Tracking KPI’s with Cabbage and Sage 300 CRE

Tracking KPIs (key performance indicators) is necessary for measuring your progress toward meeting business goals and are vital for showing trends that affect your profit, especially if you profit from a job-by-job system. They also offer information that allows you to make better decisions about and during projects. So which KPIs are the best to track with your WIP (work in progress) for an optimal profit and minimal financial risk?

ACCORDING TO FMI, THE BEST KPIS TO TRACK WITH YOUR WIP ARE:

MARGIN VARIANCE INDICATOR

This KPI compares the gross margins on projects in progress, finished projects, forecasted annual business, and WIPs to give you a “big picture” of how your company is performing within its yearly plan. This allows the contractor to analyze the variances one project at a time. The contractor calculates it by dividing the forecast gross margin for the WIP by the forecast revenue. Then the true gross margin on completed jobs can be divided by the true revenue on the same closed job for the contract’s gross margin percentage. Then, the WIP’s gross margin can be divided by the WIP’s revenue for the WIP gross margin percentage. You can then compare the results to the overall business plan’s goals.

Unapproved Change-order Indicator

Sometimes changing conditions can affect a WIP’s schedule and cost, and the contractor must notify the owner early and request a change order to minimize financial risk. This KPI is, in simple terms, the total cost of these unapproved change orders on a WIP. By comparing these costs to the forecasted gross margin, the business owner can determine the percentage of the margin at risk.

Project Cash Flow Indicator

This calculation determines if the current WIP is using cash versus generating it and is determined by calculating the net of positive and negative cash flows. The result shows where the manager is directing cash flow and reveals issues with project execution. This KPI will also help the manager determine when to bill and collect on a project.

Committed Cost Indicator

Since some contracts can last for years, material costs can increase over that period. The manager should include contingency costs in their contract for protection, provided the contract is fixed-price. Executing purchase orders and contracts with subcontractors is essential when it comes to successful job buy-out.

By keeping track of KPIs with your WIP, you can maximize your chances of making a profit, sticking to your overall business plan, and minimizing your financial risk. For more information, contact us today.