This article was originally published 26 February 2020.
Four non-financial benchmarks you should measure in your construction business
For any business, benchmarking is a powerful business tool, enabling decision-makers to make informed decisions. It’s recommended that businesses regularly benchmark to improve their business, however, ascertaining the best Key Performance Indicators (KPIs) to measure performance can be difficult.
In our experience, a good benchmarking study will go beyond the financial metrics - there needs to be the right mix of financial and nonfinancial indicators. These metrics will also vary depending on your relevant industry – and even your competitors' business priorities.
In this article we discuss four non-financial benchmarks that you should consider in your construction business, based on our experiences, to ensure long-term performance.
1. Health and safety environment
Construction businesses face heightened risks within safety and environment and this is supported by enhanced regulatory conditions. Therefore, considering health and safety in your regular KPIs is crucial. Besides work-related injuries, illnesses and disease-causing hazard exposures; attitudes and perceptions to work health and safety, as well as safety activities within your business affect how well you manage the environment.
Not only does negative health and safety implications cause lost time and productivity, it costs the business money in medical bills and insurances, and ultimately, it can mean lost confidence in your employees and sub-contractors to feel safe at work – this has consequences as far-reaching as employee morale, which contributes to sick days, and high staff turnover. These are all factors that can significantly impact the longevity of a construction business.
To assess the robustness of the health and safety within your construction business, key indicators that owners and operators should be tracking include:
- Lost time injury frequency rate - number of injuries resulting in at least one day or shift away from work, per one million man hours worked (as per AS 1885.1-1990)
- Serious lost time frequency rate - Number of significant injuries (those resulting in at least 7 continuous days unable to work) per one million man-hours worked.
- Medical treatment frequency rate - a medical treatment injury (MTI) is an event where an injured person’s treating doctor requires that person to go on light duties after seeking medical attention. If the injured person returns straight back to work after seeking medical advice (regardless of the type of treatment) it is recorded as a first aid injury only (it is not an MTI). If the doctor requires the injured person to take time off work, then the event is defined as a lost time injury event.
- Forecasting cost of safety operations.
These KPIs should help you to take action to implement safer working practices, as well as aligning training needs and ensure compliance with regulations. Having the ability to delve deeper into the types of accidents and injuries occurring in the workplace will enable you to better resolve them. Occupational Health and Safety audits should include a review of management systems, strategies, standards, reporting procedures, and applicable regulations. Your policies should also enable everyone to identify, control and eliminate construction-related hazards.
2. Cyber impacts
Another emerging issue for construction business goes beyond the physical environment -cybercrime impacts to your construction business can be both financial and reputational.
In particular, construction businesses are targeted due to their integrated project delivery and the fact that they are increasingly using tech to create an interconnectedness, no matter which site they are operating on. However, this can lead to cybercrime-related risks, particularly at temporary project sites, where workers pose risks when they connect to business systems remotely. Furthermore, file sharing between external project partners, as well as malware, ransomware, and phishing due to lack of knowledge of identifying cyber risks, all post significant threats.
Therefore, your construction business should also be tracking the number and type of cyber threats on the business.
3. Supply chains
The recent coronavirus is an amplified scenario of what could happen if supply chains break-down. It’s been reported that building contractors have been heavily impacted due to closures of factories in China, particularly for critical raw and manufactured materials such as joinery, façade materials, and structural steel. This has delayed project timelines and costs businesses both through productivity and business loss.
Supply chain studies suggest that there’s a lack of supply chain risk management within construction. Given that the construction industry deals with a number of suppliers and contractors, supply chain risks should be at the top of construction companies KPI list, to save costs and improve productivity.
Construction businesses should be assessing their supply chain management when project planning. Key benchmarking indicators include those that:
- Assess the solvency of supplier/contractor
- Assess subcontractor/supplier chain reliability
- Assess subcontractor/supplier cost escalation
- Manages project quality outcomes
- Assesses the domestic economic environment.
Construction businesses that adopt a systematic approach to identifying supply chain risk will boost long-term company performance. This means flagging any issues within your supply chain, including the flow of funds, products, goods and services between the client, suppliers, contractors, designers and subcontractors and resolving them effectively. This can be done through the use of technology, which has opened up supply chain management system coordination within partnerships, allowing external partners to work collaboratively together.
If you require a supply chain review, our business services team can assist you to ensure you decrease risk and add value to your supply chain.
4. Estimating
Construction cost estimating is a critical element of any project plan lifecycle. At the end of the day, accurate estimates result in more wins, as the lowest bid that meets the standards and project parameters will usually win. Furthermore, accurate estimates ensure you don’t go over budget, meaning more revenue in your pocket; this will also help you access critical funding for the project.
When estimating for a large project, estimating should go beyond the costs of goods, it should also model risk and uncertainty. A good estimate will undertake:
- Financial modelling
- Financial model review
- Project analysis
- Project feasibility
- Project financing.
But, how do you know you are estimating well?
A critical KPI is knowing your tender success rate – particularly against your competitors – to help you gain a competitive advantage.
This involves keeping track of your tender success rates and following up with feedback when you are unsuccessful in a bid. Following up with client feedback when you lose a bid is a key way to improve on your tender performance and help you understand the areas where your competitors have the leading edge.
At BDO, we have a strong record of accomplishment around a broad range of infrastructure projects, including rail, toll roads, water, energy, airports, health, education, and defence & university accommodation- some of which represent Asia Pacific’s largest and most complex PPP bids and project finance transactions. If you require assistance in estimating your next project, or more information on how to benchmark your business, contact our team.