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To cite this article: Michail Kagioglou , Rachel Cooper & Ghassan Aouad (2001) Performance
management in construction: a conceptual framework, Construction Management and Economics,
19:1, 85-95, DOI: 10.1080/01446190010003425
This paper presents a review of the literature on performance management and measurement in various
industries with the aim of transferring best practice into construction. A framework is presented which
ensures that effective strategies are deployed to form the performance management system that construction
organizations can adopt. The performance measurement process (conceptual) framework (PMPF) adopts
the balanced scorecard (BSC) with the addition of a number of elements and perspectives. It rationalizes
the relationships between performance measures and goals derived from strategy, so the impact of those
measures on an organization’s performance can be examined and analysed to indicate potential areas for
improvement
Keywords: Performance management, performance measurement, construction industry, balanced score care,
relationship matrix
and therefore are the result of the other three (leading) However, the present authors suggest that there may
indicators. In other words the leading indicators deal be two omissions in the way the BSC is compiled and
with issues that will eventually impact on the nancial implemented within an organization, and that these
performance but, signi cantly, provide the information omissions have a more important impact when joint
before the issues have had time to have any effect. ventures between companies are in operation under a
Therefore, failures or shortcomings can be seen and project environment. First, the BSC does not make
addressed before they impinge on the bottom line any attempt to identify the relationship between the
(Penn, 1998). This is achieved by setting goals for each measures developed for certain goals (see Figure 2),
of the perspectives and developing respective measures seeming to be assuming that all measures will be
or performance indicators as shown in Figure 2. speci c only to a particular goal. In reality, the perfor-
Since its original inception by Kaplan and Norton mance of internal and external business and opera-
(1991) the BSC has received favourable support by tional processes will have an effect on the customer
academia and industry, but also has been criticized for perspective, and perhaps vice versa. Second, a large
over simplicity (Brignall, 1992) and for not providing number of organizations, and in particular within
a complete performance measurement system (Sinclair the construction industry, operate by undertaking
and Zairi, 1995a). Letza (1996) has identi ed a projects with a number of collaborators and suppliers.
number of potential mistakes that can happen when For those companies, the ‘project’s perspective’, and
implementing a BSC: e.g. measuring the wrong things the ‘supplier’s perspective’ may be diverged. Indeed,
even if they are measured in the right way; assuming Letza (1996) has identi ed, in three case studies, that
that some of them are un-measurable or that the people BSC is generic and that the perspectives might be
undertaking those activities are ‘too professional’ to different for different businesses or different business
measure (rather than measuring all the necessary activ- environments. For example, other indicators might
ities); and yielding to con ict between managers along include competence, people, etc. These two issues will
functional lines. be further discussed later on in the paper.
The strong points of the BSC include:
l guarding against sub-optimization by forcing Performance metrics
senior managers to consider all the important
operational issues (Letza, 1996); An effective performance management system will
l communicating objectives and vision to the greatly depend on the performance metrics used to
organization (Roest, 1997); and de ne the performance of the organization from a
l if implemented properly, focusing the organiza- number of perspectives. It is very important to design
tion’s efforts on a relatively small number of those metrics so that they relate directly to the various
measures with relatively low costs (Roest, perspectives that an organization decides to adopt. This
1997). relationship between the performance management
system and the metrics used to measure performance Performance measurement in the
is shown in Figure 1, illustrating that an organization construction industry
cannot claim to have an effective performance manage-
ment system if the metrics used do not relate to the The construction industry’s core business is under-
strategic goals of the organization. The design of taking projects in generating new buildings or refur-
performance metrics has been the subject of research bishing existing ones for a variety of clients. Therefore,
for some time now and a number of interesting studies it is not a surprise to nd that, traditionally, perfor-
have illustrated the bene ts and potential pitfalls mance measurement in construction is approached in
of performance metrics. Letza (1996) among others two ways: (a) in relation to the product as a facility,
stressed the dangers of measuring the ‘wrong things and (b) in relation to the creation of the product as a
right’ when the sole purpose of an exercise is to design process. In particular, the former has been the prime
performance metrics, which might not necessarily performance assessment (in terms of success or failure)
relate to strategy. This can usually occur when a large of construction projects. Ward et al. (1991) describe
number of performance metrics is present in an orga- how when assessing the success/failure of construction
nization where ‘everything is measured but little that projects ‘a common approach is to evaluate perfor-
matters’. Ghalayini and Noble (1996) state that this is mance on the extent to which client objectives like cost,
not only unnecessary but also it performs at great time and quality were achieved’. Indeed, those are seen
expense to the organization, in terms of the efforts as the ‘three traditional indicators of performance’
made to capture and manage the necessary data. (Mohsini and Davidson, 1992) used in the UK
Neely et al. (1997) have suggested that ‘the design construction industry. Although the ‘three measures’
of a performance measure is a process . . . [with] inputs provide an indication as to the success or failure of a
. . . and an output’. In providing a structure to support project they do not, in isolation, provide a balanced
this process, they have suggested the use of a ‘perfor- view of the project’s performance. Furthermore,
mance measure record sheet’. The various elements of usually their implementation in construction projects
this sheet are based on research and a number of case is apparent at the end of the project, and therefore
studies, and they include the following (Neely et al., they can be classi ed as ‘lagging’ rather than ‘leading’
1997). indicators of performance. Ward et al. (1991) also
suggest that ‘Looking back on the conduct of a project,
l Title
what sticks in the mind is often not so much nancial
l Purpose
success or early completion, but memories of other
l Relates to
people involved and abiding impressions of harmony,
l Target
goodwill and trust or, conversely, of arguments,
l Formula
distrust and con ict’. The client’s willingness to pursue
l Frequency of measurement
a given procurement route to achieve a future project
l Frequency of review
is likely to be strongly in uenced by these factors.
l Who measures?
