The latest set of Construction Industry Key Performance Indicators show a snapshot of an industry that despite the recent upturn is still struggling against tough economic conditions, says Glenigan’s Tom Crane.
Tom Crane
As the construction industry looks towards strengthening market activity over the next few years, the latest set of Key Performance Indicators – compiled by Glenigan with support from the CITB and the Department of Business, Innovation and Skills – provides a valuable assessment of how the industry has been responding to the recent upturn as it has begun to emerge from recession.
The indicators highlight the challenges that the industry now faces if it is to seize emerging opportunities. Overall, the KPIs point to an industry working hard to meet rising workloads while maintaining recent levels of performance and client satisfaction.
Unfortunately in a number of areas the industry’s KPIs have declined. The latest set of indicators is based upon projects that were completed during 2014, a period of resurging construction output volumes and expansion in the development pipeline. However, many of the projects reaching completion started on site in earlier years, often based on contracts which were negotiated during the depths of the downturn.
The rapid upturn in activity during 2014 put pressure on capacity, manifesting itself in rising material and labour costs and extended delivery times. Evidence from this year’s KPIs suggests that construction firms have managed to keep control of costs, but that delays to schedule have worsened.
"The KPIs suggest that the challenging economic environment continues to undermine the industry’s efforts to deliver an improved product and service."
Project costs were on budget or better for 69% of projects – on a par with the 2013/14 result and maintaining performance at a survey record high. In contrast, projects only came in on time or better 40% of the time – markedly below an average of 45% since 2003 and one of the worst levels of performance recorded by the survey.
The impact of accelerated industry growth is most evident in the workforce indicators. Staff turnover was up to 5.3%, the highest level since 2008, and staff loss was down to 6.3%, from 9.1% when this KPI was first measured in 2012.
The previous survey showed the construction workforce contracting as departing staff went unreplaced; this has reversed sharply in the latest data. However, the rise in hiring has not been accompanied by an increase in workforce diversity. The proportion of women and people from black and minority ethnic backgrounds, as well as those aged under 24, has fallen in the latest results.
Falling client satisfaction
The latest indicators suggest that the challenging economic environment continues to undermine the industry’s efforts to deliver an improved product and service to clients. Clients’ satisfaction overall has now fallen for the last three consecutive surveys, and ratings of service and value for money received have both declined during the past year. Clients’ rating of their consultancy teams was unchanged this year, and remains below previous peaks.
Contractors’ overall satisfaction with clients and the consultancy team has also fallen, despite high levels of satisfaction with payment and information provision.
Looking ahead, the industry now has a more stable foundation to build upon. Industry profitability has risen to 2.8%, from 2.1% in the previous survey. After falling for four consecutive surveys,
this uptick suggests that construction firms’ margins have moved past their nadir. Nevertheless profitability remains far below a peak of 9.9% recorded in 2009 and a quarter of respondents reported losses during the year surveyed, illustrating the continued impact of the downturn and the threat from loss-making contracts negotiated during the downturn.
Challenges of recovery
The construction industry is looking to a progressive growth in workload over the next few years. However,
the anticipated recovery presents fresh challenges: growing and upskilling the workforce, delivering improved productivity and containing costs are going to be priorities.
As the industry responds to these demands, the Key Performance Indicators will continue to provide construction firms with the benchmark against which they can appraise their own performance and help identify where they can secure future improvements that will help to safeguard their competitive position and win work.
Tom Crane is an economist at Glenigan
