KPIs and the Construction Industry
The construction industry has a lot of useful sayings. One often used by carpenters is “measure twice, cut once”. Measurement is of course equally important when applied to overall business operations.
Why measurement matters
Performance measurement in construction projects is widely championed as the key to effective management. By identifying and promoting key company and project aims, businesses are more likely to achieve their desired outcomes. However, the only sure way of knowing whether goals are being met is by identifying clear indicators of success, and rigorously applying them to keep a keen eye on business performance.
A Key Performance Indicator (KPI) is a measurable value that demonstrates how effective a company is in achieving major business objectives. Organisations often use KPIs at multiple levels to evaluate their success at reaching targets. High-level KPIs may focus on the overall performance of the business, while low-level KPIs can reflect processes undertaken at different points within a project or work carried out by different teams.
Determining what measures to use
KPIs can be used in a variety of ways. They can help assess the performance of one project against another, benchmark performance against other operators within the same sector, and assess the performance of an industry against the wider economy.
The starting point for determining KPIs should be to identify what a company’s specific project goals are, and then to focus on the most appropriate KPIs relating to each goal. KPI’s are only effective when they’re properly thought through and the data collected feeds back into improved standards of operation. KPIs can be used to:
- Monitor costs
- Assess specific areas such as sustainability, safety, and waste management
- Compare progress and performance against similar projects that have been successfully completed
- Measure client satisfaction
When KPIs are regularly used, construction firms can reduce schedule and cost overruns, leading to higher profit margins and more chances of winning bids. An appropriate list of construction project KPIs could include measures such as:
- Cost versus budget
- The meeting of project deadlines
- Any accidents or incidents recorded
- The number of working hours allotted to and spent on specific tasks involved in the project
- The use of materials, for example, concrete poured
- The number of complaints recorded
Studying and comparing data from different projects and putting the results into context can provide valuable learnings that can lead to improvements and correlate to better performance.
Leading and lagging indicators
KPIs can be further divided into leading and lagging indicators. A leading indicator is a predictive measurement, for instance the percentage of people wearing hard hats on a building site is a leading safety indicator. A lagging indicator is an output measurement, for example the number of accidents recorded on a building site is a lagging safety indicator. The difference between the two is that a leading indicator can serve to influence change, whereas a lagging indicator can only record what has happened.
Over the years, research has shown that using a combination of both leading and lagging indicators when establishing KPIs has led to overall improvement in business performance.
The Construction Industry Key Performance Indicators
This annual document provides firms with benchmarks covering the industry’s economic, workforce and environmental performance. The KPIs enable firms to appraise their own performance against their peers and help identify where they can make future improvements to enhance their own competitive position and win work.
The latest report, which covers 2016, points to rising levels of client and contractor satisfaction, along with improved time predictability. However, it also references challenges in productivity and profitability which continue to lag.
Interestingly, the report shows that the proportion of people aged under 24 and the number of women employed in construction have both increased – clear indications that perceptions of a career in construction have improved.