Therefore, it is clear that the traditional measures of
l Source of data
the performance of construction projects are not suf -
l Who owns the measure?
cient to assess their ‘true’ performance.
l What do they do?
It can be argued that the methods used to measure
l Who acts on the data?
performance in construction projects fall into the three
l What do they do?
main categories of the BSC.
l Notes and comments
1. Financial perspective: how do the project’s
The performance measure record sheet offers a solid
nancial stakeholders view the project? For
framework for designing performance measures, but it
example, use of cash ow forecasting and cost
does not necessarily provide a framework by which
bene t analysis.
performance measures can be evaluated in terms of
2. The internal business process perspective: how
the extent to which they relate to strategy and to
are we performing in our key process activities?
other performance measures. This issue of a holistic
For example, use of critical path analysis.
approach that identi es the relationships between indi-
3. The customer perspective: how do our existing
vidual measures will be considered later on in this
and potential customers see it?
paper.
The performance will be addressed on an induction
basis by all companies involved in the project.
Therefore the measures will include both company and
project performance issues. However, during the 1990s
Performance measurement with PMPF 89
there has been some interest in ‘emerging’ techniques 1. The predictability of design and construction
and philosophies to measure and manage performance, costs seems to be quite accurate, since the
such as total quality management (TQM), bench- means of the cumulative values represent zero
marking, business process re-engineering (BPR) and and 1 %, respectively. However, the produc-
business process management, that have shifted the tivity value is very low. Does this mean that the
focus from ‘lagging’ towards ‘leading’ indicators of predicted costs are overestimated to cover low
performance. The majority of these concepts have productivity or the measures used to derive the
been imported into construction from manufacturing gures are wrong?
industry, see e.g. Koskela (1992), Mohamed (1995), 2. The client satisfaction in terms of the product
Kagioglou et al. (1998). Furthermore, these measures and service is quite high (8 out of 10) but the
have tended to concentrate on construction produc- productivity is very low, which raises the
tivity and those factors that in uence it (Motwani following issue: do the clients really know what
et al., 1995), with the aim being to achieve continuous the productivity levels of their projects are?
improvement. Therefore, the fourth perspective of the
balanced scorecard (BSC) (see Figure 2) is also The second example not only illustrates the impor-
emerging in the ‘organizational learning’ indicator. tance of using the ‘right measures’ to measure the ‘right
However, this can be problematic since the participants things’ but also shows that the relationship between
in construction projects are ‘joined’ temporarily until the different measures from a holistic viewpoint is
the completion of the project, where the aim is to nd important and is a source for identifying potential
methods for measuring and managing performance collective improvements. Another area that generally is
that can be consistently applied to the set of project poorly covered in the construction industry is the
participants; these methods are likely to involve an performance of the suppliers in projects. None of the
integration of the ‘traditional’ and ‘emerging’ tech- measures mentioned in this section could identify the
niques. performance of suppliers in a project environment.
Recently the UK best practice programme (cbpp) For example, if the construction cost of a project
launched the ‘key performance indicators’ (KPIs) for were lower than predicted, would this mean that the
construction (Bprc, 1999). These KPIs give infor- productivity was higher, there were less defects than
mation on the range of performance being achieved ‘expected’ or that the suppliers were able to reduce
on all construction activities and they include the their costs? Furthermore, none of the measures deals
following. successfully with the ‘innovation and learning perspec-
tive’, apart perhaps from the predictability indicators
1. Client satisfaction – product whose accuracy can illustrate some form of learning
2. Client satisfaction – service from previous projects.
3. Defects
4. Predictability – cost
5. Predictability – time The performance measurement process
6. Pro tability conceptual framework
7. Productivity
8. Safety The previous sections of the paper have identi ed the
9. Construction cost various elements that one needs to consider when
10. Construction time developing a performance management/measurement
These KPIs are intended for use as benchmarking framework. This was achieved by looking at an appro-
indicators for the whole industry, whereby an priate framework such as the balanced scorecard and
organization can benchmark itself against the national by identifying a number of limitations in its imple-
performance of the industry and identify areas for mentation. Furthermore, the state of performance
improvement, i.e. where they perform badly. Clearly measurement in the UK construction industry has been
these measures are speci c to projects and offer very identi ed brie y. This section introduces the perfor-
little indication as to the performance of the organiza- mance measurement process conceptual framework
tions themselves from a business point of view, apart (PMPF) and it describes its various elements, as illus-
perhaps from the ‘customer perspective’ of the BSC trated in Figure 3. The main aim of the framework
(see Figure 2). presented in Figure 3 is to present a holistic perfor-
A casual scan of the results obtained with the above mance management/measurement process framework,
KPIs for the year 1998 (Bprc, 1999) can be used developed from the concept show in Figure 1, in that
to raise a number of issues, and the following are it satis es the need to represent the input, process and
examples. output.
90 Kagioglou et al.
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