Performance Measurement for Construction Profitability

221 Pages·2004·3.577 MB·English

by  Clive Thomas Cain

Cain/PerformanceMeasurementforConstructionProfitability FinalProof 7.11.2003 11:38am page 1
Performance
Measurement for
Construction
Profitability
Clive Thomas Cain CBE
Building Down Barriers
UK
Cain/PerformanceMeasurementforConstructionProfitability FinalProof 7.11.2003 11:38am page 2
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Contents
Introduction v
Acknowledgements ix
Chapter One: Why Measure Anything? 1
Chapter Two: The Unchanged Customer
Demand for Improvement 11
The two key differentiators of
construction best practice 26
The six goals of construction
best practice 27
Chapter Three: The Link Between Profits,
Competitiveness And
Measurement 35
Chapter Four: The Structure Of Performance
Measurement 51
Definitions of terms 51
iv Contents
Chapter Five: The ‘Virtual Firm’ 61
Chapter Six: Effective Leadership 77
Chapter Seven: Performance Measurement
at Project Level 95
Supply-side action plan for the
introduction of performance
measurement at project level 107
Chapter Eight: Performance Measurement
at Strategic Level 131
Supply-side action plan for the
introduction of performance
measurement at strategic level 157
Chapter Nine: The Client’s Selection Process 165
Internal change process for
demand-side clients who want to
embrace value-based selection 181
Value-based selection of a fully
integrated design and construction
team – for use by all demand-side
clients 193
Value-based selection questionnaire
for assessing the skill and
experience of an integrated
design and construction team 198
Further Reading and Help 203
Index 212
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Introduction
There is a well-known and very apt old adage that goes ‘If
you don’t know how well you are doing, how do you
know you are doing well?’ In non-construction sectors,
this critical need to know how well you are doing is the
primary driver for the use of performance measurement
and performance self-assessment as the mechanisms by
which firms accurately inform themselves of their true per-
formance in every aspect of their business, including the
performance of the firms that make up their supply chain.
They then use the information to accurately compare their
performance and that of their suppliers with the perfor-
mance of the market leaders and with the expectations of
the potential customers of their products.
Most importantly, regular performance measurement is
also the means by which firms in other sectors detect un-
necessary costs in the effective utilisation of labour and
materials throughout their supply chain. They, and the
firmsintheirsupplychain,thenusethisaccuratebreakdown
ofunnecessary costs toworktogethertominimise themand
convert the savings into higher profits and lower prices and
thus make them more competitive.
There is no reason why the construction industry should
not use similar techniques to reveal the unnecessary costs
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vi Introduction
within the design and construction process and convert the
savings into higher profits and lower prices. The 1994
Latham Report warned that unnecessary costs caused by
the inefficient utilisation of labour and materials could be as
high as 30% of the total cost of construction.
Subsequent research by the Building Services Research
andInformationAssociation(BSRIA),theBuilding Research
Establishment (BRE) and the Construction Best Practice
Programme (CBPP) has fully validated this 30% figure,
which amounts to around £17 billion a year since the total
annual UK construction expenditure is around £58 billion.
Consequently, the construction industry has much to gain
from importing accurate performance measurement tech-
niques and using them to convert unnecessary costs into far
higher profits and far lower prices.
In 2002, the UK Strategic Forum for Construction report
Accelerating Change called for the UK construction indus-
try to adopt best practice in performance measurement and
continuous improvement from other sectors by introducing
the following into their way of doing business:
‘A culture of continuous improvement based on per-
formance measurement.
Consistent and continuously improvingperformance,
andimprovedprofitability,makingithighlyvaluedby
its stakeholders.’
This book is a companion volume to the author’s earlier
book Building Down Barriers – A guide to construction
best practice (published by Taylor and Francis) that
explained what improvements in performance, structure
and culture end-users wanted from the UK construction
industry in order to give far better value for money.
It builds on the general guidance given in the earlier book
by focusing in depth on the unbreakable link between the
elimination of unnecessary costs and the measurement of
performance. It is intended to help those firms that are
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Introduction vii
intentonadoptingtherecommendationsfromAccelerating
Change by explaining why chief executives, executive board
members and senior managers need to measure the true
performance of the processes within their own business,
and those within their suppliers’ businesses. It explains why
accurate performance measurement is fundamental to any
drive for continued improvement and why assumptions and
anecdotal evidence are inevitably a dangerous and destruc-
tive basis for any improvement programme and could
damage long-term competitiveness.
The book explains why benchmarking will fail unless the
firms involved in the benchmarking process use common
performancemeasurementsystems.Itlinksitsguidancewith
thatprovidedinTheConstructionPerformanceDrivers:A
health check for your business published by BQC Perfor-
manceManagementLtdandendorsedbytheBritishQuality
Foundation. It explains how measurement systems, such as
the BRE CALIBRE productivity measurement system, can
be used at project level to detect and reduce the inefficient
utilisation of labour and materials. It also explains how self-
assessment at operative level can be equally effective at
detecting and exposing inefficiencies, if done within the
security of long-term strategic supply chain partnerships
and with the help of an experienced facilitator.
The book is written in straightforward language, and in a
format that ensures ease of use in each sector of the con-
struction industry and in each management tier within each
sector. It looks back over the numerous reports that have
beenproducedinthepast50yearsorsoandshowsthatend
user demands for the elimination of unnecessary costs have
remained surprisingly constant. It looks at the barriers that
have caused the industry’s firms to continue to fail to meet
theendusers’expectationsduringthattime.Itsimplifiesand
explains the key demands for improved performance made
of the industry by the Latham and the Egan reports and
links them to the key themes of the National Audit Office
reportModernisingConstructionandtheConfederationof
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viii Introduction
Construction Clients Charter Handbook. It explains
how the key themes from the Charter Handbook have
become the key themes in the latest Egan report Accelerat-
ing Change.
The book also explains why the end-user customers of
constructed products should establish a level playing field by
basingtheirselectionofthedesignandconstructionteamon
the factual evidence of improved performance that has
come from measurement.
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Acknowledgements
Theauthorwishestoacknowledge thehelp,adviceandcase
history evidence he received from the members of the Brit-
ish Quality Foundation Construction Group, without which
the book would have been considerably less relevant to the
needs of those at the sharp end.
He also wishes to record his thanks to Taylor and Francis,
the publishers of his first best practice guidebook Building
Down Barriers – A Guide to Construction Best Practice.
The Taylor and Francis book provided the essential back-
ground material that was refined and further developed to
give a sound and common foundation to this book. This
ensured that the guidance contained in both books was
fully co-ordinated, based on the same historical foundations
and used the same six goals of construction best practice,
and thus avoided any risk of conflict where both books were
beingusedtodriveforwardthedifferentaspectsofimproved
performance in the same organisation.
He also wishes to record his thanks to BSRIA, who
provided additional case history advice and evidence from
the research they had carried out subsequent to the publica-
tion of their Technical Note TN14/97 Improving M & E
Site Productivity to assess the take up of performance
measurement within the building services sector.
x Acknowledgements
Last, but by no means least, he would like to record his
thanks to the CALIBRE team at the Building Research
Establishment for their advice and input into the book
from their experiences of the application of the CALIBRE
productivity measurement system.