. Metrics that monitor and understand regional and global environmental data using information solutions that capitalize on material and waste data management
• Other measures such as physical conditions, employee attitudes and other factors should be rolled up into data that track factors affecting performance and results.

Businesses and economists have been using leading indicators for decades. I think you’ll find that the secret to developing effective KPIs is to create a process that provides results rapidly, so managers can develop strategies and tactics to correct negative trends in a timely manner. Look for software solutions like Essential Performance Manager™ – which we expect to hit the market very soon.

Tags: ehs performance key performance indicators pollution prevention programs safety osha toxics release inventory

Entry Filed under: Operational Risk Management