Cci Kpi Report 2004
Cci Kpi Report 2004
Cci Kpi Report 2004
produced and written for CCI by Dr. Will Swan and Emma Kyng
CONTENTS
Executive Summary ........................................................................................................................... 3 1. Introduction .................................................................................................................................. 4
2.1 Why do we need Benchmarking? ......................................................................................................................... 5
Appendix A - Useful Websites ......................................................................................................... 19 Appendix B - Glossary of Terms ..................................................................................................... 20 Appendix C - Abreviations ............................................................................................................... 21
Executive Summary
Benchmarking is a tool that supports business improvement. It is becoming increasingly commonly used within the construction industry, specifically through Key Performance Indicators. A benchmark is a level of performance with which we can compare ourselves. Benchmarking asks who performs better, why they are performing better and how a company can improve. By comparing ourselves to the best performers, or best practice, we can see how to improve to raise the level of performance. Benchmarks may be internal, competitive or generic. Internal benchmarks are when we compare within our own company, such as between projects. The data is easy to collect, but the level of innovation may not be high. Competitive benchmarks are when we compare within our own industry. The data is more difficult to collect, but improvement will generally be greater. Benchmarking Clubs are often a good place to engage in competitive benchmarking. Generic benchmarking is concerned with comparing similar processes against those in other industries. For example, supply chain techniques from the automotive industry may be transferable to construction supply chains. Benchmarking is an ongoing process of continuous activity. The process must be well planned and championed at a senior level. It requires an analysis and comparison of performance. Action must be taken to drive improvement to close the performance gap, and this action must be reviewed. The process should not be viewed as a one-off, there should be an effort to drive continuous improvement in all areas of the business. Benchmarking is not easy. An understanding of the common pitfalls is important in order to avoid the process failing. Benchmarking is central to the Rethinking Construction Agenda. The targets for improvement, or Key Performance Indicators (KPIs), form the basis for continuous improvement. Key Performance Indicators are national benchmarks that allow companies to compare project and organisational scores with the rest of the industry. There are a wide number of benchmarking tools available to measure a variety of different aspects of the construction projects and organisations and allow them to be compared against national benchmarks. These tools measure issues such as people, design, environmental performance and general business performance. These benchmarks can then be used to drive performance in this area. While in principle, KPIs are a relatively simple exercise, their implementation requires consideration of a wide number of issues. The key issue is to ensure good communication with all relevant stakeholders, particularly those who will have to collect the data. KPIs are not just about collecting data and any system will use the data to drive good communications with project team members and clients. KPIs need to be used to drive action otherwise the system becomes seen as a data collection exercise.
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1. Introduction
This report has been developed to provide practical guidance for construction companies and their clients on the different types of benchmarking that are currently being undertaken in the construction industry. It draws on a number of information sources (Appendix A) available to industry, as well as the authors own experience of developing and implementing benchmarking systems. The main areas covered in the report are as follows: An Introduction to Benchmarking this section discusses the main principles of benchmarking, the different types of benchmarking that may be carried out and the main steps that have to be undertaken in order to benchmark successfully.
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Benchmarking in Construction this section is concerned with the main benchmarking activities in the construction industry. This looks at a number of tools for benchmarking the performance of products, companies, and relationships. Key Performance Indicators this section discusses how to use KPIs to benchmark. It serves as a basic introduction to the main concepts of measuring and using comparative data to indicate relative performance. Introducing Key Performance Indicators into your Business this section provides practical guidance in the implementation of a KPI system within your business.
2. An Introduction to Benchmarking
Benchmarking is a method of improving performance in a systematic and logical way by measuring and comparing your performance against others, and then using lessons learned from the best to make targeted improvements. It involves answering the questions: Who performs better? Why are they better? What actions do we need to take in order to improve our performance? Essentially, it is about looking at the way things are done and seeing why the performance is at a certain level, and using external comparators to improve performance. It uses data as evidence to identify who is performing better and using that understanding to drive improvement. A recent surge of interest in Benchmarking has been encouraged by the publication of sets of national Key Performance Indicators. Beginning in 1999, these benchmarks allow companies to measure their performance simply and to set targets based on national performance data. Benchmarking allows you to see how your organisation is performing in a specific area, realistically compare it, and find ways of improving. This can affect all areas of the business from profitability, to staff satisfaction and retention.
