If you’re a construction CFO, you know that while profit margins and costs are always front and center, they’re not the only signs of whether a project’s going well.
In reality, key performance indicators in construction go beyond just dollars and cents.
Tracking these metrics gives CFOs a firmer grip on both day-to-day progress and long-term strategy.
In this guide, we’ll walk you through 10 construction KPIs that every CFO should be tracking.
Read on to learn what those KPIs are, how they’re calculated, and what insights they provide.
10 Essential Construction KPIs for CFOs
The following construction KPIs give CFOs a reliable pulse check on the company’s financial performance. Tracking KPIs helps them drive things in the right direction or even reduce construction costs.
1. Revenue Growth
Revenue growth is a construction KPI that tells whether a company is making more money than before or whether things are sliding backwards.
It has a very simple calculation. You just compare revenue from the current period to the previous one and express the change as a percentage.
Here’s the formula:
- Revenue Growth = (Current Revenue – Prior Period Revenue) / Prior Period Revenue × 100.
Let’s say your firm earned $400,000 in Q1 and $500,000 in Q2. That’s a 25% increase, which is great. But if Q3’s revenue growth falls back to $450,000, that’s a signal that something’s off.
A construction CFO should also compare their revenue growth rates with those of their competitors to ensure that they are not falling behind.
2. Profit Margins
Profit margins are a set of financial KPIs that let a construction company CFO know they’re actually making money and at what rate.
There are three key profit margins, all represented as a percentage:
- Gross profit margin: This KPI tells you how much revenue is left after covering direct costs like labor, equipment, and materials. It doesn’t account for costs like office rent or software subscriptions. The formula is:
Gross profit margin = (Revenue – Direct costs) / Revenue × 100.
- Operating profit margin: This one peels back another layer of the revenue by accounting for overhead costs like admin salaries, office space, insurance, etc. Here’s how it’s calculated:
Operating profit margin = (Gross profit – Operating expenses / Revenue) × 100
- Net profit margin: This KPI shows what’s left after all costs are taken out, including taxes and non-cash expenses like depreciation. The formula is:
Net profit margin = (Revenue – All expenses / Revenue) × 100
It’s better for all these profit margins to have higher values, as that indicates you’re earning more and spending less.
3. Cash Flow
Another set of construction KPIs that a construction company CFO needs to be dialed into is the following:
- Net cash flow: Net cash flow measures how much cash actually moved in and out of the business during a specific period. A positive net cash flow means you’re spending less than you’re bringing in. Negative cash flow, on the other hand, doesn’t always mean disaster. Maybe you’re investing in new equipment or funding early-stage work on a large contract. But if negative cash flow becomes a pattern, that’s a red flag. Here’s how to calculate it:
Net cash flow = Cash inflows – Cash outflows
- Projected cash flow: Also called cash flow forecasts, this KPI estimates the cash expected to come in and go out over a future period, which could be weeks, months, or even a full year. Well-prepared construction CFOs often visualize these projections using simple graphs to map when dips and peaks are expected, especially when explaining funding needs to leadership or lenders.
If you further want to learn what things comprise cash inflows and cash outflows, learn in this PDF.
4. Working Capital
Working capital is the money you have on hand to keep things moving day to day.
This construction KPI helps a construction company CFO gauge whether the business can handle its short-term obligations without scrambling for credit or slowing down operations.
Here’s how to calculate working capital:
- Working capital = Current assets – Current liabilities.
Current assets usually include your bank balance, accounts receivable, and maybe some inventory or short-term investments.
Liabilities are things like unpaid supplier invoices, short-term loans, or payroll you haven’t run yet.
5. Cost Variance
In simple terms, cost variance is the difference between what you planned to spend at a given stage of a project and what you’ve actually spent so far.
The formula is:
- Cost variance (CV) = BCWP – ACWP
BCWP stands for budgeted cost of work performed (calculated as percentage of work completed x planned cost of a work item).
ACWP stands for actual cost of work performed i.e. costs incurred to date.
Say you’re 40% through a residential build that was budgeted at $500,000. Based on the plan, you should have spent around $200,000 by this point. But if your actual spend is $240,000, your cost variance is -$40,000. That negative number means you’re over budget and there’s something off.
