Metrics for the Construction Industry – In today’s highly competitive environment, it can be a big challenge managing a construction business. Monitoring construction activities of traditionally seen as the domain of the programme or project manager. Project plans with defined milestones and critical paths are the norm. While this is of critical importance, it is also necessary to take a step back and look at the business as a whole. The need to understand the Key Performance Indicators (KPIs) is of equal importance. A Key Performance Indicator, and the clue is in the title, KEY, is used to determine the overall health of the business. KPIs are not peculiar to the construction industry, they are used in all businesses and organisation, however, the types of KPIs used will be.
Creating a KPI management system for the construction industry is as much an art as a science. The methodology used can be pretty standard, for instance using a Balanced Scorecard approach will ensure there is a balance across financial and non-financial metrics. It will introduce also provide an additional benefit in the form of a framework to manage business strategy as well. Using a more down-to-earth process like the PuMP® methodology will provide the means to generate highly effective business performance measures, but may not give any real insight into company strategy. Whichever framework/process is selected, and it is important to select one rather than work in an ad-hoc way, there will come a time when the actual metrics need to be defined.
There are four key where metrics for the construction industry need to be addressed, these are:
Financial – Every company needs to think about finances, this is not construction specific. However, it could be argued that in construction, due to the two key elements of materials and labour, there needs to be a concentrated effort around cost related metrics to ensure good profit margins.
Safety – Critical as most construction requires the intervention of people. This is an area where leading measures are of vital importance. Of course it is a requirement to measure incidents and types of incident, but these are reactive or lagging measures. It is much more important to ensure safety by insisting on training, use of safety equipment and audits, these are preventative or leading measures.
Productivity – This really does go hand in hand with good programme and project management (and to some extent the use of automation). The construction industry is always on the lookout for ways to improve productivity both in employees and machines and of course scheduling.
Quality – Getting it right-first-time has long been a mantra in the construction industry. Avoiding rework can make the difference between a highly profitable project and one that fails miserably. Getting it right first time will almost always contribute to higher customer satisfaction scores.
With the above in mind, some sample construction KPIs might be:
Financial: Profitability, Gross margin per project, operational margin, EBTDA (earnings before tax, depreciation and amortization).
Safety: Number of incidents, Types of Incident, use of Safety Equipment, Safety Training
Productivity: Number of Resources Applied, Schedule Over-Run, On-Time-To-Budget
Quality: Number of Defects, Cost of Quality, Rework, Prevention Cost, Process metrics and work-in-progress indicators.
Employees: Employee retention rate, employee productivity, training hours, employee satisfaction, employee turnover, absenteeism, hours.
Customer: Customer Satisfaction, Complaints, Customer Lifetime Value, Repeat Business
Remember, these are Key Performance Indicators. Their purpose is to monitor the overall health of the business. There will be many other operational measures in place, but these are the ones that should tell you whether or not you are heading in the right direction.
Recommended reading for Key Performance Indicators: Practical Performance Measurement, Stacey Barr and Key Performance Indicators, Bernard Marr.
