Picking up performance

This Issue This is a part of the Business of building feature

By - , Build 133

For building sector productivity to improve, companies need to improve their performance and management. But many smaller businesses, aren’t very good at keeping track of their performance.

Figure 1: House construction and alterations 2007—09.
Figure 2: Where business advice is obtained.
Figure 3: How often are performance indicators monitored? (Source: BRANZ survey of 452 building firms.)

OWNERS OF BUILDING companies generally start by working for others and then, motivated by a desire to be their own boss, set up their own business. But do they then monitor performance?

Performance can be measured in various ways. Profit targets may be set for the year, or more often, the target may be simply achieving sufficient cash flow to pay the bills and put a bit aside. Sometimes it may be a case of simply trying to keep the business afloat by accepting thin margins to maintain workloads and retain skilled labour.

Figure 1: House construction and alterations 2007—09.

Profit margins vary considerably

Aggregated tax return data from Statistics NZ shows that profit margins vary widely between similar-sized firms in the industry.

Figure 1 shows building firms involved in housing, either new build or additions and alterations. The majority are 1–2 person companies, and a large proportion made either a loss or 20% or more profit. The remainder are spread between the two extremes.

Larger companies make lower percentage profits than small companies, probably because of their wage costs. However, the size of the profit accruing to the owner in larger companies is greater than in small businesses.

BRANZ intends to regularly publish this information. Companies can compare their performance against these industry averages.

Profitable companies generally improve the productivity of the whole sector. Good productivity means slowly increasing outputs per unit of input of resources. This is relevant as we come off a 4-year downturn. Demand is slowly growing, but we have not yet reached boom times when efficiency gains are difficult to maintain.

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Monitoring performance

BRANZ undertook a survey during 2012 into how building companies monitor their own performance. Among the questions asked were: where do you get business advice, and what performance indicators do you use? These indicators are a measure of how well companies are managed, which in turn is known to affect overall industry productivity. The results are shown in Figures 2 and 3.

The largest sources of business advice are trade associations and accountants (see Figure 2), which are generally reliable sources of good business advice. Some of the other sources, however, may be suspect, meaning about half our building firms could be receiving inferior business advice.

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More monitoring needed

Companies frequently monitor immediate business survival indicators, such as forward workloads (see Figure 3), but a significant number of companies are not monitoring callbacks or their subcontractors very frequently. This impacts adversely on quality and an efficient supply chain.

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Management needs to improve

The main conclusion from the BRANZ survey of performance is that management, especially in small companies, needs to be improved in order to improve industry productivity.

Figure 2: Where business advice is obtained.
Figure 3: How often are performance indicators monitored? (Source: BRANZ survey of 452 building firms.)

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Figure 1: House construction and alterations 2007—09.
Figure 2: Where business advice is obtained.
Figure 3: How often are performance indicators monitored? (Source: BRANZ survey of 452 building firms.)

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