Managing construction projects involves many parts, which require a bird-eye view from the project manager— construction KPIs are a useful tool for tracking this progress and ensuring that metrics are reached at every phase, from the budget plan to customer satisfaction. Determining what to track will help you set your projects up for success.
Construction KPIs or Key Performance Indicators are vital in ensuring that all project phases stay on track at all times. All construction projects, regardless of size, aim to finish on time, within budget, with the best possible result. However, this is easier said than done. How you measure and keep track of your overall construction project goal is where the KPIs come into play.
What Are Construction KPIs and Why Are They Important in the Industry?
Construction KPIs are how professionals can measure a project’s success and keep track of their goals throughout the project lifecycle. To put it simply, KPIs focus on factors such as labor, time, and budget.
Tracking KPIs when managing construction can ensure that projects stay within budget and timeline while helping you monitor other factors simultaneously. In general, KPIs are a good way to keep track of business performance and identify growth opportunities.
Here are the top KPIs your construction business can use today and indications that your project is doing well.
1. Net Cash Flow
Net cash flow is the total money coming in and out of the business during a given period. It calculates how much money a project gained or lost in that timeframe.
Cash inflow – Cash outflow = Net cash flow
Good Sign: If net cash flow is negative, your project is costing more money than it’s bringing in, and you should consider improving collection procedures. If expected, poor cash flow performance isn’t always a cause for alarm, such as during a period of high business growth.
2. Gross Profit
Gross profit is the total money left after deducting the cost of goods or cost of sales (such as materials and labor) from net revenue. The gross profit is then divided by the net revenue to compute the gross profit margin, which is expressed as a percentage.
(Net sales – Cost of goods) ÷ Sales = Gross Profit
Gross profit is very important to track, especially in your project’s financials, because it can guide planning and budgeting for the remainder of the project phases, as well as for future projects.
Good Sign: The bigger the gross profit and gross profit margin, the better your business is doing. This metric is a good indication of how effectively a business sells its services and products.
3. Net Profit
Net profit is the total money earned after deducting all project expenses, including interest and taxes. Like gross profit, that number is divided by the net sales to compute the net profit margin, which is expressed in percentage.
(Gross Profit – Operating costs –Interest – Taxes) ÷ Net Sales = Net Profit
Good Sign: The bigger the net profit, the better a business is doing from a financial standpoint. A higher number will allow more money to be invested in the business. If this number is low, some project costs may need to be re-evaluated, and prices of services and projects need to potentially rise.
4. Projected Cash Flow
Projected cash flow is the predicted amount of money coming in and out of the business over the next months or even years. Also known as a cash flow forecast, projected cash flow is computed by predicting the amount of cash a business will have incoming and outgoing over a period and using the formula above.
Predicted Cash Inflow – Predicted Cash Outflow = Projected Cash Flow
Making the most of your projected cash flow as one of your KPIs is an ideal way to incentivize more accurate planning, as it requires thinking about future expenses of the current project and more to come.
Good Sign: The projected cash flow allows businesses to track possible expenses and make necessary adjustments to increase potential revenue.
5. Quick Ratio
The quick ratio or simply “quick” of a business shows its ability to pay off its short-term liabilities. A quick ratio is also what others may call liquid assets, or easily accessed assets. Banks and other company lenders often use this metric to decide whether a business qualifies for a business loan. The quick ratio is a good indicator of whether a business can repay debts in the future.
Quick ratios are computed by dividing current assets by current liabilities.
Good Sign: Generally, 1:1 or anything above number one is considered a good quick ratio.
6. Labor Downtime
Labor downtime is a construction metric that measures workforce productivity. To accurately measure labor downtime, solid construction crew management and a high level of trust and honesty in a team are essential. Workers must report truthful labor hours without concern of being questioned about their downtime. Otherwise, it will be difficult to gain an accuratgettingme.
Good Sign: Although zero labor downtime is considered hig will be difficulthly impossible, this figure should be as low as possible.
7. Equipment Downtime
Equipment downtime reflects the number of hours lost due to equipment problems. This can be caused by actual equipment malfunctions but also by unpredictable factors such as inclement weather, labor shortages, or accidents, and other safety issues on the job site. A disaster recovery plan can help your team quickly return to regular operations when equipment downtime issues arise.
Good Sign: Keeping track of the downtime can highlight what factors can impact your budget and timeline. The less downtime you have on a specific project, the better for your business.
8. Safety Incident Rate
The safety incident rate is a vital metric since safer job sites typically cost less. More safety-related incidents mean projects are more likely to encounter delays, incur bigger expenses, and risk timeline delays. Increased safety incidents can also lead to increased insurance costs.
The construction safety incident rate is computed based on the number of incidents in every 100 workers. This factor will impact many other construction KPIs, like labor downtime.
Good Sign: Monitoring the safety incident rate of your project is an important part of completing a job without any accidents, as it Identifies safety risks and provides solutions to prevent them.
9. Planned Hours vs. Actual
Planned hours are the time a construction project is estimated to take and are decided during the planning phase, whereas actual hours are the time it takes to complete a project. Planned hours are estimated based on previous similar construction projects and consider factors such as available supplies and workforce.
Good Sign: Ideally, the planned hours should be equal to or greater than the actual, which means that your project is ahead of schedule and most likely below budget. Construction scheduling software, like Pro Crew Schedule, can help you better keep track of your actual schedule so you can compare it with your planned timeline.
10. Rework Rate
The rework rate is the number of items that need to be redone, expressed as a percentage, due to specific quality issues or damages. There are many reasons why work may need to be rectified, such as material, methodology, and workmanship issues.
Good Sign: Knowing your rework rate is critical for staying on budget and schedule. Keep detailed rework records to gain insight into your project’s quality issues.
11. Customer Satisfaction
Another important construction KPI is client feedback. Ask your customers to provide feedback and ratings on your job performance and their satisfaction with the project output. This feedback can be provided verbally, face-to-face, or through company reviews and surveys.
The best feedback can be put into action. Encourage clients to give feedback about what you can do better for your business in the future.
Good Sign: Consider setting several metrics for clients to rate you on, such as construction team performance, communication skills, ability to reach the project deadlines and budget, and overall quality of work. This will provide an extensive list of feedback and metrics for you and your team to work on.
With so many construction KPIs to keep tabs on, deciding what specific metrics to track for your ongoing projects may feel daunting. Choosing the areas that you know your company has to improve is one of the easiest and smartest ways to pick, but also keep in mind what project goals are the most important for your success.
Take it step by step by incorporating only three to five KPIs from the list and allow your team to track them consistently throughout your construction projects. This should reveal what is and isn’t working as far as construction management, potential improvements, and more KPIs you should consider to increase overall company growth.
If some of your construction KPIs are schedule, budget, and resources focused, consider using Pro Crew Schedule. Track these factors easily with construction scheduling software made by contractors for contractors. Monitor multiple KPIs simultaneously using a single construction management tool.