How do you measure project success? For many of us, it’s easy to see financials as a leading indicator of performance. Is it over or under budget? And by how much? As owners and project executives usually are looking at high-level metrics, it’s easy for teams to get driven purely by money. In fact, 43% of construction firms prioritize immediate financial goals over organizational resilience. Nevertheless, there are a number of other essential construction KPIs that can signify if a project is on track and provide more actionable insights into what changes need to be made.
Using budget as your primary indicator of performance is a lot like calculating the calories of a cake to assess its healthiness after it’s been baked. While it might be an interesting fact to know for your own interest, it’s a little too late to make any changes needed to alter the outcome. On the other hand, if you were to measure and adjust the ingredients during the baking process, you could tweak results for a more desirable outcome (should healthy desserts be your thing).
Clearly, pure financials should not be the main indicator of performance. So, why are they constantly the primary focus of project scrutiny? Other critical measurements need to be taken into account to track construction progress and productivity–the primary factors that are going to get teams that want success. Below, let’s discuss the importance of construction KPIs and critical metrics your company should be measuring to affect profits and productivity.
What we cover:
- What are construction KPIs?
- Why are KPIs important?
- Construction KPI assessment
- Essential construction KPIs to track
- Leading vs. Lagging: moving to predictive KPIs
- How to implement better KPIs
What are construction KPIs?
Construction KPIs, or key performance indicators, are metrics used to measure and evaluate a construction company’s performance in various areas. KPIs are essential for setting and achieving goals, monitoring progress, and making data-driven decisions.
Tracking and carefully interpreting an array of KPIs helps a construction company build long-term resilience while also meeting short-term financial goals. But just in case you need a refresher on the purpose KPIs serve, here is how the Construction Financial Management Association (CFMA) defines them.
CFMA describes KPIs as being vital signs that show whether “your business is functioning according to plan.” It explains that the “key” part of the acronym indicates prioritized metrics.
The “performance” aspect of the acronym refers to the ways in which your company operates or behaves. Likening a construction business to an auto engine, CFMA stresses that engine analysis is based on more than miles per gallon. Similarly, although basic construction project metrics concern costs and time, profit isn’t the only performance issue to measure.
As to the “I,” CFMA notes that indicators usually are quantitative data, such as numbers or percentages, that present a quick picture of a condition and its “favorable or non-favorable status.”
Why are KPIs important?
Think of KPIs as vital stats or biomarkers, but instead of measuring someone’s physical health, you’re tracking your construction firm’s performance.
“I always think of KPIs like a health school; this is probably the easiest way to do it. We all want to know that our heart rate is in the right zone and our cholesterol levels are at a low level. It’s exactly the same when it comes to projects. You want to know you’re on time and on budget. It’s no different when you’re actually looking at a project’s health,” says Ivana Tudja, BIM and Digital Engineering Lead at Mace on an episode of the Digital Builder podcast.
Beyond measuring a firm or a project’s health, construction KPIs also enable you to benchmark your performance against competitors. It helps you see how you’re measuring up and how you can improve.
As Ivana puts it, “If you look at some of the key performance indicators that are in use within the industry—whether that’s, win rate, accident frequency rate, or the EMR—those sorts of things allow you to compare yourself to either other projects within your organization and say, ‘What does good look like? And how is it that we address poor performance?'”
She continues, “Measuring is so, so important, and capturing that data and gathering information at scale is really hard to do. But I think that’s where technology gives us such an opportunity to gather all of that KPI data and then use that to do some peer-to-peer benchmarking. That way, people can understand and answer questions like, “What does good look like and how do we improve?”
Construction KPI assessment
It’s vital to understand where your company currently stands when it comes to KPIs. Enter the Workflow Benchmarking Tool. This free tool allows you to see how you stack up against the top construction companies. In a few minutes, you can get an overview of your blind spots and identify processes that can help improve the way you record and use information to formulate a construction quality management plan with KPIs.
Ready to take the free assessment?
Essential construction KPIs to track
When it comes to KPIs, the right measures depend on your firm’s objectives and priorities. What’s “key” to one company may not be a top priority for another. That said, we did some research at Autodesk and found that the five value drivers for construction success are:
- Winning Business
- Schedule or Program
- Health, Safety, & Environment
Under each value driver are measures and outcomes that you need to monitor to determine whether or not you’re on track. For instance, if “Winning Business” is a priority, then you’ll want to measure things like your win-to-bid ratio, referral rate, or project pipeline.
On the other hand, if your goal is to improve “Health, Safety & Environment,” it may behoove you to track things like safety training completions and near-miss reporting.
All in all, it’s vital to understand that your KPIs will depend on your company’s specific objectives and priorities. Start by figuring out your biggest value drivers. From there, hone in on the proper metrics and figure out how to surface that data to the right teams.
Although your company may measure many details of a project, effective performance analysis requires prioritizing a limited number of key categories of concern for tracking overall project success and company health. These would be both financial and non-financial matters that can be quantified.
