For construction companies, the only certainty seems to be uncertainty. After three quarters of decline, the March 2024 CONFINDEX rose to 109 — its highest mark in two years, followed by a slight dip to 106 in June 2024.

Alternatively, the AIA/Deltek Architectural Billings Index (ABI) for April 2024 showed a bounce back trend, decreasing from 49.5 in February to 43.6 in March and then back up to 48.3 in April but remaining below the benchmark of 50, indicating an overall decline in firm billings.

With such uncertainty, continuously monitoring the overall health and function of a construction company is prudent. Businesses must navigate external factors such as economic conditions, market fluctuations, and competition by implementing robust internal strategies including addressing financial health, systemic efficiency, organizational structure, and workforce resilience.

Adopting continuous improvement begins with a focus on the vitals of your organization: operational excellence as evidenced by key performance indicators (KPIs) that are specific, measurable, achievable, relevant, and time-bound (SMART); amplifying your workforce; and backlog and project performance best practices.

Operational Excellence & KPIs

A company’s value is constantly evaluated and measured by the marketplace; to remain viable and relevant, your company must differentiate itself from its competitors. Thus, it is crucial to understand how your company is being measured against industry peers and apply those insights to your company’s improvement plan through KPIs.

KPIs are essential for tracking progress against specific goals. In relation to the industry, KPIs are measurable points that should reflect how a construction company is performing and progressing toward reaching its goals.

Common construction industry KPIs include operational and financial metrics:

• Operational: change order processing and profitability, rework costs, project schedule updates, and labor productivity
• Financial: accounts receivable days outstanding, working capital, and cash flow — overall and by job

KPIs are similar to metrics, though metrics typically pertain to a process or team and are standard across industry best practices.

Some consistent best practices, but especially important during times of uncertainty, may include:

• Preconstruction/estimating: win percentage, percent bid spread, and dollars win/dollars bid percent
• Operations: gross profit dollars per field hour, gross profit dollars per equipment hour, actual gross profit percent/bid gross profit percent (fade/gain), gross profit dollars per month (actual and forecast over time), and gross profit percent per month (actual and forecast over time)

SMART Goals

Construction companies can refine improvement plans by ensuring their KPIs include SMART principles (i.e., specific, measurable, achievable, relevant, and time-bound).

When looking at the bigger picture, the health and longevity of a construction company comes down to its operational excellence. KPIs help determine the company’s progress toward specific goals, but to maintain a clean bill of health and remain competitive in the industry, contractors should ensure their KPIs are SMART in relation to each strategic objective and goal in their improvement plans.

Amplifying Your Workforce

Your employees are the lifeblood of your organization and the foundation of its operational excellence. In addition to refining your operations, enriching your employee experience and maintaining an invested, satisfied workforce is essential for continuous improvement.

Surveys & KPIs

A variety of tools exist to reduce turnover and increase employee retention. Primarily, surveying is a tried-and-true method for gaining real-time feedback from both customers and employees.

Net promoter score (NPS) is a market research metric that uses customer or employee surveys regarding experiences and recommendation willingness to “score” customer or employee loyalty and satisfaction. The scoring formula considers “promoters” and “detractors” in the overall calculation, making it useful in understanding customer or employee sentiment and lending itself to strategy development.

Companies that track and maintain a higher NPS generally have employees who are fully engaged, report high employee satisfaction, and garner positive customer feedback.

For example, surveying employees after completing a construction project can help identify who on the project team was engaged in accomplishing the end goal.

Consistent feedback from high-achieving workers creates a culture of trust and can help the organization implement KPIs (such as NPS) to reinforce that culture. It is critical for construction companies to review these KPIs and data points in a timely, meaningful manner.

Operations leaders should also have KPIs in place to track performance. High performance and positive feedback metrics can be connected to monetary incentives for employees. Some KPIs that may measure a contractor’s progress toward such goals may include:

• Employee engagement scores
• Employee turnover metrics
• Employee referral trends for new hires

Possible ways to execute this include spot bonuses (for senior PMs, superintendents, and field staff) and deferred compensation (for operation managers and above).