Key Performance Indicators (or KPIs) are sets of data against which the performance of a project or the organisations involved in delivering the project can be measured.
KPIs are quantifiable measurements, agreed in advance, to evaluate success towards a strategic goal. For example, if it is strategically important to drive down injuries suffered during the build phase of a construction project. In this case the data from previous projects, competing projects or even competing nations can be gathered and analysed to create a “benchmark”. KPIs are then set to measure company or project improvement against that benchmark.
Companies and projects need KPIs to create a culture of continual improvement. To report externally. To control and monitor other people or parties.
Measuring performance demonstrates whether a company or project is achieving continuous improvement. Data must first be gathered and analysed to create the “benchmark” or “yardstick” by which to measure performance. Some of the data against which it may be appropriate to be benchmarked may already be available. Indeed, some nations gather data in the industry to allow the benchmarking of a project or company against certain data sets.
Reporting to external stakeholders is another reason for collecting KPIs or to comply with external reporting regulations (such as company accounts) and information requests such as those in the tender process. KPIs for reporting purposes may be compulsory (again, for example in accounting) or voluntary such as environmental impact reports.
KPIs can be used in the construction sector to command and control behaviors and actions as well as outputs. Setting goals and using the KPIs to measure and feedback against those goals. These are sometimes linked clearly to penalties or rewards. This is particularly common in operation and maintenance phases of projects where for example a specified financial deduction can be applied if performance falls short (for example, a school room is unavailable because of inadequate cooling for more than, say, 2 hours, entitling the school operator to a deduction from the payments otherwise due to the maintenance contractor).
There is thought to be a benefit to KPIs for controlling and improving performance in the supply chain where partnering contracts exists. Some internationally recognised standard form partnering contracts provide for the use of KPIs, for example the NEC3 form of contract. However, there are also dangers in controlling relationships though KPIs. If not selected and applied carefully and with the strategic goals of the wider project under consideration, the focus of a party could be on delivering the specific measures and not the desired performance to meet the needs of the project.
KPIs can be used to benchmark a project or company in many different areas such as defects, productivity, time, cost, health and safety, impact on environment and client satisfaction. All these areas can be measurable, some objectively (time and cost) some subjectively (client satisfaction) but it is crucial that all KPIs represent the strategic goals of the project or company to be effective.