By Dave Williamson
As the year draws to a close, businesses are looking ahead and setting goals for 2025. In an environment as dynamic as construction, accurately forecasting the year requires a balanced approach.
To build a robust forecast, you need to evaluate leading indicators, which signal future events, and lagging indicators, which provide insight into past performance. Leading indicators help anticipate changes and adjust strategies proactively. Meanwhile, lagging indicators reveal how well the team has executed its plans, offering a reality check against projections.
Leading Indicators: Setting the Stage for Success
1. Safety Performance
Safety is the backbone of any construction project. Beyond its obvious importance for protecting employees, safety performance is a strong leading indicator of operational efficiency. A site that prioritizes safety will also be more organized and productive. By tracking near misses, safety observations, and training completion rates, companies can identify potential risks and address them before they lead to incidents or slowdowns.
2. Business Development
The pipeline of future projects is directly tied to the business development efforts of today. Metrics like new customer sales, bid volume, and proposal hit rates are vital. By investing in relationships and exploring new markets, companies can position themselves for steady growth. Tracking these indicators ensures a healthy project backlog and helps identify emerging trends in the industry.
3. Sales Conversion
Understanding market demand is crucial for capacity planning and resource allocation. Indicators like client inquiries, bid volume, and awarded projects can signal upcoming work volume. Monitoring these trends allows companies to adjust staffing, equipment, and material needs to meet demand efficiently without overextending resources.
Lagging Indicators: Learning from the Past
1. Productivity
Measuring productivity after the fact provides a reality check on the efficiency of operations. Metrics such as man hours or square footage completed per day reveal how well your team is performing. Analyzing these figures helps identify bottlenecks and areas for improvement, guiding future decisions on process optimization and workforce training.
2. Quality
Quality is a non-negotiable and its measurement often comes after project completion. Tracking rework rates, defect counts, and customer satisfaction scores provides insight into how well the company meets client expectations. High-quality work not only fosters client trust but also reduces costly rework, contributing to profitability.
3. Profitability
Profitability is the ultimate lagging indicator, reflecting the culmination of all efforts. Analyzing profit margins, cost overruns, and financial performance against budgeted targets allows us to assess financial health. This retrospective view helps refine bidding strategies, cost controls, and resource management for future projects.
Taking Action: Forecasting for the Year Ahead
Investing in the data and creating scoreboards will enhance forecasting accuracy. To harness the power of these indicators, start with regular review cycles – review weekly, plan by the quarter, and evaluate both leading and lagging indicators to inform decision-making. Forecasting isn’t about predicting the future with certainty; it’s about preparing for it with intelligence and agility. By balancing leading indicators with lagging indicators companies can navigate the uncertainties of the year ahead with confidence.
About the Author
Executive Vice President Dave Williamson holds over 20 years of experience in the construction industry. He provides leadership and operational oversight to Kent Companies' Midwest operations.
This article originally appeared in The Contractor's Compass.
