The Construction Financial Management Association defines key performance indicators as vital signals that your business functions according to plan.
For contractors, it is imperative to understand your key performance indicators (KPIs) to know how you can streamline operations and improve your bottom line.
Here are a few of the key performance indicators we’ve identified for the construction industry and the solutions to utilizing them.
Unapproved Change Orders
Mistakes or ambiguities in the project plan can lead to rejected change orders. This not only causes friction between you and the project owner, but it also can negatively impact your project revenue.
Check out this equation for how unapproved change orders can impact your profit margin:
For example, let’s say you are working on a $17 million bridge replacement project and estimate the total reinforcement steel price to be $71,000. If later you request a change order for this steel to be $80,000 and your assumed profit is $510,000, you could put as much as 1.76 percent of your profit margin at risk. This may not seem significant at first glance, but start to add multiple unapproved change orders to the mix, and you’ll see your profit dwindle.
To curb your amount of unapproved change orders, contractors need to limit the total number of change orders they request. This means getting your bid as close to the actual project cost as possible with precise cost estimates.
Number of Accidents & Near Misses
This next KPI indicates safety proficiency. Of course, every contractor’s goal is to have their number of accidents be zero, but let’s take a look at some statistics:
- According to the Bureau of Labor Statistics, there are roughly 150,000 construction site injuries each year.
- According to the CDC, struck-by injuries accounted for $1.7 billion in workers’ compensation costs in 2016.
- BLS reports that construction laborers will experience approximately 250 accidents per 10,000 full-time employees.
So, if the safety KPI is to lower the number of workplace accidents, how do we go about this?
First and foremost, proper training and strict safety protocol are imperative to developing a safety-forward workplace. It is also important to continuously educate employees and give them reminders of necessary on-site precautions.
Another way to improve on-site safety is through thorough documentation. For example, if you require daily toolbox talks, your foreman should sign off that all the necessary topics are covered and complete a site safety checklist.
It is also important to document all near-misses on site. According to the National Safety Council (NSC) and OSHA, near misses are events that could have led to bodily harm and/or property loss but didn’t (this time). Houston Business Bureau, CII, and Exxon Chemical estimate one fatality for every 1,000 near-miss events. Also, even though 85.66% of companies track near misses, many close calls go unreported.
OSHA does not currently require contractors to report near misses. However, they do require you to eliminate known hazards, and failure to do so can lead to major lawsuits. By effectively documenting all incidents, you can identify unsafe conditions early and prevent future accidents.
Day to Day Project Completion – Actual Versus Estimated
When it comes to your daily project completion KPI, it is all about productivity. The goal is to align actual production in the field to what is bid in the office.
Take earth moving for example: If you estimate that your crew can move 12,000 CY of dirt per day, but due to weather, equipment failure, or unforeseen ground conditions, you only move 3,000 CY per day. In this instance, you are only operating at 25 percent output capacity, which is highly unproductive. Also, if you only budgeted 40 man-hours for this portion of the project, this delay can greatly impact your project timeline and total cost.
To utilize this KPI, you need to account for these conditions, be aware of delays, and quickly make changes in the field to be successful.
Solutions for Improving Your KPIs
Once you identify your key performance indicators, it’s important to take the steps necessary to enhance your processes. This is where investing in field management and estimating systems come into play.
Enhance Your Estimating Process
Some change orders involving fuel or sudden spikes in concrete prices are unavoidable. However, mistakes in your estimate are and can drastically reduce your profit margin.
By using an estimating system, you will know exactly what your material costs are and where all pay items are located. Also, having a standard structure for setup, building crews, creating tasks, exporting reports, subcontractor quotations, and closing out a bid improves productivity and reduces miscalculations.
As mentioned above, the goal is to limit the total number of change orders requested by getting your bid as close to the actual project cost as possible. With built-in checks and balances and a “Check Bid” function, an estimator can limit the risk of errors or omissions. This not only improves your overall bid accuracy but also decreases your percent margin at risk.
To learn more about how ProEstimate.NET can improve and streamline your estimating process, click here.
We’ve discussed how documentation can improve your overall site safety, and making this process easy is the key to success. A field management system streamlines your documentation process and gets the information you need to the office faster.
Documenting toolbox talks ensures that your foreman conveys the necessary safety precautions in the field and simplifies completing a site safety checklist.
Documenting near misses in real-time allows you to make changes to protocol to avoid future accidents.
Not to mention, in the case of an accident, management can evaluate if all necessary precautions were taken.
A field management system can also improve your overall project productivity. The key here again is getting the data from the field to the office in real-time.
You can see how your daily production compares to your budgeted cost and man-hours. This allows you to make the necessary changes needed to improve your daily outputs. If there is a lag in getting this information (like needing an additional dozer on site), this only decreases productivity.
Also, using daily diaries to document your project allows you to prove that delays were caused by unforeseen circumstances. You can track productivity at the project and cost code level, and take action on any delays, change orders, or overruns.
Learn more about how FieldMangement Pro can help you better document your projects here.
Success in the construction industry is not as simple as finishing a project on time and within budget. It is understanding what key performance indicators determine your success and making the necessary adjustments to improve each area.
By working to utilize each of these KPIs, your company will improve safety, mitigate unnecessary costs, and increase your overall project revenue.