The Truth About KPIs and Profit
- Most construction companies gauge performance on the three traditional KPIs (i.e., costs, revenue, and profit) but these KPIs don't provide an accurate window into your future — only your past.
- Construction firms fail to leverage predictive analytics to build future-driven KPIs that provide continual value.
- To build out more competitive and accurate KPIs, construction leaders need to invest in the right software.
Around 43% of construction companies put immediate financial goals over resilience. For most construction companies, success is measured across three variables: profit, costs, and revenue. These three pillars of perceived liquidity and success are great to measure, but they don't tell the whole story. Don't get trapped in the never-ending loop of leveraging boring metrics as your goal post for project success.
Profits, costs, and revenue are incredibly important. They help you make snap decisions about projects and materials, and they can certainly give you an overall picture of your in-the-moment financial health. However, construction companies looking to generate long-term growth and sustainability need to look beyond these basic metrics that are glued to past performance.
Measuring predictive key performance indicators (KPIs) instead of reactive ones like cost and profits can help you understand your current and future financial positions. In today's hyper-competitive market, construction firms can't afford to put on the blinders when it comes to growth and profit.
The Problem With Traditional KPIs
Key performance indicators are not just about "profit." Instead, construction firms should blend traditional past-oriented indicators (like cost and profit) with future-driven, predictive KPIs to secure resilience. When we look at traditional project controls and data analysis, there are some glaring issues.
For starters, costs and profits are lagging indicators. This makes them perfect for retrospective analysis (which is where they shine) but poor for in-the-moment project control. At the same time, non-predictive performance indicators only measure outcomes, not causes. For example, if vendors are late in supplying materials to a project, measuring costs barely paints a picture. Not only are the costs manipulated by this new variable, but the costs for this project are scarcely applicable to future projects — since you were impacted by a nuanced issue.
Predictive KPIs backed by predictive software paint a different picture. Since modern tools can ingest a constant stream of data, you can create key performance indicators with pinpoint accuracy and build new and engaging performance indicators that converge on profits. For example, measuring labor demand via a constant stream of up-to-date data can help you build out more impactful financial strategies.
Of course, many construction firms measure what they can. In fact, 50% of contractors fail to consistently capture and track data. Tackling more sophisticated KPIs (e.g., quality control, safety, advanced financials, etc.) requires a nearly constant stream of high-impact data. Because some companies lack the infrastructure and technology to process, analyze, and visualize this data successfully, it's easy to forsake it for more favorable and easily digestible KPIs.
Using Analytic Tools to Create Resilience
To enable predictive analysis that feeds into more robust, future-driven performance indicators, construction firms need to invest and utilize the right technology. With Briq’s technology, you can ingest data across thousands of signals to create robust, fluid, and dynamic financial reports based on continuously analyzed project data. So, instead of simply focusing on profits and costs, you can use Briq’s data analytics platform to correlate financial results with meaningful KPIs that help you predict safety needs, operational requirements, and bid fundamentals.
Construction firms should invest in digital analytical tools if they want to remain competitive in the digital age. Simply following profits and costs across projects only paints a small picture of your overall financial health, especially as it pertains to creating meaningful KPIs. If you’re interested in learning more about how Briq can help you digitally transform your construction company, get in touch with us here.