6 Construction KPIs for Improving Operational Efficiency and Boosting Profits

There are many ways to use construction KPIs to measure whether a project has been successful. While many contractors choose to focus on tangible indicators like financials because they are easy to measure, there are several other very important measurement metrics to help improve operational efficiency. Why are these other KPIs important and what aspect of the project do they affect.  In this article, I highlight some of the most important and popular KPIs to consider tracking on your next project.

 

KPIs

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Construction KPI Explanation

Tracking KPIs helps a construction company build long-term company health benchmarks while completing short term goals. KPIs are vital to determine if a business is performing up at an optimal level. Additionally, the construction financial management association (CFMA) also says that the “key part of the acronym indicates prioritized metrics.” Essentially, not all metrics are created equal, but a contractor needs to consider all of them when determining project success.

 

The CFMA defines three key things to consider when determining construction KPIs:

 

1. Historical numbers, by definition, look back and only allow you to do one thing: react.

2. Financial measurements are not the whole picture and provide only limited insight into business operations.

3. While many contractors behave this way, ask yourself, “What do the others do?”

 

It is crucial to consider these questions to help your business grow and remain competitive when determining KPI’s for your project.

 

KPIs

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Traditional Construction KPIs

Traditional KPIs have been long since used 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 KPIs are revenue, cost, and profit. Profit deals with the profit margin a contractor makes. Especially when dealing with a risky project, the profit margin needs to be closely monitored to ensure the project is progressing well. Revenue is an important KPI when compared to budget to ensure a project is going according to plan.

 

Subcontractors need to monitor revenue to determine whether their relationships with general contractors are continuing to be 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 need 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 the course of a project helps take the guesswork out of whether your project is profitable or not.

 

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These are construction KPIs project managers should be considering:

Despite measuring many 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’s crucial to prioritize safety on the job site because of both the short-term and long-term benefits. By investing in worker safety, it’s less likely you will deal with issues like costly insurance payments or other unexpected costs. Understanding why safety is an essential KPI is essential to keep staff safe and costs low, productive, and satisfied. Here are some critical KPIs dealing with construction safety:

 

— Safety/incident rate

— Number of safety meetings/communications

— Number of accidents per supplier

2. Quality Control

Investing in the quality of your project is an essential part of minimizing changes later on. It’s important to prioritize quality metrics to ensure the project stays within budget and on time. Many enterprise-level companies have workers in place to ensure quality control, such as engineers and architects. 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 KPI to determine the quality of the project, which also affects a company’s reputation.

 

Quality construction KPI’s can include:

 

— Number of defects

— Time taken to fix defects

— Customer satisfaction

— Rework cost

— Number of total site inspections

— Number of passed site inspections

 

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3. Employees

Employee job satisfaction is equally as important as how well they are performing. If a worker is happy with their job, they are more likely to stay at the job and put in more effort. In the long run, investing in employee wellbeing is well worth the cost, and measuring employee satisfaction is an important KPI that affects project and company health. Here are some KPIs which are an essential part of employee satisfaction:

 

— Turnover rate

— Employee review

— Training completion rate

 

4. Performance

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 KPI’s are a helpful tool for project managers to understand how successful the project went. Some KPIs related to construction performance are:

 

— Percent of wasted time (equipment and labor)

— The average revenue per day/per hour

— Amount of waste

5. Buyout Process

The buyout process occurs immediately after a GC wins a project bid. During this process, general contractors are determining what the percentage of work bought out is and are carefully monitoring 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 subcontractor buys out the work. A more extended period between these two events could indicate future potential problems for the contractors.

 

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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 subcontractors work. Many subcontractors will over purchase materials because they assume they will use the materials 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.

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Predictive KPIs

KPIs are used as a predictive measure to determine whether a project has been successful. They are unique in that they are able to gauge future productivity levels as well as analyze data of past ones. The CFMA has suggested several tools for predictive KPIs, including measuring bid development and subcontractor inventory. Subcontractor inventory deals with the subcontractor purchasing the correct amount of materials, so budget is correctly allocated and doesn’t end up wasted because of overestimated predictions.

 

construction

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How to choose the right KPIs for your project

It’s important to develop unique KPIs for your project and company as a whole. No two projects are the same, and therefore there is no “one size fits all” in terms of construction KPIs. To determine predictive future KPI’s, it is essential to 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 a success and analyzing what worked and what didn’t, 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 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 be able to 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’s essential to take a holistic look at the entire project and determine not only the profit margin but 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, and KPIs provide valuable insight to help firms improve operational efficiency and boost future profits.

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