5 KPIs to track in construction

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5 KPIs to track in construction

In any business it’s important to set key performance indicators (KPIs) to track progress against goals and to strive for continuous improvement.

For building and construction firms, KPIs are important at a whole of business level as well as applied to individual projects. Having a robust reporting mechanism in place allows management to monitor operations and course correct, as and when required.

What are KPIs in construction?

KPIs are measurements of business performance. With the right software solutions, data can be synthesised into a dashboard with graphics to provide executives with “at a glance” business intelligence, helping to inform decision making.

From this reporting capability, businesses can set targets to achieve the best outcomes for their customers, as well as for their own revenue and profitability.

Why are KPIs useful in construction?

Setting KPIs and measuring results against them provides accountability and gives businesses visibility and control over their operations and their future trajectory. By agreeing targets and reporting results against them, you can:

Continuously improve your business performance
Have the business data and proof-points to win new bids
Increase customer satisfaction, advocacy and brand evangelism
Prepare for upcoming projects with greater certainty
Meet current needs while building future business resilience

What types of KPIs are there?

Historical and predictive KPIs

When we think about KPIs, we may think of measurement in terms of historical data; for example, setting targets against benchmarks and measuring our success over a defined time period.

However, KPIs can also be predictive: they can be leading indicators of performance expectations in the future. Predictive KPIs for the construction industry may, for example, use current bid activity to predict future cash flow and plan for resource and asset allocation.

Quantitative and qualitative KPIs

An enterprise resource planning platform can capture a treasure trove of quantitative (number-based) data. It also has the advanced reporting capabilities to present the data as required for useable insights and easy analysis.

Gathering qualitative data (opinions and views) is also important. Customer feedback, for example, can be a useful indicator of future earnings. If the customer experience isn’t overwhelmingly positive, you may need to change the way you do things – or your business may suffer a downturn.

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KPIs to track in construction

1. Cash flow management

You need a comprehensive view of cash flow to make sure you always have enough cash on hand to pay contractors, meet payroll, and manage your business. You can track billing and revenue by cost code, contract line item and other details.

You can set KPIs around your Days Sales Outstanding (DSO) - the average number of days it takes you to collect payment – to continuously improve your accounts receivables process.

Or conversely, Days Payables Outstanding (DPO) to track your accounts payable performance. Likewise, you can set KPIs around reducing your operating expenses by a target amount to increase your margins or unlock working capital to use in your business.

2. Inventory management

In building and construction, you need strong inventory management given the industry’s slim profit margins. Just-in-time (JIT) inventory management helps reduce your storage and transportation costs, with the supplier delivering materials direct to the building site.

Further, a JIT system may prevent you from overspending on inventory as the price of materials changes constantly with supply and demand. Clearly you want to quote based on today’s values (rather than risk buying high and selling low) to compete on price and maintain your profitability.

Careful inventory management is essential to achieving the best financial and sales outcomes for your business — it’s also an important measure of efficiency. KPIs to track may include inventory carrying costs, days of inventory on hand, stockout rate and budgeted inventory costs versus actuals.

3. Cost and revenue per project

While managing your business’ overall financial performance, it’s also important to track financial metrics per project. For example, you might want to track the cost variance between the budgeted and actual costs of a project, drilling down to see variances by line item, cost code, sub-contractor and material. With these insights, you can monitor your profit margins and cost over runs and take action if necessary.

4. Project management

Clearly you need a wholistic view of all your active projects so that you can plan your resources accordingly. You may want to set alerts that monitor and detect exceptions, representing them graphically through a ‘traffic light’ system and/or opting for push notifications via email or text so you remain up to date at all times and can formulate an appropriate action plan to improve performance, if required.

You also need the ability to drill down into specific projects to see what’s driving the alert, such as why the project has fallen behind schedule. Further you want to be able to see the detail of the project: the financials, change orders, sub-contractor commitments, compliance issues, safety and quality information, and payroll details.

5. Sales activity

You can set KPIs around the number of Proposals, Requests for Information and Requests for Quotations submitted, as well as business development meetings booked or other key sales activities. Usually, the more initiatives you have on the go, the more likely you are to have paying customers down the line. As with most businesses, you may want to set some targets to uphold momentum, such as sales volume, revenue and conversion rate.

Improve your KPI tracking with MYOB

With MYOB Advanced Construction, the user is firmly in the driver’s seat with the tools to make changes to KPIs and generate new reports. As such, your KPI dashboard can be the control tower for your business, containing data from current projects, bids and sales activities as well as outside factors to build a dynamic view of every aspect of your business.

Built on the cloud and part of the MYOB Advanced platform, with MYOB Advanced Construction you can manage your projects with ease anywhere, anytime and on any device. Improve collaboration across teams, streamline time-intensive processes to avoid delayed projects, and have access to complete project visibility with MYOB Advanced Construction.

At MYOB, we have you covered.

Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.

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This article originally appeared on MYOB Blog and has been published here with permission.