Use Benchmarking to Achieve Increased Productivity

Even a profitable construction company should be examining ways to become more efficient and productive. One way to do this is to compare the firm with other firms in the same discipline or similarly situated companies within the same geographic region.
The comparison should be conducted in a methodical manner.

This business tool, which initially gained wide acceptance in the manufacturing industry and other fields, is known as benchmarking (also sometimes called “best practices”).
Benchmarking can help bridge the gap between stating objectives and realizing them.

Historically, the construction industry has used the accounting process to monitor productivity and cost-efficiency. For instance, job estimates may be based on an analysis of past data relating to actual labor hours. Although this process is beneficial, it does not sufficiently address the productivity needed for future projects.

Benchmarking is based on the premise that measurement is fundamental to improvement. By reaching for a higher standard, a construction company can better attain its goals. Naturally, variations may exist, but the following four steps are generally integral to the benchmarking process:

1. Set the goals to be achieved. This can be accomplished by measuring performance against a prominent competitor.
2. Determine where performance falls short of the desired objectives.
3. Establish procedures that address the deficiencies in benchmarked activities.
4. Realize improvement as a result of the procedures. Continue to work towards the benchmarked standards.

It is recommended that the firm develop specific types of measurements. Some of the measurements typically used in the benchmarking process for construction companies are:

• Accuracy of estimates (expressed as percentage variation of estimated cost versus actual cost);

• Percentage of time heavy equipment is working versus time at the job site;

• Percentage of on-site labor hours for “redo work” to total hours;

• Percentage of dollars of change orders to overall contract value;

• Percentage of actual project duration variation to initial schedule;

• Average number of requests for information per $10,000 of contract work; and

• Time and day of highest job productivity.

The exact nature of the metrics used will vary depending on overall objectives. It is recommended that management meet its business advisers to implement a comprehensive plan.

Of course, construction activities are also subject to various risks and uncertainties. Productivity, duration and cost of activities are affected by inclement weather, variations in worker skills, unexpected equipment breakdowns and other factors. Focus on productivity variation as well as average productivity as part of the benchmarking process.

Ultimately, benchmarking can pinpoint where a construction company’s performance lags and how to improve it. This practice can filter down to the bottom line.

June 2007