Measuring Success in Construction: Key Performance Indicators for Organizational Health

December 29, 2023
Engineers looking at plans

Key Takeaways

  • Key performance indicators (KPIs) play a critical role in organizational success, especially in construction companies.
  • KPIs essential to the construction industry include: EMR, equipment idle hours, average employee tenure, over/under billings, and current ratio.
  • When considering KPIs, construction companies should take a holistic approach that covers various aspects including safety, financial liquidity, and more.

Key performance indicators (KPIs) are critical to determining organizational success. Within the construction industry, KPIs are about more than project management or profitability. These measurements can help define the overall health of your organization.

Here are five essential KPIs that truly matter for overall organizational health.

Experience Modification Rate (EMR)

Safety is crucial within construction. Without a secure job site, your employees could be in danger. Poor safety practices can also lead to a lack of workforce retention, with top talent potentially leaving for a better-run environment.

Experience modification rate (EMR) is a metric calculated with worker compensation rates. Organizations start with a value of 1 and then adjust depending on recordable injuries. The smaller the number, the safer your environment.

This number is essential to insurance and bonding costs. Underwriters will compare this important KPI to the industry average, adjusting insurance and bonding rates accordingly. In some states, a rebate can be issued from a worker’s compensation premium, resulting in increased cost savings.

EMR national average is 1.05. Construction companies should aim for less than that.

Equipment Idle Hours

In construction, there can be substantial equipment idle time. The number of idle hours (when equipment is running but not being used productively) indicates a company’s equipment culture.

If your equipment’s idle hours are high, it can result in increased maintenance costs, wasted fuel, elevated environmental impacts, and decreased equipment lifespan. Low idle times indicate regular maintenance, conscientious choices around equipment usage, and extended equipment life.

The goal when tracking equipment idle hours, usually using machine telematics, is to keep the number as low as possible.

Average Employee Tenure

Employee tenure is directly tied to how you treat your employees. If the number is high, it can mean employees have a reason to stay, whether it be benefit plans, solid company culture, rewarding work, or good pay.

Employee tenure is tracked by taking the sum of all employee’s tenure and dividing it by the total number of employees. Tracking this KPI helps you see the macro-effect of every employee’s interaction with the company.

In the construction industry, especially depending on your geography, your organization may experience seasonal layoffs. There is also a high field personnel turnover due to the nature of the work itself.

These are challenges construction firms face that decrease employee tenure. To help better understand your specific instance, break out the average employee tenure by office and fieldwork. This allows you to compare different working groups to help find what groups are experiencing higher tenure than others.

According to the Bureau of Labor Statistics, the construction industry’s average tenure is 3.9 years. A mature company should aim to be above that number, noting that office and overhead are typically higher than field positions.

Over/Under Billings

Tracking over and underbilling shows your propensity to bill work completed proactively. An overbilling indicates that the amount billed is higher than the billable based on the percentage of work completed. An underbilling indicates the amount billed is lower than the amount billable based on the percentage of work complete.

Overbilling is preferred because it allows contractors to stay ahead on cash. Depending on how often cost projections are being updated for work performed, an overbilling may indicate a project is coming in under budget.

  • Learn more about how job costing can help answer critical questions about the profitability of construction projects and provide insight to improve business operations.

Current Ratio

The current ratio is calculated by taking existing assets over current liabilities. Anything over 1 is acceptable, but plan to target around 1.2 or higher because construction requires liquidity in operations to pay large material or subcontractor invoices as they arise. The target may vary depending on firm size or industry. It’s important to check the current ratio versus the best-in-class using a benchmarking study, like the one published by the CFMA.

Use KPIs for Overall Organizational Health

KPIs are an excellent way for construction organizations to keep a pulse of operations. When selecting KPIs, ensure they cover a wide range of items in your business, from safety to cash position. This will allow you to have solid insight into your business’s performance.

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