Construction Performance Metrics and Key Performance Indicators (KPIs) help understand profitability in your business. While measuring profit per project is a key benchmark for all businesses in the construction industry, there are several other measures that can be leading indicators of that profitability. Ultimately, you can’t be sure that a project has met its budgeted profit until it is finished and the bills are all paid.
Get Started with 5 Construction Performance Metrics
These Metrics and KPIs for the Construction Industry will provide you with early indicators that everything is going just fine or highlight problems .
1.Wages to Turnover
Construction, in most cases, even in the 21st century, is a labour-intensive industry. Yes, there are now machines to mix mortar, hoists to lift bricks to upper storeys and pre-built wall sections. Still, for most construction companies, wages are THE significant cost. The positive side of that is that the various sectors of construction are a key indicator of national employment trends. And, in times of downturn, it’s a sector that most governments act to bolster.
For each business though, there will be a standard percentage of wages to turnover that marks the difference between success and failure. Past history will tell you what that is for your business or you could use the local industry benchmarks. It will be different, for example, if you are focussed on paving, road-building or house-building. So, make sure to know what is normal for your business and measure it carefully for each project. It will be an early indicator that a project is running over budget if it increases.
Wages to Turnover is a standard KPI in Calxa and can be used at the project or organisation level. If you use subcontract labour you can edit the KPI Account Group for Wages to include this expense as well.
2. Revenue per Labour Hour
Related to the Wages to Turnover KPI above, is Revenue per Labour Hour. Wages will include:
- Both full-time and part-time staff
- Their working days
- And, their annual leave.
Measuring the actual hours worked – chargeable or not – and comparing that to the revenue earned, will give you a good benchmark for your projects. You will soon learn which projects are profitable and which require a lot of labour that you can’t charge the customer for.
In Calxa, you can easily track the revenue by project with Tracking Categories from Xero or Jobs from MYOB. It’s quite easy to add a Metric each month to record the actual hours worked on the project. Don’t count the sick leave or annual leave that is paid, don’t count the days when it rains and the team can’t work. Understanding what revenue you actually earn per labour hour will help you when you’re putting together the next quote. Understanding this metric will help you make more money from that project.
3. Days Lost/Month
Like mining, construction has a reputation for losing time due to accidents. As an employer, you want to minimise that. It’s good for your employees not to get hurt, it’s good for your business to keep going. However, accidents do happen. One of the key methods of reducing their occurrence is to measure them. Know how many days are lost each month and talk to your team about how to eliminate that. The goal of zero every month may be hard to achieve but measuring it will focus your team on thinking about it. It will ultimately reduce your costs.
Set up a Metric in Calxa and add budgets and actuals for each month. Then you can easily include this construction performance metric and KPI in your monthly management reports.
4. Interest Cover
We have heard of mythical construction businesses with so much cash they never need to borrow. Most though, need to talk to the bank at some time or another. One of the important KPIs the bank wants to know is if you are making enough profit to cover your interest payments. And not just ‘scrape through’ but cover them with enough margin so your bank manager can sleep well at night.
The Loan Wizard in Calxa will help you enter budgets for a future loan (hint: use separate liability and expense accounts to it’s easy to take it out if it’s not approved).
The KPI is then your Operating Profit (or EBIT – Earnings before Interest and Tax if you want to get technical) divided by your interest expense for that month.
Typically, banks will want to see earnings of 2-4 times the interest payable to be comfortable with the loan. Do the calculation before you see them and you can be much more confident of the outcome.
5. Cost per Kilometre or Square Metre
Construction is a broad term. The popular image is house building but it also includes apartment blocks, offices, warehouses, roads, bridges, oil platforms and so much more. Still, for each business, there is a core component of what they do. It could be square metres of building or square feet in some parts of the world; it could be kilometres or miles of pathways or motorways.
Not many construction businesses mix all these. Once you’ve decided what your speciality is, it’s important to establish a benchmark on your costs so that you can quickly estimate the costs of the next job. Measure what you produce on each job and then what it costs you per kilometre or per square metre. Do these construction KPIs on every job and you will soon learn which projects are worth doing and which were a learning experience.
By adding the units by project as a Metric each month, you will be able to add a KPI to compare them to your total costs for each project. Doing this will give you quick visibility of projects which are ahead or behind your benchmark.
Final Word on Construction Performance Metrics and KPIs
These construction performance metrics will give you a starting point. This article has some more ideas on project management KPIs. If you want to track other business KPIs, have a look at our article Top 3 Business Key Performance Indicators. Use the Calxa Financial KPIs Guide with your free Calxa trial to do this live.