10 most important KPIs for construction companies

Each construction project presents its own web of budgets, deadlines, and profitability, which can make it difficult for construction company owners to manage more than one of them simultaneously. One way to simplify your project strategy and planning is to choose and follow a few key performance indicators—metrics that can suggest where to enhance efficiency, improve project outcomes, and increase customer satisfaction to achieve sustainable growth.

What are KPIs?

A key performance indicator (KPI) is a metric used to evaluate performance against a set objective. A KPI can be company-wide or department-level, but most construction-related KPIs will be project-level. 

Why you should use KPIs

KPIs are easy to understand and track

With industry-specific software, you (or your analysts) can gather, track, and analyze KPIs in real time and generate data reports consistently. These provide an easy, at-a-glance way to help understand how your company or projects are progressing. 

KPIs can help streamline your operations

Monitoring KPIs in real time helps to identify and resolve problems at the first sign. This can prevent costly and dangerous mistakes, avoid delays, and ensure consistent work.

KPIs can help motivate your employees

Assigning KPIs to your employees gives them clear and transparent targets to aim for, and helps them to stay informed about organizational goals. Measuring employee performance can also inform bonuses or rewards for meeting or exceeding targets. 

CTA banner: Tips for managing your subcontractor payments [Read article]

How to use KPIs to fuel business growth

Focus on a few KPIs

While there are dozens of KPIs relevant to construction companies, trying to follow too many will dilute your strategy rather than focus it. Choose just a handful of KPIs that are most relevant to your goals, and use them to track progress and evaluate performance in specific ways.

Set realistic targets

If you present arbitrarily inflated KPI targets, your employees will disregard KPIs altogether. Instead, set realistic targets which still promote performance. To find this level, discuss with your employees and synthesize your numbers based on:

• Data from previous projects/periods
• Conditions of company and industry (present and forecasted)
• Risk of financial harm from unpredictable future events

Use software to monitor your KPIs in real time

Digital performance tracking tools can effectively gather and evaluate KPIs for you. Research tools specifically for construction companies of your size to keep your data accurate and consistent.

Review results consistently, but not too consistently

Following KPIs too closely can obscure your view of the company, as every rise or dip will appear more significant than it actually is. Don’t review KPI results obsessively, but do review them on a practical schedule—perhaps weekly or monthly—especially for indefinite KPIs. For your project-level KPIs, be sure to review them after the project is over.

Don’t substitute KPIs for strategy

Each KPI is one metric of many, and no metric(s) can substitute for a holistic view of your business. Always use KPIs to inform your strategy, not to replace it.

10 important KPIs for construction companies

Choose a few of the following KPIs that are most relevant to your business or construction project. 

1. Net cash flow

Net cash flow = Cash inflows – Cash outflows

Measures how much cash your business generated during a specific time frame. This is a basic metric of what you’re bringing in compared to what you’re spending.

2. Working capital

Working capital = Current assets – Current liabilities

Measures your company’s ability to cover short-term obligations. This KPI indicates whether you have enough funds to cover your current bills, debts, and project costs.

3. Safety incident rate

Safety incident rate = (Number of work-related nonfatal injuries and illnesses x 200,000) / Total actual hours worked by all employees in the calendar year

Measures work-related injuries and illnesses in a calendar year, read as “x incidents per 100 full-time employees.” Your incident rate gives insight into your business safety, which you can use to help identify hazards and implement systems to prevent further accidents. 

The 200,000 constant is the number of hours 100 employees work in a year (at a rate of 40 hours per week, 50 weeks per year), and is the OSHA standard for calculating your safety incidence rate, even if your business employs fewer than 100 employees. For the most relevant insights, compare your rate to similarly sized construction businesses.

4. Cost performance index (CPI)

CPI = (Earned value / Actual cost) x 100

Measures how efficiently you’ve used the project budget (in terms of financial returns). CPI can identify cost variances in a project, which you can use to make changes and achieve profitability. 

Earned value (EV) is the value of work you’ve completed at the time you’re measuring.

Here’s what your cost performance index means:

• If <1.0, then project is over budget
• If =1.0, then project is on-budget
• If >1.0, then project is under budget

5. Schedule performance index (SPI)

SPI = (Earned value / Planned value) x 100

Measures a construction project’s progress as compared with the initial plan or timeline. SPI can help identify when and why construction efficiencies or delays occur.

Planned value (PV) is the budgeted cost of work you’re scheduled to finish at that time. For example, let’s say you sign a contract to complete a residential building in 12 months with a budget of $12 million. After six months, PV = $6 million. 

Here’s what your schedule performance index means:

• If <1.0, then project is behind schedule
• If =1.0, then project is on-schedule
• If >1.0, then project is ahead of schedule

6. On-time delivery

On-time delivery = (Number of projects delivered on time / Total number of projects) x 100

Measures how often projects are completed and delivered on time, expressed as a percentage. This KPI helps you to determine how often you’re meeting projected timelines.

7. Hours worked variance (planned vs. actual hours)

Hours worked variance = (Actual hours – Planned hours) / Planned hours x 100

Measures the average difference between how long a project was expected to take and how long it actually took, expressed as a percentage. You can measure the hours worked variance of different phases of projects to assess where your projections are most accurate or where you’re experiencing the most efficiencies or delays.

Here’s what your planned hours vs. actual means:

• If <0%, then project was behind schedule
• If =0%, then project was on-schedule
• If >0%, then project was ahead of schedule

8. Average revenue per hour worked

Average revenue per hour worked = Total revenue / Total hours worked

Measures how efficiently your construction teams generate value. This KPI can help evaluate how effectively your construction teams are working toward projects.

9. Equipment downtime

Equipment downtime = (Total downtime hours / Planned hours) x 100

Measures the time your tools and equipment are unavailable for use (because of maintenance, repairs, or breakdowns) against how long your project was expected to take, expressed as a percentage. This KPI can help inform your decisions related to maintenance schedules or new equipment purchases.

 10. Design defects

Design defects = (Number of design defects / Total projects) x 100

Measures the average number of design flaws of your construction projects. This KPI can help identify areas for improvement in your construction process to help you ensure your designs are safe, compliant, and of high quality.