If you work in the construction industry, you might have heard of a concept called key performance indicators. You may have heard the term before, as key performance indicators are a set of prioritized metrics that measure success, and are essential in maintaining labor productivity and client satisfaction.
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Maybe you already use traditional KPIs in your business but are interested in adding additional metrics in order to gain more knowledge about your company’s performance. In any case, this article will help explain every aspect of this concept for beginners as well as go in depth into some of the more complex aspects for those who already have experience with using construction specific metrics.
What are construction KPIs?
Construction KPIs, or key performance indicators, are specific metrics that assess a construction company’s performance across critical areas like safety, quality, productivity, and financial health. By tracking these metrics, companies can set clear goals, monitor progress, and make informed decisions to improve overall project success and operational efficiency.
The indicator is usually in the form of quantitative data that is collected, analyzed, and presented in a snapshot form that makes it easy for you to understand the indicator and tell whether or not your company is performing favorably or unfavorably in each specific area.
If all of this sounds a bit too abstract, the good news is that you are probably already using KPIs in your business – you might just not know it! Most businesses are constantly keeping track of their financial performance through metrics like profit, costs, client satisfaction, and revenue – well, these are actually examples of KPIs at work!
Most construction companies just leave it there and don’t expand their use of KPIs beyond the financial cost aspect. In doing this, they are essentially ignoring an entire realm of information that they could be obtaining about their business. In the world of instant data and information, we need to take advantage of this range and speed to expand how we measure our performance, profits, productivity, and future prospects.
Why are construction KPIs important?
Construction KPIs are important because they provide measurable benchmarks that help construction companies monitor project performance in real-time, assess productivity, and control costs. By tracking these indicators, stakeholders can identify areas for improvement, ensure projects stay on schedule and within budget, and ultimately drive better decision-making and project outcomes.
One of the biggest problems in the construction industry is that people are slow to implement technology that will help improve their performances. Overall, people are simply reacting to problems when they see them in real time instead of being able to predict them or tweak them throughout the process. This leads to unnecessary increases in labor downtime percentage and costs with similar decreases in your profit margin and employee satisfaction. Through KPIs, you can learn from what has happened in the past in order to better understand and predict your future, leading to improved project success and performance.
For example, only looking at your business’ profits, revenue, and cost factors would be like driving a car with only the rearview mirror. Without utilizing key performance indicators to assess performance during business development meetings, it’s impossible to properly understand which of the numerous tasks taking place on the job site are being handled non-optimally.KPIs allow you to see and grasp a better understanding of the whole picture so that you can plan and adjust accordingly. For more information about resource management, check out our guide to construction resource management.
What are some examples of construction KPIs?
Even though you probably already use some traditional KPIs like profit, revenue, and overall labor cost, there are actually some other construction specific ones that are especially useful metrics in this industry. So, here are four examples of KPIs that are useful in the construction industry:
SAFETY WITHIN THE WORKPLACE
Prioritizing safety not only works towards zeroing out the number of accidents per project, but it can actually save you money in the long run too. No one wants to be dealing with the cost of expensive medical bills or insurance payments after an incident. The best way to prevent this is to implement safety KPIs into your construction business and monitor things like incident rates, safety meetings, accidents per supplier, so that you can keep your workers safe and productive while ironing out any safety problems.
QUALITY OF WORK BEING PERFORMED
There’s nothing worse than completing a task and then figuring out once it’s done that there’s something wrong with it and it needs to be fixed or done completely over again. All project managers value quality control as an important aspect of keeping your projects on time, on budget, and to maintain client satisfaction.
Noticing problems at the end instead of during a construction project can be really expensive to fix and failing inspection because of a problem that fell through the cracks will end up wasting time and money to get it up to code. Furthermore, general contractors obviously want to be known for doing quality work and definitely do not want a reputation for faulty products or results.
Implementing quality control within your construction business can help you maintain the highest level of quality in every construction project with the goal of increasing quality over time. Some examples of specific metrics in this area include number of defects, time taken to fix defects, customer satisfaction, rework cost, number of jobsite inspections, and number of passed site inspections.
PERFORMANCE MANAGEMENT AND PRODUCTIVITY MEASURES
A business owner or manager is only as good as their workers, and this is especially true in the construction industry, so you definitely want to make sure that your workers are performing at the highest level. This all plays a part in construction resource management. Construction companies want to make sure they are utilizing their resources in the most productive ways possible instead of wasting money and time where it isn’t necessary.
Performance metrics like percentage of equipment downtime, percentage of labor downtime, labor productivity, average revenue per day/hour, and amount of waste per job can give you the information that you need to run a high performing and productive business.
