When it comes to construction accounting, there are a variety of different metrics that you will need to monitor and analyze to ensure that the company is running smoothly.
Construction companies have unique construction KPI dashboard needs when it comes to their accounting department because of the nature of their business and how they price their projects.
Instead of focusing on general ledger accounts like most businesses, construction firms focus on document-driven processes. This means that they use special documents like punch lists and change orders to track expenses for their projects. That said, there are many key performance indicators (KPIs) in construction accounting that you should be aware of.
In this article, we will look at some of the main KPIs in construction and explain how a KPI dashboard can be used to track these critical metrics.
What are the KPIs in construction?
The KPIs in construction are different for each company, but there are some metrics that are more important than others. These metrics are going to be different for each industry segment, but here are three of the most important KPIs in the construction industry.
1. Gross Margin
Gross margin is the percentage of profit you make from the sale of goods or services. In construction, gross margin is the percentage of profit you make from the sale of the project. Gross margin is a helpful metric because it tells you whether or not the project is making money.
2. Gross Profit Ratio
Gross profit ratio is the ratio of gross profit to total sales. Gross profit ratio is similar to gross margin, but you can use this to determine your company’s overall profitability. This metric can also indicate if your pricing is correct or if additional changes are needed.
3. Net Profit Ratio
Net profit ratio is the ratio of net profit to total sales. This is the ratio of profit to gross profit, so it will be lower than gross profit ratio. Net profit ratio can indicate how your pricing is impacting your profit and whether or not you need to adjust your bids to be profitable on a project.
How is KPI measured in construction?
One of the most important things to remember when measuring KPIs in construction is that you must be able to track them. This can be done using a variety of different methods, but the most common are ratios, percentages, and index numbers.
These numbers will help you determine how you are performing in relation to your expectations.
Ratios
Ratios help you understand how two different numbers are related to each other. This can include things like COGS to sales, fixed costs to sales, or any other financial metric.
Percentages
Percentages can be used to show different types of performance indicators, but they can be less accurate than ratios. When using percentages, it is also important to note that all numbers are calculated on a 100% scale, which means they can be high or low depending on the numbers you use.
Index Numbers
Index numbers are similar to percentages, but they are based on a point where things are equal. This means that an index number can’t be lower than 0% or higher than 100%. You can use index numbers to compare different projects or companies to one another.
What is a KPI dashboard?
A KPI dashboard is a visual representation that shows the most important KPIs for your business. The goal is to give you a quick snapshot of how your business is performing so you can make adjustments if necessary.
Many times, customers will be able to see a business’s KPIs by looking at the project details. If this is the case, you need to make sure the project details are complete and accurate. A KPI dashboard will give you the ability to track this information in one place so you can properly analyze the data.
What should be in a KPI dashboard?
The dashboard should always include your most important KPIs so you can quickly analyze them. However, the exact information will depend on the KPIs you are trying to measure. For example, if you are trying to measure your profit margin, you will want to include the following:
Current Profit Margin - This is the profit margin you have today.
Target Profit Margin - This is the profit margin you want in the future.
Change - This number shows you how much you have impacted the profit margin. This can be either positive or negative and should be calculated using the two profit margins and the difference between them.
Difference between profit margin and change - This number shows you how much profit margin has changed and how much it is impacting your company. If this is a positive figure it means you are under budget and making more profit than was originally anticipated.
The benefits of using a KPI dashboard
KPI dashboards can help you track your project finances at a glance, which makes it easy to adjust your strategy when needed. Of course, there are many other benefits to using a KPI dashboard, including:
1. Increased Profitability
The biggest benefit of using a KPI dashboard is that it will help you to increase profitability. By tracking key performance indicators, you can make adjustments to improve your bottom line.
2. Easier Project Management
Another benefit of using a KPI dashboard is that it will help you to better manage projects. You can use the data in the dashboard to determine if pricing is correct and if changes are needed. You can also use the data to track project progress.
3. Improved Customer Satisfaction
Another benefit of using a KPI dashboard is that it will help you to improve customer satisfaction. You can use the data in the dashboard to determine if pricing is correct and if changes are needed.
How do I create a dashboard KPI?
The process for creating a dashboard KPI will vary depending on the tool you use, but here is an example that applies to Microsoft Excel.
· Create a new page to house your KPIs – The first thing you need to do is create a new page in your spreadsheet to house all of your KPIs. This will allow you to see all the data in one place and make it easier to analyze.
· Create a formula for each KPI – Once you have added the page to your spreadsheet, you need to write a formula for each KPI. You can do this by selecting the cell you want to add the formula to and clicking on the “Formulas” tab. From there, select “Define” and then select “Create New”.
· Input your KPI figures – once you have the dashboard set up, you can start entering your financial data. Simply input your KPI figures into each cell and Excel will apply the formulas you previously specified to calculate your performance in each area. It's a good idea to save the dashboard as a blank template so that you can use a fresh spreadsheet for each project.
Some people are very good at math and have no problem creating these sorts of dashboards. However, other people prefer to save time and use a KPI dashboard template that already features the formulas. One great KPI dashboard for the construction industry can be found on LiveFlow and it’s completely free.
Why the LiveFlow Construction KPI Dashboard is the best choice for your business
Creating a construction KPI dashboard isn't that difficult, but it is very time consuming and requires that you have a good knowledge of both formulaic mathematics and Microsoft Excel. For this reason, many people prefer to just download a premade template. After all, the template is already built, includes all of the formulas, and can save you a ton of time.
With LiveFlow’s Construction KPI Dashboard, all you need to do is input your figures for each project and your KPIs will be automatically generated and tracked. Considering that the LiveFlow KPI dashboard is already made and it’s completely free to download, there isn’t really any good reason to build one yourself. It can even be customized, so it’s a great resource for anybody who needs to track the performance and profitability of their construction project.
Summary
The construction industry is unique in terms of how projects are accounted for and tracked. As such, it's a good idea to use a KPI dashboard to monitor things like project profitability, gross margins, gross profits, and so on.
If you are decent with math and Microsoft Excel, then you can easily create your own KPI dashboard by inputting some formulas and saving it as a template. Alternatively, you can download a pre-made KPI dashboard for free from LiveFlow.
Recommendation
LiveFlow is a financial accounting platform that allows you to save time by using premade templates and tools that automate the most complex accounting tasks. As mentioned, we have a free construction KPI dashboard that you can download and start using today.
New users can also explore the other great features of the site risk-free with a 30-minute demo, so be sure to check out LiveFlow today.
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