Here are types of data these KPIs might scrutinize:
A safer site incurs less risk and long-term costs. If issues do occur, they could set your project back both in time and money. Beyond that, safety incidents can mean higher insurance payments. Therefore, knowing and understanding your safety rating is key to reducing your costs and keeping your staff productive. Important construction safety KPIs include:
- Safety/incident rate
- Number of safety meetings/communications
- Number of accidents per supplier
- Safety training completion rate
- Near-miss reporting
- Lost time injury frequency rate (LTIFR)
- Safety inspections (number of inspections completed, passed, and failed)
- Emergency response preparedness
Having a better understanding of the total quality of your projects will help reduce changes and rework. Therefore, keeping a thumb on quality metrics is a surefire way to keep on budget and schedule. The following construction KPIs will help your team maintain a high level of quality:
- Number of defects
- Number of defects due to workmanship
- Time to rectify defects
- Number of site inspections conducted
- Ratio of the number of inspections passed to total number of inspections
- Rework rate
- Total cost of rework
- Customer satisfaction
- Internal customer satisfaction
- Punch list completion rate
Performance metrics can provide insights into a project’s productivity. By measuring and understanding just how time and efforts are being spent, teams can adjust and allocate additional resources or tools to the areas that need them the most to reach project goals. Here are a few KPIs related to construction performance:
- Waste/recycling per job
- Average revenue per hour worked
- Percentage of equipment downtime
- Percentage of labor downtime
- Material waste
While tracking your employees’ performance is crucial for a successful project, measuring their development and satisfaction are also critical for success. Staff who are invested in and happy will be able to work more efficiently for the long-term and contribute more to the bottom line. Not to mention, employee turnover is a major expense, and reducing this cost can save teams enormously. The following construction KPIs are vital to employee retention:
- Worker satisfaction
- Training completion percentage rate
- Turnover rate
- Employee engagement survey results
In construction, cash flow is particularly important because of the extended payment cycles involved in many projects. By tracking cash flow regularly, you can identify potential financial issues early and take steps to address them. You can, for example, adjust payment schedules or negotiate better payment terms to avoid being in a cash crunch.
Along with that, here are the top cash flow-related metrics to keep an eye on:
- Accounts receivable aging
- Accounts payable aging
- Average days to collect, aka days sales outstanding (DSO)
- Project costs
- Operating cash flow
- Gross profit margin
- Net income
- Working capital
- Cash reserves
Leading vs Lagging: moving to predictive KPIs
The first step to using construction KPIs as predictive measures is to focus on leading indicators vs lagging indicators. The former refers to metrics that can predict future performance and outcomes while lagging indicators are reactive measures that track historical data.
Construction Dive magazine points to “cash flow and receivables” as “backward-looking” or lagging financial indicators because these things are usually measured after the work has already been done and the client has been invoiced. As such, they can only give a retrospective view on performance.
Leading indicators would be data showing the ongoing progress of a project in such a way that the information can lead to the remediation of procedures or work before the construction schedule is badly affected.
Talking about KPI analysis of company data–whether rear-view or forward-looking–the magazine states, “Measurements help bring standardization and repeatability to processes on a job site.” So, the quantification of KPIs helps construction companies more accurately predict costs and schedules for future projects.
How to implement better KPIs
As already noted, successful implementation of construction KPIs requires prioritization of top concerns and selection of appropriate technological support.
Standardizing reporting and measurement
To get started implementing and evaluating construction KPIs, standards need to be set to ensure accurate input and use of the information. Standardizing construction measurements and processes is easier than ever these days due to the digital transformation of our industry. This change encompasses cloud technologies that improve workflow by allowing real-time sharing of files from office to field and back again.
What makes this immediate communication more powerful is the use of standardized workflow processes made possible by standardizing the construction planning software used within a company.
For adoption of KPIs to work, companies need to encourage all employees to understand and participate in the processes these performance tools encompass. To improve the speed and smoothness of implementation, it helps to provide up-front training for influential stakeholders who are willing to repeatedly demonstrate how and why KPIs are important.
You might think that participation incentives in any industry would primarily be based on financially rewarding employees. However, mentorship is one of the best motivators available. Key players train up other employees to become trainers themselves.
Other popular incentives may involve awards and celebrations for a meeting or surpassing KPIs. However, these incentives must be clearly connected to expected outcomes and be announced at the outset of implementation.
Another opportunity for gaining buy-in from key employees is to assign key staff responsible for tracking and sharing measurement data company-wide. However, first provide training about how the company’s performance software measures and evaluates progress whether about money matters, quality or employee satisfaction.
Evaluating and adapting
Be prepared for an ongoing team effort to improve KPIs so they will be as beneficial, relevant, and up-to-date as possible. This means you need to build in time for discussion and adaptation including digital change.
Digital transformation is also an ongoing process. This means both KPIs and the new technology you embrace should be viewed from the same perspective. Neither can become static because that won’t improve productivity, profits, or company health.
Go Beyond Financials With New Construction KPIs
While keeping a watchful eye on financials is essential, adding new construction KPIs that relate to safety, quality, performance, and staff is key to understanding your project’s full story. In time, this will allow for better control of costs and schedules and increase your company’s bottom line.
The post Essential Construction KPIs to Improve Profits and Productivity appeared first on Digital Builder.