Generic a generic benchmark is concerned with comparing the same or similar process, but within a different industry. This may lead to high levels of innovation, but there may be difficulties in adapting practices from radically different industries. An example of a generic benchmark might be a comparison between construction and aerospace supply chain management techniques. The table right (Table 1) shows the advantages and disadvantages of different benchmark types. This relates to how directly relevant the benchmark is to your business, how easy it is to get the data for comparison, and what level of innovation might be expected.
Benchmark Method Internal Competitor Generic Relevance X X X Ease of Data Collection X X X Likely Innovation
PLAN
Programme. The construction industry KPIs were first published in 1999, and are updated annually. The Headline Key Performance Indicators are derived from the 5-4-7 model first put forward in the Egan Report (1998) Rethinking Construction. These improvement targets formed the basis for the national Headline KPIs, which were designed to show how improvement would be demonstrated. There has been a review of this model to include issues such as sustainability and Respect for People, as part of the improvement process, as well as directly linking to the Headline KPIs (see Section 4). These KPIs are now widely used within industry to measure performance and drive improvement. They often form part of the requirement for tendering for some projects. KPIs are explained in more detail in Section 4.
Organisational Performance e.g. Health and Safety, Respect for People. Relationship Quality e.g. customer satisfaction service.
the Commission for Architecture and the Built Environment (CABE) and Rethinking Construction. It has been developed to allow consideration of design issues to be assessed. DQIs look at design issues such as building appearance, use or security to allow a greater input into the understanding of how design affects the end user. It is designed to be used in conjunction with the industry KPIs. The DQI assessment uses a number of different categories to assess aspects of the design, for example, Build Quality relates to the engineering performance of a building, which includes structural stability and the integration and robustness of the systems, finishes and fittings. Functionality is concerned with the arrangement, quality and inter-relationship of space, and the way in which the building is designed to be useful. Impact refers to the buildings ability to create a sense of place, and to have a positive effect on the local community and environment. It also encompasses the wider effect the design may have on the arts of building and architecture. It provides a framework to allow design to be discussed. Client representatives and end-users have an opportunity to address design issues in a structured way. This will support the development of the brief and the setting of benchmarks. The additional transparency of the design process makes choices more inclusive and better understood by more members of the development team. The use of DQIs can support the development of the brief, focussing solely on design issues and allowing an objective comparison of different design briefs against specified criteria. When a building is completed and occupied, the DQI can be used with a wider number of stakeholders to assess the impact of the final building. End-users, facilities managers and even passers-by can be questioned with regards to the design quality of the building. This information can be used to inform future developments. www.dqi.org.uk.
Innovation Best Practice Productivity
The use of HQIs is especially important for Registered Social Landlords (RSLs) who are required to send data regarding projects to a dedicated national database www.hqiuk.com managed on behalf of the corporation by the Building Research Establishment (BRE) Construction Benchmarking Centre. This allows HQIs to be completed online. Registered Social Landlords (RSLs) and other Developers use HQIs to manage the quality of different housing schemes. It allows schemes to be compared on quality, rather then a purely cost basis. The HQI process enables the comparison of schemes and allows development teams to learn from their successes and mistakes.
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4.1 What is a Key Performance 4.3 What are the Headline Indicator? KPIs?
A Key Performance Indicator (KPI) is the measure of a process that is critical to the success of an organisation. Many organisations use KPIs. There are a number of performance measures that define the success of a project or organisation. The construction industry KPIs allow the benchmarking of your organisation against industry standard data published by the Construction Best Practice Programme. The construction industry KPIs were first published in 1999, and are updated annually.
Name Construction Cost Construction Time Predictability Cost Predictability Time Client Satisfaction Product Client Satisfaction Service Defects Productivity Profitability
The headline KPIs are those defined by Rethinking Construction in the 5-6-10 model (see Figure 1). The KPIs are represented by the 10, meaning there are 10 Headline KPIs. The Headline KPIs are shown in table 2 below: 11
Description Improvement of capital cost year on year. Improvement of time year on year. Type What Measured?
