Sage Advice US

5 steps to improve your construction decision making

Mid adult Caucasian construction foreman discusses building project with young African American construction worker. The foreman holds a digital tablet as he discusses the project. construction workers are busy in the background.

A lot of what happens in the construction process is decision making. Just think about how many choices are made each day by your superintendents, project managers, and people in the office. When I speak at construction events, I often tell contractors that decision making is made up of two things: experience and data. The more you have of both, the better your decisions.

So you may ask yourself: “What data can I use to make the most informed decisions?”

The answer starts with understanding your business goals. In fact, it’s a good practice to step back at least once a year and identify which areas you want to focus on in your business.  Is it profitability? Do you want to grow top-line revenue? Maybe you specifically want to improve your labor productivity.  Then, through an annual “business visibility audit,” make sure the processes and data are in place to measure your progress towards reaching those goals.

Here are five steps to conduct a visibility audit: 

  1. Analyze your current situation.

Based on your goals, look at your past performance and where you are today. If you want to increase profits, for example, identify the projects which have the best contribution margins.  What patterns and anomalies stand out?  Does job location affect your profits?  Or is it the type of work that makes a difference? Could it be a particular project manager’s jobs that are dragging down your overall margin?

Once you have completed your analysis, establish benchmarks related to your current performance and how you compare to other construction firms. Several contractors I know establish competitive benchmarks through regular contact with peer groups. Others use “big data,” which aggregates and analyzes information from across multiple construction companies who opt into sharing the data. A good example of big data in action is the online CFMA Construction Financial Benchmarker, which provides comparative metrics from net profit margin to liquidity ratios.

  1. Set your KPIs.

Based on your business goals and benchmarks, define key performance indicators (KPIs), such as RFI cycle time, and the time frame you should look at each metric. How often you track a KPI depends on how often the data changes and how quickly you can make course corrections.

  1. Put processes in place.

Once you’ve identified what you want to monitor, make sure your processes can deliver your data. For example, if you don’t currently update your estimates with change orders, you can add that to your workflow to get a truer picture of your estimate-to-actual cost variance.

  1. Make the data accessible and visual

The data won’t do much good if your decision makers can’t get to it. Look for technology that allows superintendents and project managers in the field to access the information they need from their mobile devices. Use customized dashboards and easy to understand graphs and other visuals to make the data easily consumable and understandable.

Do you currently conduct a visibility audit?  How do you make sure you have the right data to make the best decisions for your company?