Best Construction KPIs for Improving Operational Efficiency

Construction KPIs Explained

Key Performance Indicators (KPIs) help construction companies measure and evaluate performance in various areas. They can also be taken as metrics to determine how a business is faring against its objectives, or whether a business is operating at an optimal level. 

Tracking construction KPIs is vital for setting and achieving short-term financial goals while building long-term health benchmarks. They help businesses grow in the competitive construction market as long as project managers have created the best and most efficient construction KPIs for their project success.

Why Are Construction KPIs Important?

There are several responsibilities on the shoulders of project managers, all of which can have individual construction KPIs to help manage project details—for example, overseeing site safety, building codes, financial indicators, client satisfaction, structural integrities, equipment maintenance, etc. Tracking KPIs for each activity ensures that the construction process stays organized and that any issues are addressed as soon as they occur. This leads to high-quality work and mitigates costly mistakes.

 

Traditional Construction KPIs

Traditional construction KPIs have been used for a long time to gauge the success of a project. They can determine whether it is performing to standard along with helping understand essential trends in the construction process, like cost or revenue patterns.

The most common traditional construction KPIs are revenue, cost, and profit. When dealing with a risky project, the profit margin must be closely monitored to ensure the project progresses well. Revenue is an important KPI compared to budget to ensure a project is completed according to plan.

Subcontractors must monitor revenue to determine whether their relationships with general contractors are beneficial. Lastly, cost monitoring is an essential KPI because of the slim profit margins in the construction industry. Since supply and demand in the industry are always changing, so is the price, and therefore needs to be closely monitored to ensure the project continues to be profitable. 

Employing a field-first project management system that continually tracks job costing during a project helps take the guesswork out of whether your project is profitable.

Important Construction KPIs to Consider

Despite measuring different metrics, some should be weighed more heavily than others when determining project health or success. Some metrics are quantifiable, while others are more qualitative. Here are the most common metric measurements used for KPIs in construction.

1. Safety

It is crucial to prioritize safety on the job site for short- and long-term benefits. Investing in worker safety reduces the likelihood of dealing with costly insurance payments or unexpected costs. It is an essential KPI to keep your workers safe, productive, and satisfied. 

Lost Time Injury Frequency Rate (LTIFR)

It measures the number of injuries or accidents taken over a period that forced the company to lose time. For example, a serious accident on the site can delay work for weeks or months, resulting in massive overheads. The construction KPI can be calculated with the following formula:

LTIFR = (Total Injuries x 1,000,000) / Total Hours Worked
Represents the number of injuries taking place per 1 million hours worked in a specific period.

Total Recordable Injury Frequency Rate (TRIFR)

It measures the number of injuries or accidents (even fatalities) taken over a period that required medical attention. For example, a company would want to know how much a hazardous construction site is costing in terms of medical expenses and lost time. The construction KPI can be calculated with the following formula: 

TRIFR = (Total Incidents x 1,000,000) / Total Hours Worked
Represents the number of incidents requiring medical attention taking place per 1 million hours worked in a specific period.

Incidents Rate

It measures the number of incidents reported by workers over a period. For example, a construction project manager would want to know how many accidents have been caused by a piece of new machinery within a specific period, leading to medical expenses and time lost. This construction KPI would help determine whether the machinery was a good investment. It can be calculated with the following formula:

Incident Rate = Total Incidents x 200,000 / Total Hours Worked
Represents the percentage of incidents taking place per 100 employees in a year.

Health and Safety Prevention Costs

It measures the cost incurred in promoting health and safety standards. For example, the cost of providing workers with safety equipment, or rewarding them for good health.

To determine whether your health and safety prevention efforts are worthwhile, compare the costs with how much the company previously spent on health and safety. This will let you measure (and know) if the current costs had a positive effect.

2. Quality Control

Investing in the quality of your project is an essential part of minimizing changes later on. It is important to prioritize quality metrics to ensure the project stays within budget and on time. 

