Key Performance Indicators in Construction

Key Performance Indicators, also known as KPIs, assist companies in defining and measuring their progress in obtaining their business goals. While KPIs may differ from company to company, they all have one thing in common: measuring the success of your organization.

Key Performance Indicators, also known as KPIs, assist companies in defining and measuring their progress in obtaining their business goals. While KPIs may differ from company to company, they all have one thing in common: measuring the success of your organization.

In order to do so, KPIs must be quantifiable, long-term measurements. In the construction industry, the need to identify a common set of indicators to measure construction performance at the project level is great. Monitoring these Key Performance Indicators in construction to address potential problems and opportunities as they arise allows management to make solid, profitable decisions. Below are nine KPIs construction firms should monitor.

Labor productivity

Problems with labor productivity can erode profit margins and break labor budgets, so it is a particularly important KPI to monitor. By closely watching labor productivity, managers and supervisors can forecast cost-to-complete, identify daily performance goals, improve bidding accuracy, and address current problems.

Cash flow

Knowing whether projects are either generating or consuming cash allows management to identify problems on projects and also helps to ensure timely and accurate billing and collections.

Working Capital

Monitoring liquidity allows your company to determine how much income the work in progress is earning or consuming as you study balance sheet accounts showing current assets and liabilities.

Margin variance

By comparing gross margins to the company’s objectives and looking at the gross margins on a particular project in relation to the project estimate, you can determine if the project is reaching its expected profitability. By monitoring the margin variance, supervisors can make any necessary changes to keep project margin variances as low as possible while keeping the overall gross margin stable.

Schedule variance

Communication about project progress and completion are crucial to project owners. To deliver projects on a timeline that meets owners’ demands, you must identify and monitor schedule variance. Understanding how variables such as weather or change orders affects the project schedule allows the project manager to plan and coordinate resources to deliver high quality output, better resource utilization, and improved safety. Monitoring schedule variance also helps your company maintain a competitive edge against those firms that all too often fall behind schedule.

Unapproved change orders

There is an increasing economic threat from risk transfer provisions in standard construction contracts. Reduce that threat and increase profit by identifying these unapproved change orders.

Committed cost

When suppliers and subcontractors are not yet committed contractually, especially on long term projects, it is vital to track uncommitted costs to address factors such as labor shortages, rising material costs, and price escalation.

Backlog

Avoid problems with insufficient work and profit fade by properly tracking backlog and the expected gross margins. By doing this, your company can better decide which projects to pursue.

Customer satisfaction

Monitor your company’s ability to meet client expectations by analyzing this qualitative feedback. This examination of customer satisfaction in past projects enables you to address deficiencies in both current and future projects and better meet your clients‘ needs.

KPIs help identify those strengths that allow companies to capitalize on opportunities as well as identify potential problems. Because the process can be complex, it may be wise to consult a professional to assist your company in determining and monitoring these KPIs as well as to provide strategic support.