F E AT U R E Numbers, Costing, KPIs — Oh My! by Jack Rubinger, Freelance Journalist Some construction firms are embracing key performance indicators (KPIs) beyond traditional financial metrics to develop a keener understanding of their projects, trends, and margin-eroding issues. Unfortunately, KPIs don’t always paint an accurate picture, according to Wally Adamchik of Construction Leadership. “Most are not using KPIs or THINK they are using KPIs when they are really using the same metrics they have been for years, but now are paying more attention to them,” said Adamchik. “Those precious few that are using KPIs with success take the deeper view that KPIs call for looking at the business with a much finer view, and gaining insights and intelligence that enables them to act/react more quickly. One of the KPIs we discuss on the people-side is bench strength. There are a few ways to measure that but it helps focus on retention and development,” he said. Smaller companies may sidestep this process completely. “We don’t track anything before or after a project. We bake in 40% profit on top of all hard & soft costs, bid it and build it. No tracking, no spreadsheets, no pre or post analysis,” said Steve White, Senior Estimator at Milestone Construction, LLC. Construction manager Bruce Roy is also skeptical about the estimation process. Roy believes that forecasting in today’s market would require a crystal ball and wand! Vernon Nielson, Collaborative Construction Solutions, LLC, thinks that if a company has eroding margins then they are not paying 24
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attention to performance indicators and trends. “We look at the market and understand that there are severe material shortages, unworkable delivery times and a mass shortage of the workforce and to make matters worse, subcontractors know that they are a rare commodity these days and are charging a premium for their work. We have even seen subcontractors attempt to get double and triple what they should,” said Nielson. Nielson recommends choosing projects that have shorter durations. “Long duration projects require material orders to be spread out over a long duration allowing for inflated prices, material price increases and unforeseen shortages. We choose smaller short duration projects that we can order all the material within the first month controlling the costs to our budget, get them on site and then billed out. We also choose projects that have limited exposure to specialty subcontractors, complex construction and unique materials. All of these will put you at risk to things that you can’t control,” he said. Michael Knight, President of Exponential Technology Group and SVP Corporate Business Development at TTI, Inc. believes in the power of technology. “Regardless of the type of project being quoted, the process often isn't fully (or even partially) digitized. By that I mean all the sources of input aren't connected digitally so that real time pricing, availability and scheduling information can be integrated across the entire project to build a quote and project schedule,” he said. T H E
“There are lots of reasons for this deficiency, and lots of negative connotations... low transparency, low sensitivity to cost and logistic changes, dependence on continuity of the people in the process,” he added. Years ago, there was a video of a home building contest in which the winner went from bare dirt to certificate-of-occupancy ready structure in less than 10 hours... and this was pre-digital when all planning was done in analog. The message of course was the better the planning, the better, more efficient the outcome. In the digital age, this should be the norm... but it is not. Effective estimating is not an easy job. There are so many unforeseen things that may occur, but it’s imperative to work with experts either internally or externally to help with this process. The American Society of Estimators (ASPE) is a great place to start when you’re seeking project estimation expertise. They have resources for education, certification, and standards.
About the Author Jack Rubinger is a freelance writer, as well as a social media specialist in the healthcare, workplace safety, transportation, and technology arenas. Jack is moving on to other ventures, and will not be able to be a regular contributor to The Contractor’s Compass. We wish him all the best in his future endeavors.
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