An Unusual Look at KPIs
Because you are a construction contractor, there are two fundamental Key Performance Indicators (KPIs) you hear about all the time. They are on time and within budget.
I hasten to add that one more indicator must be considered, which is tied directly to the two mentioned above. That indicator is quality. The quality of what you provide must take into consideration the time frame as well as the budget.
And that, dear construction contractor, is where everything can get pretty doggone dicey. For example, if your client (by implication, the owner) has champagne taste and a beer budget, something (or someone) must give.
I bring this up only to provide a framework for approaching the measurement involved in developing KPIs for your construction business. The concept of measuring twice and cutting once is admirable, but not everything is measurable.
For example, what is your answer if someone asks you how much you love your spouse, children, or best friend? Or, if you’re a football fan, what measurement do you use to describe the excitement and fun or disappointment and dismay of watching your team play – win or lose?
“Not everything that can be counted counts, and not everything that counts can be counted” – Albert Einstein
That being said, some KPIs can and should be measured. Growing and maintaining an organized and healthy business means focusing on the performance indicators that are key to your construction company.
Not a One Size Fits All
KPIs must be relevant to your construction business. And no, there is no “one size fits all” tag on a list of KPIs. Good KPIs involve steering your construction company, measuring certain things, and motivating your team.
It takes time, thought, and persistence to develop the KPIs that are most meaningful to your construction company and give you a strategic advantage. They help you prioritize, focus, and scale processes toward your goals.
Proper KPIs will aid in the following:
Measuring what’s most important today
Reducing stress and friction
Providing added discipline
Helping your team solve critical problems
Being more productive
Forecasting more accurately
Making better business decisions
Data Matters – It Really Does
It is a matter of data-based insights to drive purposeful and proper action. Keep in mind that, used wisely, KPIs can be used to assess financial issues, track performance, and be predictive of what’s ahead.
The lists provided below are by no means exhaustive, but they are enough to get you thinking.
Savvy Contractors Assess Their Financials
At its lowest common denominator, every construction contractor must know how much money is coming in and how much is going out. The following KPIs bring the picture to a manageable and much more useful set of data for maintaining and successfully growing your construction business.
Gross profit margin
Net profit margin
Net cash flow
Construction Executives Track Performance
KPIs are not limited to financial data. Another important aspect of owning a construction business is based on how well your team performs, how satisfied they are with their part in the build, and how pleased the GC or owner is with their performance. The types of KPIs to consider include:
Planned hours vs. actual
Percentage of labor downtime
Safety or incident rating
Number of accidents
Errors or omissions
Average project revenue per hour worked
Percentage of employee downtime
Percentage of equipment downtime
Number of total project defects
Time required to reverse defects
Customer satisfaction reports and ratings
Employee satisfaction rates
These are Not Your Daddy’s KPIs
Predictive KPIs are a form of risk management and are sometimes called leading indicators. The vital factor is that while the future can’t be fully known, it’s not beyond your influence. In the past, most KPIs were more of a rearview mirror type of endeavor. You know – set a goal, then look back to see if you met it. Now, they are essential in seeing that perspective and what is before you through the windshield. Some types of KPIs in this category are:
Projected cash flow
Number of active leads and prospects
Number of pending bids
Number of active proposals
Present inventory versus needed inventory (plus or minus)
Employee and equipment capacity
Number of reliable sources of information
“The best way to predict the future is to create it” – Peter Drucker
Reflection: Which of the KPIs mentioned above do you already use? Which do you see a need to begin using now? What steps will you take to quantify the appropriate KPIs for your construction business?
Construction Contractors look to The Profit Constructors to provide advocacy in dealing with:
Clients and customers
Employees and subcontractors
Vendors and service providers
Working with The Profit Constructors gives Construction Contractors the means to organize their operations in ways that help them:
Ready for action? Or want to know more? Get in touch today to schedule a complimentary discovery call. 866-629-7735