Associations Teaming Up to Help Contractors
Herb Brownett, B2W Software
You can’t improve what you don’t measure. That is why companies in all industries embrace key performance indicators (KPIs), why the best-run contractors track metrics specific to heavy equipment fleet management to increase profitability, and why two construction associations have taken on a major initiative to help them do it more effectively.
The concept of tracking KPIs for fleet management to improve performance is easy to grasp. There are, however, a lot of challenges related to what to measure, how to measure it and how to interpret the results. Many construction maintenance operations are using many different KPIs in a variety of ways. Common KPIs, like maintenance costs as a percentage of revenue or actual equipment utilization versus availability, for example, may be calculated differently by different companies.
A lack of construction industry benchmark data can also limit the usefulness of KPIs. While it is helpful for a company to measure its performance against its own historical data, it is far more valuable to know how the company is performing against industry benchmarks. Cutting emergency maintenance hours from 30 percent to 20 percent of total maintenance hours could tell a team that it has made good progress. Finding out that other contractors routinely get that figure down to 10 percent indicates an opportunity for even greater improvement.
Two leading industry professional associations, the Association of Equipment Management Professionals (AEMP) and the Construction Financial Management Association (CFMA) recently launched a joint initiative to address these challenges. The goal of the project was to establish a reasonable number of standard equipment KPIs (approximately 30), specify standard methods for calculating each one, and survey the industry to develop benchmarks for each KPI.
The AEMP and CFMA agreed to take on the joint project in early 2021 to accomplish these goals. They selected a task force team with members from both organizations, plus two recognized fleet management consultants. I have the honor of being part of this effort, and the team includes representatives from CFMA-member construction companies.
This team established criteria for selecting standard KPIs. Consideration was given to how commonly a KPI is used, ease of gathering the required calculation data and strong group consensus around including a specific KPI. The team recognized that many KPIs are a “blunt instrument”, meaning that their values are that of a starting point for further investigation and not an end result.
The list was narrowed down to 32 standard KPIs by June of 2021. The next step was to organize them into two broad categories: financial and operational. Financial KPIs (1-14) include those related to financial outcomes, cost, equipment utilization and safety. The operations side (15-32) includes metrics covering preventive maintenance, planning and scheduling, labor efficiency, equipment reliability and parts inventory efficiency.
The team then divided into two groups, based on specific professional expertise of the individuals, to evaluate the KPIs in each category and determine a standard method of calculation. This was completed in February of 2022.
A document describing the identified standard KPIs, and methods of calculation has been drafted and is in peer review. Concurrently, the two organizations are evaluating proposals from several firms to conduct the industry surveys to establish benchmarks.
An overview of the program and its results to date will be presented at the CFMA’s Annual Conference and Exhibition running May 14-18 in Atlanta. The team is also planning webcasts for the fall to promote its findings and recommendations.
This initiative to identify and standardize maintenance KPIs will be a major contribution to the improvement of heavy equipment fleet management in the construction industry. In future articles, I will describe individual standard KPIs in detail, including why they were selected and the recommended standard methods calculation.