Refer to this PDF for a good cost variance calculation example at a task level.
6. Cost Performance Index (CPI)
The Cost Performance Index (CPI) is another essential entry on the list of KPIs for construction, especially when you want a clearer sense of how efficiently your money is being spent.
Since this KPI is a ratio, its value moves below and above 1. A value greater than 1 means the project is well under budget. A value below 1 means your plan isn’t aligning with the plan.
Here’s its formula:
- CPI = Earned value (EV) / Actual cost (AC)
Earned Value is the budgeted cost of the work that’s actually been completed so far.
Actual Cost, as you’d expect, is what you’ve truly spent to get to this point.
So let’s say you planned a $1.2 million commercial project, and at the halfway mark, you’ve completed $600,000 worth of work. If you’ve spent $500,000 so far, your CPI would be 1.2.
7. Schedule Performance Index (SPI)
The Schedule Performance Index (SPI) measures how closely your project is sticking to its planned timeline by comparing the amount of work actually completed to the amount of work that was scheduled to be done by this point.
The formula of SPI is:
- SPI = Earned value (EV) / Planned value (PV)
For example, if you planned to complete 25% of a $1.2 million commercial build by week six but only 20% is actually done, your SPI is 0.80. That means you’re behind schedule for delivering only 80 cents worth of progress for every dollar’s worth that should’ve been done.
Conversely, an SPI above 1 would have meant you’re ahead of schedule, while an SPI of 1 means you’re exactly on track.
8. Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA)
EBITDA might not be as familiar as some of the other construction KPIs in this list, though it’s equally important to track, if not more.
This KPI gives you a clear picture of core profitability without all the noise from taxes, interest, and accounting adjustments.
With its help, a construction CFO can isolate operating performance in a way that makes it easier to compare across projects or even other companies.
There are two common formulas used to calculate EBITDA:
- EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
or
- EBITDA = Operating income + Depreciation + Amortization
This KPI is particularly useful in construction projects, where companies might carry significant equipment-related depreciation or take on interest-heavy loans for capital investment.
By removing those items, EBITDA provides you a bird’s eye view of whether the business model itself is working.
9. Accounts Payable & Receivable Turnover
These two financial KPIs measure how efficiently the company collects payments from clients and pays off its own obligations, both of which have a direct impact on liquidity and financial stability.
- Accounts receivable turnover: This metric tells you how many times your company collects its receivables within a given period. A high turnover rate means clients are paying you on time and consistently. A low rate suggests delayed payments, which is unfortunately not uncommon in the construction industry. The formula is:
AR Turnover = Net credit sales / Average accounts receivable
- Accounts payable turnover: This measures how quickly your business is paying its bills. The formula here is:
AP Turnover = Total purchases / Average accounts payable.
10. Quick Ratio
The quick ratio, often referred to as the “acid-test ratio,” helps answer the question: If all short-term liabilities came due tomorrow, would we have enough liquid assets to cover them without selling inventory or waiting on slow-moving receivables?
The formula to calculate quick ratio is:
- Quick Ratio = (Current assets – Inventory) / Current liabilities.
For example, a firm with a quick ratio of 2.0 has $2 in easily accessible assets for every $1 of liability. That’s a good position to be in.
Unlike some other KPIs for CFO, the quick ratio focuses only on assets that can be converted to cash quickly, like bank balances, accounts receivable, and short-term investments.
While you might have plenty of money in the form of equipment or materials on-site, those aren’t liquid enough to help with urgent payments.
Banks, sureties, and other lenders also pay close attention to this KPI when evaluating the creditworthiness of construction firms.
Track KPIs With Anterra’s Construction CPM Solutions
Most ERPs give you the basics. But when you’re looking for deeper, construction-specific insight, the built-in CFO dashboard can lack the capability to show essential construction KPIs.
That’s where Anterra Technology comes in to lend a helping hand.
Anterra’s Corporate Performance Management (CPM) platform extends your ERP with dashboards and analytics designed for construction financial leaders.
It pulls the data your ERP already has and turns it into actionable financial KPIs like accounts payables or cash flow forecasts.
Curious to see how it works? Schedule a free demo and explore what your ERP could do with the Anterra tools plugged in.