KPIs in the Construction Industry

The construction industry plays a significant role in the UK economy. Key Performance Indicators (KPIs) are an essential way for construction companies to measure the success and performance of their projects.

In this blog, we will be looking at some of the best KPIs for construction, including why they matter and how they contribute to overall project success.

What are KPIs in construction?

KPIs are measurable values that show how well a project, company, or team is achieving its objectives. For the construction industry, KPIs can provide essential insights into areas like project performance, safety, cost, scheduling, and sustainability.

By tracking and analysing these KPIs, construction companies can pinpoint areas for potential improvement. They can also monitor progress more effectively, and make better decisions, driven by reliable data, to ensure success.

KPIs relating to construction quality/scheduling

Defects / Quality

Quality can be difficult to measure but in the construction industry accuracy is important, and errors/defects can be used to help measure quality.

Here is an example of a way to measure this:

• Defect rate = (Number of defects / Number of Instances) * 100

The instances could be stages within a house build, or smaller/larger project elements depending on the type of construction being done.

Another way is to look at complaints that have been made:

• Quality complaint rate = (Complaints about quality / Total complaints) * 100

Customer Satisfaction Index (CSI)

The Customer Satisfaction Index (CSI) measures the level of satisfaction among clients and stakeholders. It is usually determined through surveys and feedback mechanisms that assess various aspects of the project, such as communication, timeliness, responsiveness, and overall delivery.

• CSI = (Number of positive reviews/Total number of reviews) * 100

Earned Value (EV)

Earned Value (EV) is a performance measurement technique used to assess the value of work completed compared to the planned value at a specific point in time. It combines schedule and cost metrics to determine whether the project is progressing as expected.

• Earned Value = Expected value of work completed in the period - Actual value of work in the period

If your result is zero then the project is on track, if the value is positive the project is behind schedule.

KPIs relating to Sales

Lead to Opportunity Ratio

This ratio will measure the success rate of turning a lead; for example, an enquiry through a website, through to a potential opportunity where they are engaging and getting a quote. This will help identify if you are targeting the right audience with your marketing.

• Lead to Opportunity Ratio = (Total Opportunities/Total Leads) * 100

Lead Conversion Rate

Another measure to consider is looking at what leads turn into successful projects.

• Lead Conversion Rate = (Deals Won in Period /Total Leads in period) * 100

KPIs relating to staff/HR

Overtime Hours

If there are considerable amounts of overtime, this can reduce employee satisfaction and lead to errors in the quality of work. It can also highlight the need for additional resourcing.

To measure this the formula is:

• Average weekly overtime = Weekly total overtime hours in period / Weeks in period

Employee turnover rate

This KPI can show how frequently employees leave your business and can therefore be used as a benchmark against similar companies to determine if the rate is higher than expected. Knowing this earlier can allow for changes to be made, potentially reducing the rate in future:

• Employee turnover rate = (Number of employees leaving / Average total no. of employees) x 100

KPIs relating to Finance

Project gross profit

Gross profit per project is important as it shows the contribution made towards the business by each project and that the quoting/pricing process is effective, ensuring that costs are being covered and contributions towards overheads are being made.

• Project gross profit= (Gross profit of project/Turnover from the project) * 100

This could also be done on an overall business level or by service line to get averages across all projects.

Cost Variance (CV)

Cost Variance measures the difference between the budgeted cost and the actual cost incurred for a construction project. A positive CV indicates that the project is under budget, while a negative CV suggests cost overruns.

• CV = Projected cost – actual cost

Return on Investment (ROI)

ROI compares a project's net profit to the total investment made. A higher ROI indicates a successful project with a favourable return, while a lower ROI indicates there is a need to improve cost-effectiveness and revenue generation.

• ROI % = (Profit earned on investment/Total cost of investment) * 100

Aged Debtor Days

Aged Debtors Days demonstrate how quickly your customers are paying your invoices. It is important to monitor this to view how effective credit control procedures are and if the days start to creep up it gives you time to do something about it before it negatively impacts cash in the business.

• Aged Debtors Days = (Total Debtors / Turnover) * 365 days

Work in Progress

WIP is an important measure for construction companies as it shows the level of investment/costs made in a project ahead of what has been invoiced out to the customer. So, keeping this as low as possible is essential to reduce risk.

KPIs relating to this can vary but could be to put a target on WIP and measure current levels vs the target. Another measure is inventory (WIP) turnover – this measures how effective WIP is being managed – essentially how quickly WIP is being generated and then invoiced out.

• WIP turnover = Total cost of goods sold / ((WIP value at the start of a period + WIP value at the end of a period)/2)

KPIs relating to construction sustainability

Waste Reduction

Construction activities often generate significant amounts of waste, including materials, packaging, and debris. By implementing waste management strategies, recycling initiatives, and efficient construction practices, companies can reduce waste and promote a more sustainable industry.

A KPI to monitor this would be to look at Waste costs as a percentage of turnover, and if this declines it can identify that the measures in place are successfully reducing waste:

• Waste Measure = (Waste costs / Turnover) * 100

Energy Efficiency

Energy efficiency KPIs measure the energy consumption of projects and identify opportunities for better conservation. By implementing energy-efficient practices, construction companies can reduce their carbon emissions, lower their operating costs, and contribute to a more sustainable environment.

KPIs relating to this can vary depending on the type of energy efficiencies being implemented but the measure could be the movement in cost against prior periods e.g.

• ((Energy usage in current period – energy usage in prior period) / Energy usage in prior period) * 100

A negative movement, therefore, shows that energy consumption is reducing.

If you need assistance in optimising your construction company’s KPIs, speak to the Genus team today.