EMPLOYEES AND THEIR RELATED DATA
Just because your workers are good doesn’t mean they are happy – and worker happiness is important to ensure that they keep up the good work! Plus no one likes having to spend all the time and money that is required to find new employees. So, tracking construction KPIs when it comes to areas like employee satisfaction, employee reviews, training completion percentage rates, and turnover rates can serve as leading indicators that you’re keeping your employees happy, trained, and productive for years to come.
Examples of Construction KPIs
Selecting the right construction KPIs for your business depends on the specific needs of your projects, the demands of your industry, and your approach to measuring performance. These KPIs should align with your project goals, help monitor progress, and support effective decision-making. The following table includes some commonly used construction KPIs and examples that demonstrate their application:
| KPI | Definition | Example |
|---|---|---|
| Project Completion Percentage | Measures the percentage of work completed compared to the total project scope. | 60% completion if 6 out of 10 major tasks are done. |
| Cost Variance (CV) | Difference between the budgeted cost of work performed and the actual cost. | CV of -$20,000 if budget is $100,000 but actual cost is $120,000. |
| Schedule Variance (SV) | Difference between the planned progress and actual progress, showing project timeline health. | SV of -10% if planned progress is 50%, but actual progress is only 40%. |
| Labor Productivity Rate | Measures the amount of work completed per labor hour. | 5 sq. ft. per hour if 100 labor hours complete 500 sq. ft. of work. |
| Equipment Utilization Rate | Percentage of time equipment is actively used compared to its total available time. | 60% utilization if equipment was used for 60 out of 100 available hours. |
| Accident Frequency Rate | Number of recordable accidents per 100,000 hours worked, indicating safety performance. | Rate of 1.5 if there are 3 accidents over 200,000 hours worked. |
| Rework Percentage | Percentage of work that needs to be redone due to quality issues or errors. | 5% rework percentage if $10,000 is redone out of a $200,000 project cost. |
| Change Order Frequency | Number of change orders issued during a project, indicating stability of scope/design. | 25% frequency if 5 change orders occur over 20 deliverables. |
| Gross Profit Margin | Shows project profitability by comparing revenue with direct costs. | 40% margin if revenue is $500,000 and direct costs are $300,000. |
| Cash Flow Forecast | Measures the predicted cash inflow and outflow over time. | Positive forecast with monthly cash inflow of $50,000 and outflow of $45,000. |
| Backlog of Work | Represents the amount of work that has been contracted but not yet started. | $1,000,000 backlog if contracts signed but unstarted total $1,000,000. |
| Subcontractor Performance | Evaluates subcontractors on timeliness, quality, and budget adherence. | Shows on-time completion but a 10% budget overrun for a specific subcontractor. |
| Time to Process Change Orders | Average time required to process and implement a change order. | Five days average if change orders are processed within this timeframe. |
| Percentage of Submittals Approved on First Pass | Percentage of project documents approved on first submission. | 80% approval if 20 out of 25 submittals are approved without revisions. |
| Defect Rate | Number of defects found per unit of work, reflecting quality control. | 5% defect rate if 5 defects are found in 100 completed tasks. |
How do I use construction KPIs?
Talking about construction KPIs is one thing but actually implementing them into your business is another thing. You need to use actionable insights and analyze your needs and priorities as a construction company in order to determine which ones you are going to adopt. Probably the best way to implement construction KPIs is to take it slowly and add a few at a time to make sure that you are doing it correctly and getting the information that you need.
You need to make sure that you have the support and understanding from all employees to be involved in the implementation process – this should probably involve training, support, and perhaps offer additional incentives as well. Overall, adopting construction KPIs into your business will take time, effort, and patience – but it will definitely pay off in terms of increased information and insight that you can then turn into increased productivity and profits during future projects.
Construction KPIs FAQ
What are the leading indicators in construction?
Leading indicators in construction are metrics that predict future project performance, such as safety training completion rates, equipment maintenance schedules, and employee satisfaction levels.
How to calculate KPIs in construction?
To calculate KPIs in construction, identify the specific metrics you want to measure, gather relevant data, and use standardized formulas to track progress against project goals.
How do you identify the right KPIs for construction projects?
Choose KPIs that align with your project’s goals, address critical performance areas like cost, schedule, and safety, and provide actionable insights to improve project outcomes.
How many KPIs should a construction manager focus on?
A construction manager should focus on 5 to 10 key KPIs that are most relevant to the project’s objectives and operational needs.
What are the benefits of tracking employee-related KPIs in construction?
Tracking employee-related KPIs in construction helps improve worker productivity, reduce turnover, and enhance safety, all of which contribute to better project performance and employee satisfaction.
