Misuse of measurement (yet again)

["Alan Meekings" <alan@landmarkconsulting.co.uk>]

Here’s a recent posting I noted on the Performance Measurement Association
Forum, http://www.som.cranfield.ac.uk/som/cbp/pma/pmaforum.htm, which you
may find of interest.

In a similar vein, those who've followed the mounting problems with Shell's
regulatory reporting of oil reserves may be interested in some quotes from
an article in today's "Evening Standard" (the evening paper for London):

"The roots of Shell's disaster can be traced to the late 1990s when the
group realised it was failing to find enough oil to replace production. -
the reserve replacement measure judged a key indicator of a company's future
profitability."

"At the time, oil prices were as low as $10 a barrel, and, while smaller
rivals such as Exxon and BP embarked on a series of mergers, Shell was
focused on cutting costs and investment. It wiped out some 15,000 jobs from
1997 to 2000 to bring its workforce down to 95,000."

... "Shell relaxed the stringent rules by which it accounted for proven
reserves."

... "In this way, it hoped to match its rivals' success with the drill bit."

... "Exploration staff knew part of their bonus was dependent on success in
reserves replacement."

... "Van de Vijver [the successor to Sir Philip Watts as chief executive of
Shell's exploration and production unit] claims the aggressive overbooking
before his promotion to exploration chief meant it was virtually impossible
for him, in turn, to meet Shell's desired 100% reserves replacement target."

... "All this was left to be checked by the unnamed part-timer, who admitted
in testimony to the lawyers that signalling a conflict with SEC rules could
have left him looking for a new employer. "With the benefit of hindsight, I
should have been more forceful in this respect," he said. "It would have
been a clear break with all my predecessors and it would probably have cost
me my job in those days, but I should have.""

What a sad tale. Who was it who said, "How are the mighty fallen"?


Regards as ever,
 
Alan
 
Email: alan@landmarkconsulting.co.uk
Mobile: 07785 258 741