by Ryan Craaybeek, Director, Solutions Consulting at Contruent
Construction companies live and die by how well the budgets and timelines of their capital projects adhere to client-specified outcomes. Missing the mark can have a ripple effect on their return on investment (ROI). So naturally, monitoring the two biggest success measures — costs and schedules — throughout execution ranks high on the must-do list.
This has gotten trickier with the growing intricacy of those capital projects, more rigorous client requirements and rising construction costs.
It can make ROI vulnerable. Tracking the two primary success measures is no longer enough.
If you see your own company in this scenario, there are three areas you can keep tabs on to protect and strengthen your ROI:
- Progress updates: Getting regular information provides insights into how things are evolving and helps you proactively address challenges and risks as they surface.
- Resource allocation: Tracking allocation helps you ensure labor, materials and equipment are adequately distributed for optimal utilization.
- Milestone tracking: Gauging where the project is at defined reference points helps you spot misalignments and adjust as necessary.
You might see these as having more of a dotted-line relationship to ROI, but not monitoring them has consequences. Let’s look at how they can make a difference.
The things that threaten to chip away at ROI are often the ones we aren’t paying attention to or don’t see coming — but should have. That, in and of itself, is a considerable risk factor. If something isn’t going according to plan or is about to incur more costs or miss a key date, it could eventually put a ding in profits, leaving you with a shrunken ROI.
Preserving ROI means keeping costs in check, schedules on target and outcome-impacting risks to a minimum. That requires regular monitoring.
Proactively look for issues. Here’s where your progress updates come in. They do more than relay status and the latest happenings on the jobsite; they convey valuable insights into what is and isn’t working.
You’ll want to leverage these updates to identify potential obstacles and challenges as they surface. This real-time visibility allows you to analyze and make corrective adjustments sooner rather than later, minimizing the chances of change orders, costly delays or rework.
Make use of metrics. There’s also a more data-driven approach you can take with progress updates. A common question construction managers ask is: “How does our actual progress align with the planned progress?” The answer lies in progress-related key performance indicators (KPIs).
Two KPIs stand out: Schedule Variance (SV) and Cost Variance (CV). SV shows whether your project is ahead, behind or on schedule, while CV indicates whether it’s over, under or on budget — and by how much. Positive values (above “0”) are below budget or ahead of schedule, negative values (below “0”) are over budget or behind schedule, and “0” is on target. These numeric values fluctuate over time, serving as early indicators of potential issues in the making.
Progress updates can be an effective tool in your risk-management strategy. Continually tracking progress and monitoring SV and CV empower you to recognize and address emerging issues before they escalate into major problems, protecting the project’s budget and schedule and your ROI.
The more optimized staff, supplies, materials and equipment are, the more assured you can be of high-quality work and on-time completion — and much less wastage, rework and contract retention claims.
But construction is volatile by nature. And that can force some quick strategic shifting among those resources, much like carefully calculated chess moves. How can you maintain cost effectiveness while protecting profitability? It’s all about planning and awareness.
Start resource planning by looking backward. What does your past project data show about how resources were distributed among tasks and phases similar to your current project? Where and why did overages or shortages occur? How were those resources adjusted? How were work quality, timelines and budgets affected? Was there a knock-on effect on your ROI? Let these data-informed answers guide you in setting up a baseline allocation of resources.
Be aware of where and how your resources are currently distributed. While the bulk of the resource allocation happens during the planning stage, having the agility to adapt to changing conditions can keep you more in control of the associated costs. That’s why having a panoramic view of resource allocation across all your projects is so important. You gain comprehensive insight into where and how to adjust when necessary, minimizing unnecessary additional consulting, contract or procurement expenses that cut into budgets.
Project milestones revolve around key dates and specific activities within the construction schedule. But another way to look at them is as defined reference points on the path to a stronger ROI.
Set your benchmarks. Delineating milestones helps you gauge where your project is compared to the original plan. To determine those milestones, revisit your past project data, using it as a guide to establish realistic benchmarks against which to monitor progress and cost efficiency. It’s easier to spot misalignments and potential cost overruns — so you know when and where to make adjustments.
Use milestones for strategic analysis. Tracking within this phased framework makes cost assessment and control more manageable. Each milestone provides an opportunity to answer some crucial questions:
- Is the project where it should be at this point?
- What is the spend, and is it consistent with what’s outlined in the allocated budget?
- What risks are surfacing that could cause costly disruptions?
- Are there delays? If so, is it going to impact other task or phase dependencies? How can we intervene to maintain the project’s cadence and keep costs in check?
- Have budgets been allocated appropriately for this milestone? If not, how can we strategically reallocate funds without disrupting other tasks or phases?
- What budget-impacting decisions have to be made or issues addressed before continuing to the next milestone?
How to Monitor These Areas
Understanding which areas to monitor to improve your ROI is crucial, but the method of monitoring is equally vital. The ideal reporting mechanism is a centralized single reporting “engine” of prebuilt dashboards and analytics that monitor a project’s progress from cost, resource and schedule milestone perspectives. Such an engine should offer several distinct features:
- Enterprise analytics delivering portfolio-wide insights. They can provide visibility into progress throughout all your projects. For instance, a unified dashboard could highlight key performance indicators (specifically SV and CV), flagging areas of concern for you to explore and address, such as schedule discrepancies or forecasted budgetary concerns across your portfolio.
- Role-based dashboards providing project-based visibility for specific job roles. Team members are empowered to make informed decisions that benefit the project, with an eye toward improved ROI. For example, dashboards tailored to schedulers can track resource management and allocation for prompt adjustments, while those for controllers and cost engineers can serve up progress and forecasting data for better, timelier planning and tweaking around sudden cost deviations or questionable spending trends.
- Project reporting for a deeper perspective. Project teams and stakeholders can gain detailed insights through project reports and dashboards. Prebuilt on industry standards or customized to satisfy specific reporting requirements, they provide a focused lens into how costs and spending are behaving (including against the planned budget) for closer monitoring and more accurate, informed decision-making.
Being vigilant in safeguarding and improving your ROI requires monitoring more than costs and schedules; it also takes proactively tracking the progress, resources and milestones that help drive it. Dashboards offer a centralized way to track the progress, resources and milestones that can directly impact it. Interested in learning how a robust solution from Contruent can help protect and grow your ROI? Reach out to us; we’re happy to help.