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School of Business | Department of Accounting | Accounting | 2015
Thesis number: 13895
Developing a target-oriented performance management model for a gas company
Author: Mäkinen, Leena
Title: Developing a target-oriented performance management model for a gas company
Year: 2015  Language: eng
Department: Department of Accounting
Academic subject: Accounting
Index terms: laskentatoimi; accounting; johtaminen; management; ohjausjärjestelmät; control systems; suorituskyky; efficiency; mittarit; ratings; energiatalous; energy economy; kaasu; gas industry
Pages: 102
Key terms: performance management; value creation; control; key performance indicator
This thesis is a single-company case study commissioned by Gasum Oy. The two main businesses, on-grid and off-grid gas, are studied in order to find the fundamental differences in value creation and management control that ultimately lead to different performance management practices. The objective of this thesis is to develop target-oriented performance management practices for both businesses.

The researcher was employed by Gasum Oy during the writing of this thesis. Analysis is based on semi-structured interviews of the key personnel, a workshop and personal observations about the everyday business and management practices in the company. In addition, the researcher was allowed to participate in a management reporting development project to gain more insight into the current performance management practices.

The analysis is structured as follows. First, the business environment and current performance management practices are studied. Second, the businesses and their value chains are examined to determine the relevant key performance indicators (KPIs). Third, the businesses and their KPIs are compared. Finally, suggestions for overall improvement of performance management practices are provided.

On-grid gas business is mature business and its overall strategic theme is, thereby, effectiveness. The suggested strategic level KPIs to be followed include cash flow (CF), EBITDA, take-or-pay limits and capital structure efficiency. These are cascaded down to tactical and operational level KPIs. The control, especially cost control, must be tight. Clear target levels must be set, and if they are exceeded, corrective actions must be taken. Cash flows generated from this business should not be used in expansion investments of the grid network as they are needed to finance both the day-to-day operations of the company and its new emerging businesses.

Off-grid gas business is an emerging liquefied natural gas (LNG) business with high growth expectations. Thus, its overall strategic theme is growth. The suggested strategic level KPIs to be followed comprise sales margin, portfolio balance, inventory turnover and capital expense efficiency. These are also cascaded down to tactical and operational level KPIs. IN LNG business performance management and management control should support growth and not restrict the operations with tight controls. Agile organization and management as well as innovative mindset are needed in new business development. Encouraging examples in LNG business and changed mindsets could lead the way to a change in the organizational culture of the whole group.

Suggestions for overall performance management practices involve improvements in modelling practices, such as, cash flow models, volume forecasts and LNG supply chain modelling. Other key issues are target setting and the linkage between strategy and operations. The business controllers should shift towards delivering analyses and strategy-related information. In addition, usability of the information systems should be developed to meet needs of the businesses.
Master's theses are stored at Learning Centre in Otaniemi.