The Development of Key Financial Performance Indicators for U.K Construction Companies

Over the past decade, the significance of business performance measurement has spread across various industries. The UK construction industry has been criticized for its underachievement and a number of industry reports (i.e. the Egan (1998) and Latham (1994) reports) have emphasized the need for performance measurement. As a result, the Construction Best Practice Program-Key Performance Indicators (CBPP-KPI) was launched for performance measurement. Additionally, an industry-wide benchmarking model which was created to enable construction companies to benchmark their performance was criticized since it focuses only on project level measures. This research develops financial industry norms for UK construction companies. A set of Key Financial Performance Indicators (KPI’s) is developed based on a survey of performance measurement and benchmarking techniques in the accounting literature. A benchmarking model based on financial KPI’s is produced for construction companies to benchmark and evaluate their business performance at corporate level. A record sheet and a set of financial guidelines for companies to improve their performance were developed. Two case studies of contractors were presented showing the advantages and disadvantages of the developed model. Radar and Wall charts showed how each contractor can compare its performance with the U.K industry norms directing management to areas requiring significant improvement. Future research should continue to develop elements of the financial KPI’s and assess the application of the developed benchmark model to other industries and investigate weaknesses associated with its application.