Construction companies can evaluate their project (and company-wide) performance using both traditional and predictive measures. Traditional measures look only at completed projects, while predictive measures evaluate projects throughout their lifespan – though many traditional measures can be used predictively and vice versa. One traditional key performance indicator (KPI) is EMR, or Experience Modification Rate. Predictive KPIs include those for bid development, the buyout process, quality control, subcontractor inventory, and safety.
No information could be found on which construction companies use which KPIs; since the majority of these businesses are private, that information would be regarded as proprietary and thus not shared (to keep competitors at bay).
Research indicates that most construction companies evaluate the following categories traditionally (and many do so predictively, as well): Construction documents, RFIs, Change Orders, Schedules, Safety/Inspections, Productivity, and Quality/Close-Outs.
TRADITIONAL KEY PERFORMANCE INDICATORS
- Industry experts recommend traditional KPIs (key performance indicators) for construction projects and companies most often. These include those mentioned: IRR, NPV, WACC, and Payback Period. They also include other KPIs like EMR, which is detailed below.
- Construction Dive calls these “lagging” KPIs (traditional evaluations conducted after project completion), as opposed to “leading” KPIs (those that are measured throughout the life of a project).
EMR (Experience Modification Rate)
- The Experience Modification Rate is one KPI for projects; it tracks the “number of days without lost work” on a project. Any company large enough to pay for worker’s compensation insurance would be using this benchmark.
- This measure greatly impacts a company’s worker’s compensation premiums; a score of 1.0 is “the benchmark average.” Companies scoring higher than this will have increased premiums, while companies scoring under 1.0 will see lower-than-average premiums for this type of insurance.
- Company EMRs are calculated via their insurance companies by the National Council on Compensation Insurance (NCCI). This applies to 39 of the 50 states in America; independent agencies calculate EMRs in the remaining states. According to the Safety Management Group, “The base premium is calculated by dividing a company’s payroll in a given job classification by 100, and then by a ‘class rate’ determined by the National Council on Compensation Insurance (NCCI) that reflects the inherent risk in that job classification.” The formula considers comparison ratios of the company with others in the same class rate.
PREDICTIVE KEY PERFORMANCE INDICATORS
- Some Industry experts, like those at the Construction Financial Management Association, believe that traditional KPIs for construction projects and companies are not enough. They believe that traditional KPIs are great for retrospective views of what happened on past projects, however, they state that “predictive KPIs are forward-looking,” and that they can be used “to drive changes in [corporate] behavior and influence [future] results.”
- They noted five types of predictive KPIs that construction companies should use on projects (and on reviewing company-wide ROI), and it is those that have been detailed here: Bid Development, Buyout Process, Quality Control, Subcontractor Inventory, and Safety.
- Construction Dive calls these “leading” KPIs (those that are measured throughout the life of a project), as opposed to “lagging” KPIs (traditional evaluations conducted after project completion).
- In the business development funnel, construction companies will bid on X number of projects in the anticipation that Y number of these projects will come to fruition. Using a Bid Development KPI will allow for tracking this information to “help management to know if indicators are slipping or surging when making staffing, purchasing, and bidding decisions.”
- This process could track the following, as examples: “pending bids currently in preparation,” “business development meetings scheduled and completed,” “active prospects and probability of winning work,” and “meetings a subcontractor has with existing and new GCs to gain new work.”
- Another recommend company KPI is the Buyout Process, as a “percentage of Work Bought-Out”. After a project is awarded, this process kicks in with construction managers continuously tracking the buyout percentage – paying attention for any issues that might arise. Slow buy-outs are often seen as culprits for “job fade later in the project,” and tracking this KPI might help predict and/or prevent related issues.
- Increasing quality measures in completed jobs in another forward-looking KPI. The more technical or large the job, the higher the risk of issues (like missed inspections or problems with paperwork). Tracking and monitoring these measures throughout the life of the project can help reduce these issues. One common way of approaching this is to gather an internal committee of senior personnel to perform independent audits of projects (as they are happening and afterward); this group would “look at what levels of review are occurring, determine where additional quality control reviews may be conducted, and ensure that any additional quality control measures are carried out.”
- Additional examples of quality-based KPIs include tracking things like: total number of site inspections conducted / passed, rework costs, customer satisfaction rates, number of project defects/issues (including those due to workmanship), and the time / cost to rectify defects/issues.
- Regularly reviewing subcontractor inventories to ensure the product levels stay in a smart range is recommended; this helps ensure that these companies aren’t keeping buildups of materials far in advance of needs – as that might mean they’d use inconsistent materials (of varying quality) across one construction company’s job or all of them, which can be bad for the company’s quality and image.
- One example of this KPI in action is an “exception report that compares monthly purchases of materials with unchanged primary location inventory of the same items.” This information can then be used to analyze inventory and purchasing practices toward improvement. Experts note that “Using inventoried materials instead of double purchasing can increase margins by 100% on items that may not be used again, which can greatly improve cash flow.”
- A traditional KPI for evaluating safety was detailed above, the EMR (Experience Modification Rate). A predictive KPI would track other things, like “the number of safety activities currently implemented that includes the number of safety meetings, communications, notifications, or awards that recognize someone doing something safe.” Additional examples are near-miss events and OSHA-prep self-audits.
Additional KPIs for the Construction Industry
- Additionally, KPI Dashboards provides a long list of KPIs used in the construction industry, which can be found here.