METRICS MATTER — WHY MONITORING STRATEGIC AND FINANCIAL PERFORMANCE TRANSLATES TO OUTCOMES
Tags: Strategy, Peter Drucker, Metrics, Construction, Finance

Management guru Peter Drucker stated, “you can’t manage what you don’t measure”. Maintaining a baseline awareness of your organization’s strategic and financial performance is critical to knowing where to focus, what to adjust, and ultimately how to succeed. Based on insights from Coltivar’s recent pre-session poll for the Construction Financial Management Association’s (CFMA) 2020 Virtual Conference, measuring and monitoring outcomes may be the missing puzzle piece for construction companies to drive their strategic outcomes.

Coltivar’s survey of roughly 200 general and specialty contractor executives and financial personnel revealed a pervasive negligence around tracking financial and strategy results. For example, of the survey respondents,15% of companies reported not having a budget or financial forecast in place. Only 6% of attendees agreed that their companies have strong forecasting and modeling capabilities. For companies that do maintain a budget and financial forecast, only 23% measure free cash flow. Furthermore, over 30% of respondents do not track their strategies at all.

Budgeting, forecasting, and monitoring outcomes in a repeatable, reliable, and timely manner helps companies proactively indicate areas of opportunity or pain points. Leaders can harness the power of data to:

Accurately predict profit and cash flow within a slim margin of error

Inform operational and strategic decisions

Prioritize resources to maximize the true drivers of intrinsic value — cash flow, revenue, and cost of capital

Without data, construction companies are operating in the dark. How can you make hardline decisions with only a fuzzy awareness of your environment?

Our survey results demonstrate a strong correlation between companies that do not monitor progress and those who struggle to implement their strategies. Only ~7% of attendees strongly agreed that their company understands and is aligned on strategic priorities. A failure to clearly define and track results can be linked to an indistinct strategic plan. Without budgets and metrics, companies are leaving significant opportunity on the table.

As we approach the new year, now is the time for construction firms to determine how to effectively track the key strategic activities and the financial results of their efforts. The good news is that metrics and forecasts can and should be simple and easy to populate. In building a financial forecast, gather past financial statements and observe trends in revenue, expenses, and cash flow. By incorporating research and a historical view of organizational performance, companies can create simple projections that guide cash flow decisions, which will continue to be imperative as organizations maneuver market shifts.

With a defined framework for clarifying goals and monitoring and projecting financial success, companies can align their strategies with their financial objectives to ensure that investment, resource, and customer-centric decisions support their desired outcomes. We recommend tracking strategic activities by defining Initiatives, Actions, and Results (IARs). Initiatives are high-level, long-term strategy directives. Actions are specific, manageable, timebound steps directed at achieving Initiatives. Finally, Results are metrics that characterize what success looks like, focusing and aligning the team on measurable outcomes. Results work in conjunction with financial budgets and forecasts to tell a holistic story about organizational health.

As construction companies make decisions for 2021, they should underpin stated goals with data. By painting a comprehensive view of current performance and future objectives, data empowers companies to be more proactive and accountable. Before embarking on your path to strategic success, ensure you and your team have a clear roadmap with legible road signs to direct your company on its journey.