Benchmarking is critically important. The old sayings about “What gets measured gets managed” and “If you cannot measure, you cannot improve” are true. We must measure performance, and we must have benchmarks to tell us whether we are improving.
Benchmarking is also badly understood and dangerous. We may be measuring the wrong thing, comparing ourselves against the wrong standards, or creating an environment where we look for excuses rather than solutions.
Benchmarks in construction
Construction is an extremely varied industry. Companies vary from the smallest to the largest; job sites vary in size and location; and work types vary from residential through commercial to industrial, site preparation, and infrastructure. There is no standard job, no standard company, and no standard work type. This variation makes it extremely difficult to define and calculate benchmarks, and it is always possible to look at an industry-wide value and say, “Yes, but we are different.”
Internal benchmarking and performance measurement lie at the heart of every continuous-improvement program and are critical for success. Most companies therefore benchmark internally to measure performance relative to their own goals. They define the data and the metrics themselves and focus on performance improvement at a company or business unit level. There are no concerns about the way in which the data is collected and the way in which the benchmark is calculated. Benchmarks and benchmark values are known and discussed internally. By and large, everyone accepts the results. If return on capital invested in the fleet has improved, then this is because performance has improved, not because there has been a change in the data or in the way a complex metric has been defined by others.
The disadvantage of internal benchmarking is that there is no input from others and no knowledge of industry standards or trends. The company may have improved return on capital invested in the fleet, but how does it compare to the competition?
Many companies overcome the disadvantages of the internal benchmarking process by forming a select peer group of companies with which they can compare benchmarks and benchmark values. Members of the peer group are selected to be similar in size and basic organizational structure and will perform essentially similar work. They will share data on the basis that they are not direct competitors in any particular market and will be able to agree on the nature and scope of both the data collection and the benchmarking process.
The peer group shares results and best practices and benchmark relative to each other. Confidentiality, particularly when it comes to financial results, is an issue, but simple hard-core metrics such as reliability, availability, and utilization can be measured and shared to great effect.
There will, of course, be some differences between companies in the peer group. These will be relatively small, discussed, known, and understood. If the companies in the group are of a similar size and primarily engaged in DOT highway work, for example, then many of the operational benchmark metrics and values will be comparable.
The holy grail of benchmarking is to have a large, uniform industry-wide data base that can be used to calculate industry standard benchmarks. The Construction Financial Management Association and the Association of Equipment Management Professionals are doing substantial work in this direction.
Implementation and use of industry-wide benchmarks require a deep understanding of the nuances in both the data collection process and the definition of the various metrics. This is especially important in an industry as varied as construction and all but impossible in construction equipment management where there are few generally accepted practices, definitions, and metrics. Industry norms for a simple metric such as utilization are all but meaningless due to the wide range of definitions and weather conditions under which equipment operates. Narrow the benchmarking group down to contractors in Florida and define the metric, and the values become more reliable and more relevant.
The same is true for almost all metrics. Industry-wide values must be used with a full understanding of variations inherent in the way the data is defined and collected and the metrics are calculated. Availability and utilization are good examples where practice varies widely when it comes to exactly how the necessary data is defined and recorded and exactly how to calculate the two simple ratios.
Three levels of benchmarking
Each of the three levels of benchmarking has advantages and disadvantages as summarized in the nearby table. If the benchmark group is small, internal, and/or tightly defined, the metrics are relevant and accurate but lack comparison across a wide spectrum of potential industry leaders. If the group is broad, solid, and competitive, the benchmark is seen as a “good standard” despite the fact that it may not be relevant or directly applicable because of differences in the definitions of the metrics, the data, and the conditions under which the data were collected.
The solution is not easy, especially in a subject that is as data intensive, broad, and varied as equipment management.
Five factors for better benchmarking
- Benchmark internally first. Know how to benchmark internally before seeking to develop a peer group or trying to use industry standards. It is not complicated, and it certainly works. Internal benchmarking makes it possible for a company to measure performance and improve relative to its own known and understood targets when suitable industry standards are not available. If breakdowns currently generate 22% of work orders, then a new benchmark of 15% establishes a meaningful goal. Since it is an internal benchmark, there can be no excuses about “They define breakdowns differently.”
- Focus on all equipment management functions. Define benchmarks that measure performance in field maintenance operations, shop and yard operations, and fleet asset management. These are different functions with different measures for success. Field maintenance operations should be measured in terms of an ability to prevent failures; shop and yard operations can be measured in terms of the speed and efficiency with which machines are repaired, rebuilt, and made ready for their next assignment. Fleet asset management can be measured in terms of financial ratios such as profitability and return on assets. High-level financial metrics such as contract value per dollar of fleet replacement value can be based on industry norms, but even these are subject to debate on subjects such as how much work each company self-performs, how equipment-intensive the work is, and how each company values its fleet.
- Define simple metrics. Availability and utilization appear to be simple metrics, but it is difficult to agree on exactly how they are defined and calculated. Down hours per hour worked is a simpler, easier-to-understand metric that is subject to less interpretation. Define metrics that measure: physical inputs such as mechanic hours per hour worked, hard outputs such as reliability or uptime, and important relationships such as the ratio of parts cost to labor cost or the ratio of repair parts and labor to total equipment cost. Remember that physical metrics such as fuel consumption per hour are more reliable than cost-based metrics such as fuel cost per hour.
- Focus on the problem, not the metric. Avoid the “we are different” excuse. A utilization of 1,500 hours per year is “good” for a contractor in Vermont and “bad” for a contractor in Texas. It is all but impossible to obtain nine hours recorded as “working” if you record time with telematics. It is easy if you take machine hours off your time cards. Know and understand the differences, focus on the problem, and do not make excuses. Yes, you will be different but, yes, if you measure, you will be able to improve.
- Make a start. Many companies are reluctant to start benchmarking and continuous-improvement processes because they are constantly searching for a perfect set of universally applicable metrics. Don’t let the search stop you from starting. Keep it simple. Know that you will never be able to measure everything, so focus on a small number of key performance areas. If you succeed here, the others will follow. Be consistent, use simple hard data, and develop the standards needed to measure improvement and reward success.
What gets measured gets managed. Companies constantly seek appropriate benchmarks to compare with others and improve internal performance. Benchmarks set standards, define what is achievable, and provide the motivation needed to be best in class. They are an indispensable part of the management tool kit, yet they often lead to more excuses than action. Know what is important to you, measure it, and improve what you believe will make a difference to your business.