Project Project
Actual cost against the cost predicted at tender. Project Actual time against the time predicted at tender. Project Client satisfaction with the delivered product Client satisfaction with the service provided by the Project Team Impact of the defects of the final product Project
Project Project
Value added per person working on the project Project Profitability of the Construction Company Accident Incident Rate for the Company Organisational Organisational
Safety The KPIs are essentially the evidence that culture change and process improvement are actually leading to positive change in terms of better performing
These Headline KPIs are generally concerned with the performance of contractors. However, there are KPIs for a number of different members of the supply chain, such as consultants, mechanical and electrical contractors and product suppliers. A comprehensive list may be found at KPIZone.
indicator compares against an industry sample. In the graph below (fig. 2) we can see two curves. The dark line indicates the predictability of cost of design; the lighter line indicates the predictability of the cost of construction, the KPI we are currently measuring.
4.4.1
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The first stage is the calculation of the indicator. The indicator is the score that will be needed to compare against other projects. For the example we will consider the KPI Predictability of Construction Cost. This has two pieces of data that need to be collected: a. Predicted Cost at Tender Stage = 1,000,000 b. Actual Cost at Practical Completion = 1,020,000 Using the KPI pack, we can see the equation for Predictability of Construction Cost is: Actual Cost - Predicted Cost x 100 Prodicted Cost This gives us a score of +2%, which means that the project was delivered 2% later than originally predicted. This gives us our indicator. If this score is negative then it would mean that the project was delivered before the stated time in the tender.
The benchmark is calculated by: Finding the performance level of the indicator, in our case +2%. Measure horizontally across until you meet the comparator line. Measure vertically down until you find the benchmark score, 34%. The score of 34% is the benchmark. This shows that, in terms of predictability of cost, this project has performed better than 34% of the sample. However, this also means that 66% of the sample are performing better, showing a certain amount of room for improvement.
4.4.2
performing against the sample. For example (see fig 3, below), if we look at predictability of cost we can see the radar line touches 60%. This means that the project is performing better than 60% of the sample projects.
4.6 Conclusion
The actual calculating of the KPIs is a relatively easy task. However, there are several issues that need to be considered when putting a system in place. Issues such as getting staff involved, storing the data and building the process into the project can make the process difficult. These issues are considered in the Section 5, Introducing KPIs into your Business.
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Any introduction of such a system may cause concern. This is best counteracted with a short discussion between the various stakeholders, with specific reference to project managers. The key is to identify the reasons for the KPI exercise, establish the requirements from each individual and look to address concerns before the system is in place and look towards how these can be alleviated. For a KPI system to work it requires the support of those who will provide the information. Once stakeholders have been identified and consulted, it may be useful to reconsider the requirements taking into consideration the wider needs of the group.
the comparator project then the calculation will be complex and the result may be inaccurate.
be useful to collect client satisfaction data periodically. This opens a line of communication between project partners. If issues are raised during the life of the project and addressed, then problems of conflict may be avoided. An example may be found in Appendix D.
able to compare from project to project, but they will not be able to compare externally. Where a company has decided that a key issue is not covered by the Headline indicators they may want to use these internal benchmarks. There are two main questions to be answered when selecting internal benchmarks. The first: is the measure important? There is little point collecting a measure if it not important to the company or other stakeholders. The second: how can it be measured? It is vital to establish a measurement process that is consistent and easy to apply. This will support the comparison between projects. Additionally, if an internal benchmark requires a lot of work to collect and analyse the data it may be difficult to collect. A few examples of internal benchmarks are shown in table 3 below: -
5.5.4 Safety
There are two key points to remember in addressing the safety score. The first is that the score differs from the standard HSE measure in that it is per 100,000 hours worked, rather than per 10,000 hours. This is resolved by multiplying the Accident Incidence Rate by 10 from the standard score to get the KPI indicator value. The second issue is that the Safety score is organisational rather than for a project. While the score can be collected for a project, it will mean that a single accident will give a very low score unless the project is KPI very large.
