What is a Key Performance Indicator?
A Key Performance Indicator (KPI) is the measure of performance of an activity that is critical to the success of an organisation. The construction industry KPIs are published each year by Constructing Excellence using performance data collected from across the UK construction sector by Glenigan with support from the Department for Business, Innovation and Skills. Constructing Excellence members can track their projects and organisations against these KPIs at KPIzone.com
Introduction to Benchmarking
What is 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?”
Whilst benchmarking has been used occasionally in the construction industry for many years, the recent surge of interest has been encouraged by the publication of sets of national Key Performance Indicators that allow companies to measure their performance simply and to set targets based on national performance data.
What is a Benchmark?
A benchmark is “the best in class” performance achieved for a specific business process or activity. It is performance that has been achieved in reality, and can be used to establish improvement goals.
Note: the term ‘benchmark’ is sometimes used incorrectly to refer to average performance or even to refer to a minimum acceptable standard. Care should be taken to use the term correctly
Types of Benchmarking
Benchmarking can be carried out against any organisation or target that is deemed to be ‘best in class’. A full benchmarking exercise will involve not only the collection and comparison of data, but will include fact-finding studies to unearth the reasons for superior performance. Data driven benchmarking is made easy now that suites of KPIs are published nationally. Care must be taken to select the correct set. When an organisation wishes to carry out fact-finding studies as part of benchmarking, it can carry these out in one of three ways:
- Internal – a comparison of internal operations such as one site (or project team) against another within the same company. Large companies will often have plenty of scope for this sort of benchmarking, and should aim to bring the level of performance of the whole company to the current ‘best in company.’
- Competitive – a comparison against a specific competitor for the product, service or function of interest. This will provide data and information about what competitors are achieving. It is more difficult and complex to carry out. A number of benchmarking clubs have been established to allow collection and comparison of data from organisations which compete with each other.
- Generic – a comparison of business functions or processes that are the same, regardless of industry or country. In a well-documented case in USA, a ready-mix concrete company compared its delivery performance against a pizza delivery company. Both were in the business of delivering products which had to arrive at the point of use promptly!
Why Benchmark, The Benefits
The key benefits of benchmarking to organisations are:
- Benchmarking focuses improvement efforts on issues critical to success
- It ensures that improvement targets are based on what has been achieved in practice, which removes the temptation to say ‘it can’t be done’.
- Benchmarking provides confidence that your organisation’s performance compares favourably with best practice.
- For organisations in the public sector, benchmarking provides an assurance that ‘Best Value’ is being achieved.
What does successful Benchmarking require? The 5 steps
The main ingredients for success (as in most management issues) are:
- A clear understanding of what needs to be improved, and why. This analysis is usually senior managers’ responsibility. Benchmarking must align with the organisation’s objectives if it is to be successful.
- Careful selection of who to benchmark against.
- Clear understanding of the reasons for any difference in performance.
- Establishment of goals and targets that are both challenging and achievable with effort.
- A willingness to change and adapt based on the benchmarking findings.
- Persistence! Results will not necessarily come quickly and easily.
Five Steps to Successful Benchmarking
The five key steps in the benchmarking process are:
- Plan: Clearly establish what needs to be improved – make sure it is important to you and your customers – and determine the data collection methodology to be used (including any KPIs).
- Analysis: Gather the data and determine the current performance gap – against a competitor, the industry or internally – and identify the reasons for the difference.
- Action: Develop and implement improvement plans & performance targets.
- Review: Monitor performance against the performance targets.
- Repeat: Repeat the whole process – benchmarking needs to become a habit if you are serious about improving your performance.
What are the pitfalls to successful Benchmarking?
Beware of the following, when implementing benchmarking:
- Don’t try and benchmark too many things to begin with. Select two or three key areas, and then gradually add others over time.
- Don’t waste time benchmarking things that are just “nice to know”. Every benchmark should aim to improve performance in an areas that are critical to the organisation’s performance.
- Lack of precision in what is being measured.
- Failing to carry out a pilot test to ensure the methodology works.
- Giving up too early
- Failing to change the benchmarking targets if the organisation’s priorities change.