Many enterprise-level companies have workers such as engineers and architects in place to ensure quality control. As it is essential to pass all inspections, having highly skilled members on your team can help ensure a high ratio of passed-to-total inspections. This ratio is an important construction KPI to determine the quality of the project, which also affects a company’s reputation.

Below are some of the most common quality control KPIs to follow for a construction project.

Supply Defect Rate

It measures the number of defective or unusable units received from a supplier. Tracking the defect rate among materials, equipment, tools, etc, confirms the reliability of a vendor, helping project managers decide whether to keep purchasing from them. It can be calculated with the following formula.

Defect Rate = (Total Defective Units / Total Tested Units) x 100
Represents a percentage of defective units received based on units tested, not units received.

Rework Costs

It measures the amount of work that had to be redone despite being completed the first time. This can be because of several reasons such as incorrect instructions, ambiguous communications, wrong supervision, etc. Keeping tabs on Rework Costs informs project managers of added costs, and is a learning source to pay more attention to detail in the next project.

Rework Costs = Rework Rate x Total Project Cost
Where Rework Rate = (Rework Hours / Productive Labor Hours) x 100

Customer Satisfaction

It determines how happy and content a customer is with your business product, service, or experience. This is an important metric for project managers and stakeholders. Even satisfied customers can offer feedback to help improve a specific part of the business.

Customer Satisfaction = (Positive Responses / Total Responses) x 100
Where responses are obtained via surveys and polls.

Inspection Pass Rate

It measures the number of times inspections fail on construction projects in a specific period. If there are far too many failed inspections, a project manager can make an informed decision to invest in additional training courses. Contractors can also use this construction KPI to improve hiring practices.

Inspection Pass Rate = (Passed Inspections / Total Inspections) x 100

3. Employees

Employee job satisfaction is equally as important as how well they are performing. Workers who are happy with their jobs will more likely stay and put in more effort. 

In the long run, investing in employee well-being is well worth the cost, and measuring employee satisfaction is an important KPI that affects project and company health. Some construction KIPs related to employees are as follows. 

Employee Training

It measures the number of training sessions and the hours invested in training employees of a company for a specific period. This construction KPI can also be taken as a safety standard because having highly trained workers on the site reduces incidents. It can be calculated with the following formula.

Employee Training Cost = (Total Trained Employees x Hourly Employee Wages) x Total Training Hours
Where (Total Training Hours x Hourly Employee Wages) represents training cost per employee.

Employee Turnover Rate

It measures how many employees leave a construction company in a specific period. This includes employees who were dismissed, as well as those who willingly resigned or retired. The KPI metric is helpful for project managers to assess their retention and management policies.

Employee Turnover Rate = (Employees Who Left / Total Employees) x 100

Employee Review

It measures employees to determine whether they are working at optimal capacity. The importance of this employee KPI cannot be overstated. Sometimes workers require additional support, tools, or training. It is the responsibility of project managers to evaluate their employees and assign the best ones to each job. This is how you get a higher quality of work out of your employees.

4. Performance KPIs

Performance metrics are a great way to measure worker productivity and how the life of the project is developing. By analyzing the performance of workers and others on the job site, you can reevaluate and make changes necessary to ensure the project stays on time and within scope. By prioritizing project goals, performance KPIs are a helpful tool for project managers to understand how successful the project was. Some construction KPIs related to construction performance are mentioned below.

Labor Downtime Percentage

It measures labor productivity on a construction project. It is impossible (and inhuman) to expect a labor force to be constantly working around the clock. However, project managers can still aim to maximize productivity. That said, downtime hours can be difficult to document since no one wants to admit they were taking an unscheduled break. You can only take an average at best. 

Labor Downtime Percentage = Downtime Hours / Total Hours
Where a zero percentage represents workers working 100 percent of the time.

Amount of Waste

It compares a company’s purchasing activities and inventories to determine how much is going to waste. This is one of the most important construction KPIs to watch if a company wants to address its financial concerns. For example, renting five loading vehicles when only three are being used means that a company wastes rental fees on two vehicles. Tracking waste KPIs helps spot and fix such issues.

