A survey conducted by the Construction Financial Management Association revealed that participants felt their companies were ineffectively managing several key functional areas of business.
• 54 percent of respondents said contractors were ineffective in managing people;
• 37 percent said project sales and customer satisfaction management were ineffective;
• 35 percent said there was ineffective management of risks insurance, contracts, risk and safety; and
• 27 percent said there was ineffective management of project delivery.
Marc McKerley, CPA, partner at Crowe Horwath LLP, said the survey demonstrates the challenges the construction industry faces and the opportunity for improvement through a strategic planning process.
“Every business is faced with the same issue — limited resources. A dollar can only be used once. Material can only be used once. Organizations that best leverage limited resources have a greater chance to succeed,” McKerley says.
Smart Business spoke with McKerley about ways companies can simplify the planning process and implement performance management techniques that will get results.
What are the barriers to an effective implementation strategy, and how can they be overcome?
Several barriers exist that prevent successful implementation of strategic goals:
• Management — Management is busy ‘putting out fires’ and rarely discusses strategy.
• Resources — Budgets often are not linked to strategy.
• Vision — The work force does not understand management’s strategy.
• People — Incentives are not linked to strategy.
Overcoming these barriers is crucial to successfully implementing strategy. Using tools like strategy maps can help translate vision and strategy into action and results.
How can a project scorecard help with performance management?
Most people think of a scorecard as a tool to measure financial performance. Building an effective project scorecard that moves beyond the traditional financial performance model requires an understanding of the construction project lifecycle, including the significant risks inherent throughout this process and business processes designed to effectively manage those risks.
A well-designed project scorecard should include key processes intended to manage critical risks throughout the construction lifecycle. It should also define key performance indicators (KPIs) that represent desired performance thresholds. The exhibit provided (on the following page) illustrates a working grid for building a project scorecard for several key areas of the construction lifecycle. Other important factors in building a scorecard include:
• Weighting critical processes or KPIs.
• Identifying the source of data input. Is the information contained in the existing accounting information system or does it reside in spreadsheets or manual logs? Accessibility of the information is critical.
• Who is the responsible person? The project manager? The contract administrator? The project accountant?
The final scorecard can take many forms. Some choose to use a traffic light approach:
• Green light — Acceptable and desired compliance and performance.
• Yellow light — Warning signal that compliance and performance are below desired levels.
• Red light — High-risk issue that requires immediate attention.
When implementing performance management in your company, remember the following simple goals:
• Know what you’re trying to accomplish and why;
• Keep yourself accountable; and
• Move beyond traditional financial ‘rear-view mirror’ performance measurements.
Marc McKerley, CPA, is a partner with Crowe Horwath LLP. Reach him at (214) 777-5209 or [email protected]
SAVE THE DATE Webinar: Implementing Performance Management Techniques, Wednesday, Feb. 20, at 10 a.m. CST. To register, visit www.crowehorwath.com/events.