Performance Management and Control Problem of Oil Industry

Performance management and control is one of the key functional areas of management. This activity is essential for the proper and systematic working of businesses across verticals. Performance management calls for reviewing and assessing the status of various key performance parameters in the organization on a continuous basis. The main idea is to see that targets have been set accurately and results achieved are in line with them. Performance management is followed by controlling the deviations and finally correcting them. However before performance management can be initiated one needs to choose the performance parameters first. A lot of research and application in needed in determining these parameters which tend to vary from industry to industry.

Specific Criteria for Oil Industry. Oil Industry has a number of parameters against which performance has to be measured and controlled. Measuring performance, both internally and externally, is critical for the well being of the organization and its stakeholders. Performance management is a difficult task but it is what lets companies control costs, assets and processes. As far as oil industry is concerned it is worth noting that the industry has seen some important fundamental changes over time. Increasingly larger oil companies because of the economies of operation, introduction of cost cutting, increasing demands, discovery of new reserves and rising costs etc have all put pressure on their performance. Another important problem experienced by oil industry is its distributed nature which makes it extremely difficult to bring in consistency in operations.

Key Challenges. Major hurdles in performance management and control of oil industries are factors such as size of the industry, time span of the projects, distributed operations across geographies, consolidations happening in the industry and contradictory views of the experts.

Oil companies are generally big entities operating on large scales and on projects which have long completion periods. As a result huge costs are involved and there is a possibility that the current project is highlighted and the broader company objectives are shadowed. Moreover, oil companies operate across the globe wherever they find adequate resources. Though diversification has its own advantages, it can pose coordination and alignment problems between local and central managements leading to a disruption in the management and control of performances. Another problem is posed by an ever increasing number of consolidations happening in the industry. Every time a merger or acquisition happens companies have to work towards aligning their plans, strategies and operations to suit the new entity. It can pose various problems if not managed properly. Also, the very nature of the industry is technical and complex. As a result it has seen the rise of many experts who have differing views regarding risks and o ppo

rtunities in the industry. All these make effective management and control a huge task that has myriad challenges.

There are several performance parameters specific to the oil industry against which the performance can be judged and controlled. These include exploration success rates, finding and development costs, O&M spending, energy intensity, fatalities, gross refining margins, spills, properties held for exploration etc. Though these indicators can provide a significant measure of performance, they are not exhaustive in nature. Many other intricate parameters may be involved that based on specific operations of a company.

Therefore, the very nature of oil industry is a hindrance in performance management control in oil industry. It is a complex task but can be achieved to a great extent by identifying and setting up several performance indicators.

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