Reason Suppliers and subcontractor relationships are important for success of projects Settlement of Final Account is important for the finances of the company
How Measured
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The Headline KPIs are the most Value The value of engineering % of cost reduction common, but there are a number Engineering (VE) knowledge in raising associated with VE in of other KPIs that may be used as specification in relation to cost terms of final cost part of the project KPIs. It is quite possible to mix and match from a number of different sources. Information about Table 3 Examples of Internal Benchmark these may be found at KPIZone. Internal benchmarks can become external The majority of the Headline KPIs are lagging benchmarks if the company joins a indicators. This means that they will tell you what benchmarking club (see Section 5.12), where a performance is after the event. It may be useful group of companies may share their scores to use some leading indicators. These are allowing for comparison outside of the company. indicators that give a clue as to future performance. The best example of these is the 5.8 Data Management Respect for People indicators. Issues such as staff turnover or absence, can often indicate When there are a number of projects the amount issues that have not yet translated into current of data may become large. While paper-based project performance, but may have an impact in systems are adequate, larger amounts of data the future. may be kept in an electronic form, such as a spreadsheet or database. This will allow projects 5.7 Internal Benchmarks to be more easily compared and allow the quick generation of radar diagrams. The Centre for Internal benchmarks (see Section 2.2) are those Construction Innovation KPI Management Tool which have no external comparator data. An (see fif. 5, opposite) can support this. individual company may decide that certain measures are important to them. They will be
Innovation Best Practice Productivity
KPIs need to be used intelligently. Do not just consider the score, but discuss why a particular score is high or low. If a score is low, ask why. There may be good reasons for a score being low that may have been beyond the project teams control. By getting to the core reason decisions can be taken to make sure that any problems are mitigated. If low scores are punished, then it is unlikely that individuals will participate in the system. If a score is high, ask why. There may be something that the project team is doing exceptionally well and it may be important to capture it and replicate across other projects.
5.11
System Review
The KPI system is not a rigid system. It must meet the objectives of the stakeholders. If it is not fulfilling the objectives then it may need reviewing. In addition, if there are practical issues of data collection or management, then 17 these must also be considered. A system that is difficult to use or poorly understood, will not be used.
5.12
Clients may use KPIs to select potential partners. However, it is important not only to take the scores into consideration. Some key questions to ask when looking at KPI submissions are, What is the system used for? Does the partner use KPIs to drive improvement? Do they have a mechanism in place to look at the scores and make changes to the way work is being done? Are the KPIs audited externally? An external audit procedure will add additional credence to any scores they are presenting. A company that audits its own KPIs will have a wide number of reasons to report in a less rigorous manner. KPI comparators are for all construction projects. Certain projects may be from sectors where performance is not as traditionally high as others. There is an
5.10
Use of KPIs
A KPI system must be used to drive improvement. A system without outcomes creates work without creating any benefit. It is useful for any post-project review to consider the KPI scores, what they mean and if there is any relevant action to be taken.
issue that when comparing projects, you may not be comparing like with like. The benchmarks and scores can have a degree of tolerance. This means that minor differences between scores could represent a fairly minimal difference in performance, especially when factors that may have influenced the scores are considered. KPIs are a wet finger to give a rough indication of performance and should not be considered scientifically accurate.
and reporting of KPIs is only one part of the system, it is how they are used to communicate and drive the change that creates value for those involved.
5.14
Conclusions
As in the application of any management system, it is vital that those people who are going to be involved in the system have an understanding of why the system is in place and what it is for. Without this, the implementation will be difficult as people will see it as additional work with no clear reason. This can be countered by early involvement and communication of results and what they mean. This level of involvement will give the system meaning for all those involved. If a project team has been collecting data and a report is compiled it is important that the outcomes are communicated and discussed with them, rather than the data being used solely for external communications. KPIs are an excellent method of communication. It enables different stakeholders within the project to communicate about issues that are important to them. They have some basis on which to start a dialogue, which is sometimes not always easy within project teams. The collection
Innovation Best Practice Productivity
Appendix C - Abreviations
BREEAM Building Research Establishment Environmental Assessment Method CCI Centre for Construction Innovation CABE Commission for Architecture and the Built Environment CBBP- Construction Best Practice Programme DQI Design Quality Indicator DTI Department of Trade and Industry EPI Environmental Performance Indicators HQI Housing Quality Indicators KPI Key Performance Indicators
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