Why Construction Businesses Should Track KPIs to Conquer Economic Uncertainty
Across all industries, staying on top of financials tends to be the focus when preparing for a period of economic instability. However, the construction industry includes a plethora of non-financial data points to track – are projects being delivered on time? How deeply will projects be impacted by market instability, skills shortages, and supply chain delays? As a result, measuring success by financials alone isn’t enough for construction and engineering professionals. Here, we discuss how key performance indicators (KPIs) can help construction companies flourish during difficult times.
The State of Construction Industry in 2023
The construction industry has experienced healthy growth in recent years. In 2021, construction spending grew 8% in the United States, and the overall value reached $2 trillion in Q2 2022 alone according to Deloitte’s 2023 Engineering and Construction Industry Outlook. Due to the Infrastructure Investment and Jobs Act of 2022 in the United States, nonresidential construction is expected to continue expanding despite expected uncertainty in 2023.
Globally, construction is projected to grow substantially. According to Oxford Economics’ Future of Construction Report, the construction market is expected to grow by $4.5 trillion worldwide by 2030.
But in the UK, growth isn’t as assured. The Construction Products Association’s (CPA) Autumn Forecast predicts the construction market in the UK will fall by 3.9% in 2023 after a 2% rise last year.
Due to factors like rising inflation, interest rates, mortgage increases, and labor shortages, projected growth in residential construction isn’t guaranteed to be concrete. To keep business running smoothly while the economy is in flux, tracking and meeting KPI goals can help your organization thrive.
Why Track KPIs?
Strategic decision making is built on accurate information. When you have precise data in an easily digestible format, you can make actionable decisions that impact business performance. This is especially critical when you are using data from multiple sources like an ERP, CRM, warehousing, or manufacturing systems.
It’s impossible to make a qualified decision about the direction of your business without complete visibility into your data. Many companies have a basic understanding of what reports they need to see every month from a financial and operations perspective, but there are other layers of performance measures that should be assessed, tracked, and analyzed to stay on target to reach your operational business goals.
To effectively manage productivity and profitability, you must make strategic and tactical metrics work for you. There are two types of performance measures that form the base of every analytics program: KPIs and metrics. Although you might have heard people use the two terms interchangeably, they are different quantifiable measurements that can impact how you set your overall strategy.
- Metrics track the status of a specific business process. They’re tactical, showing the exact performance in an area of your business. Metrics, like IT spend by business unit or average new deal size, are monitored regularly.
- KPIs measure performance toward achieving your strategic goals or objectives. The key word here is strategic, as KPIs show the big picture of your operations. KPIs, such as net profit margin or cost of goods sold, are measured on a monthly, quarterly, or yearly basis.
KPIs You Should Track
There are a few steps required to build a performance-driven culture fueled by data and insight. To get started, identify the KPIs that suit your organization the most. To ensure your KPIs are sturdy and intuitive, begin by setting a small number – about four or five to start – of useful KPIs to track your business’s performance. Top KPIs for construction, engineering, and subcontractors include:
Safety
Keeping a safe site ensures employees work in an environment with less risk while saving your business time and money. Safety incidents lead to mounting costs, including increased insurance payments and settlements. KPIs involving safety include:
- Incident rate
- Number of safety communications or meetings held
Financial
Keeping track of the books is a no-brainer for organizations in any industry. Tracking key elements like revenue, income, and accounts receivable not only quantifies business growth, but also makes it easier to communicate the financial health of the business to stakeholders. Financial KPIs to track are:
- Gross revenue
- Overhead revenue
- Net income
- Accounts receivable
Time
Of the time that a technician worked, what percentage is productive time vs. how much of it is billable? Defining billable time as a KPI helps to identify limiting factors like whether a maintenance contract covers enough equipment. Time-related KPIs to track include:
- Technician utilization
- Technician productivity
- Productive time
- Billable time
- Response time
- Average repair time
- Equipment downtime
- Labor downtime
Supply
During a time rife with supply chain difficulties, measuring materials that are used, go unused, or emergency purchases saves valuable time and money while helping you keep better track of your inventory. KPIs to track for supply include:
- Percentage of unused or returned parts
- Costs of emergency parts orders
Quality
Quality is key for construction companies and subcontractors. Quality service encourages repeat business and improved reputation, but where do you start with quality-related KPI tracking? Some helpful KPIs to track are:
- Customer satisfaction
- Amount of defects
- Time and costs of rework
- Amount of site inspections conducted and passed
For easy KPI tracking for construction businesses, insightsoftware offers a free sample construction KPI template in Excel.
Free Sample Construction KPI template
Make KPI Tracking Easier with Technology
Once you have your KPIs and metrics defined for your business and a clear understanding of how to design your specific KPI dashboards, a reporting solution can help do the heavy lifting for you.
Spreadsheet Server from insightsoftware is a tool that creates accurate, up-to-date reporting while tracking your critical KPIs. The solution is tightly integrated with common project-based ERPs like Viewpoint Vista or Spectrum to create accurate and timely consolidated and project reporting. With Spreadsheet Server, you can easily design and create a KPI dashboard by selecting queries and applying calculations within the BI tool itself. Spreadsheet Server empowers you to:
- Reduce errors and save time
- Track KPIs in real-time
- Create live, drillable financial reports without technical knowledge
- Take control of your costs
- Investigate reconciliation and integrity issues quickly
Now, more than ever before, construction finance teams are relied on to provide financial and operational reporting, and budgeting and planning expertise to drive fast, agile decision-making. KPI tracking equips subcontractors, construction, and engineering companies for success by setting tangible goals while increasing visibility into your data, ensuring business runs smoothly during times of uncertainty.
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