Cash Flow

It measures the net cash transferred in and out of a company to determine whether there is enough cash on hand to take on new projects and clients. Since it is common for construction companies to wait for payments to be approved for their previous jobs, they must have a healthy cash flow to continue working until more cash arrives. It can be calculated with the following formula. 

Net Cash Flow = (Money Coming In) – (Money Going Out)
Where the money entering and exiting are for the same, given period. Also, a positive cash flow means the company is earning more money than it spends, while a negative cash flow means spending more cash than the company is bringing in.

5. Buyout Process

The buyout process occurs immediately after a general contractor wins a project bid. During this process, general contractors determine the percentage of work bought out and carefully monitor the buyout for potential issues. 

The buyout process is an important KPI for both general contractors and subcontractors because it measures the time between when a GC wins the work and when the SC buys out the work. A more extended period between these two events could potentially indicate future problems for the contractors.

6. Subcontractor Inventory

The last KPI for improving operation efficiency is measuring subcontractor inventory. Since construction is an industry profoundly affected by the changing economy, any changes to the economy can significantly impact a subcontractor’s work. 

Many subcontractors will over-purchase materials because they assume they will use them for future projects. However, unused inventory can be a significant drain on the company or a project, which already has a slim profit margin.

Measuring subcontractor inventory is an essential predictive KPI. It can help compare purchasing activity and inventory, as well as identify instances of wasted inventory. KPIs can also be compared month to month to determine how inventory has been used throughout the life of the project.

Predictive KPIs in Construction

The most important (and highly interesting) part of using construction KPIs is that they can be used as predictive measures to forecast future performance and outcomes. For example, cost KPIs such as cost of change orders and cost variance indicators can help predict future costs by comparing the cost and time incurred by a project. In another example, waste KPIs can help optimize a company’s purchasing and inventory for future projects.

When moving to predictive KPIs, though, project managers must understand how leading indicators compare to lagging indicators. Leading metrics help predict future performance, as already stated above. Lagging metrics, however, take into account historical data to make reactive decisions. In other words, leading KPIs are forward-looking while lagging KPIs are backward-looking.

How to Choose the Right KPIs for Your Project

It’s important to develop unique KPIs for your project and the company as a whole. No two projects are the same, and there is no “one size fits all” in construction KPIs. To determine predictive future KPIs, reflect on past successes and failures to determine what worked and what did not.

One way to determine the correct KPI for your project is to examine past projects where you have been successful. By creating a list of projects that have been successful and analyzing what worked and what did not, you can use your own experience to develop predictive KPIs. Some questions to ask yourself are:

• What was unique about this project?
• How was project growth compared to the average?
• How fast was the buyout?

Another method for determining what KPIs to use is to reflect on past mistakes. By taking accountability for unsuccessful projects and examining them to determine what you could do differently in the future, you will avoid making the same mistakes. Ask yourself what was missing from the projects that were not successful and figure out a plan to avoid repeating the same error.

Conclusion

While measuring financials is the most common KPI used on a project, it should not be the holy grail for evaluation. It is essential to take a holistic look at the entire project and determine not only the profit margin but also how successful each step along the way performs. 

Forward-facing predictive KPIs assist by providing useful insight into trends and issues regarding the project and help evaluate performance. Having a 360-degree view of the project helps project managers and key stakeholders understand exactly what degree the project was a success. Hence, KPIs provide valuable insight to help firms improve operational efficiency and boost future profits.

How eSUB Can Help With Construction KPIs

Using project management software such as eSUB makes it easier for project managers to track and manage their construction KPIs on a job site. Its project summary dashboards are a one-stop destination to learn about critical information such as profits and risks. You also get a newsfeed of job-site activities for greater visibility. 

With several more features designed to streamline communications and collaboration, you can choose to have eSUB tailored specifically to your needs. If you are looking for a digital platform solution to tracking construction KPIs, consider scheduling a demo today.