BENCHMARKING BASED PERFORMANCE MANAGEMENT
FOR CONSTRUCTION CONTRACTORS
Youjin Jang and Moonseo Park
Dept. of Architecture, College of Engineering, Seoul National University, Korea
Keywords: Performance Management System, Benchmarking, Knowledge Push, Key Performance Indicators (KPI).
Abstract: In a competitive industry, effective performance management is an essential element of business success.
However, despite their importance, performance management systems have not yet been widely
implemented in construction companies. That said, many construction companies have become increasingly
aware of the need to more systematically identify, implement, and sustain performance improvements in
recent years. The objective of this paper is to develop benchmarking based performance management for
construction contractors. This paper investigates examples of PMSs in the U.K., U.S., Brazil, and Chile and
discusses the lessons learned. Then, to overcome the limitations of existing PMSs, a new performance
measurement framework, in the form of a ‘Construction’ BSC, is presented. And a learning process using
knowledge push is proposed. Finally, this paper develops a PMS for benchmarking in construction
companies and recommends further areas of study for this research topic.
1 INTRODUCTION
In a time of globalization and an increasingly
competitive environment, measuring performance
has become critical to business success
(H.A.Bassioni, et al., 2004). Indeed, across
industries, the issue of measuring the performance of
organizations has risen in importance in academic
and business agendas over the past 15 years, in what
Neely (1999) has described as a revolution
(H.A.Bassioni, et al., 2005). The construction
industry is no exception. In particular, the
importance of performance management has been
emphasized in construction companies responsible
for complex managerial work involving the
simultaneous implementation of various projects and
the control of many input resources. Therefore,
various construction companies have attempted to
develop efficient and systematic performance
management systems.
However, despite these efforts, only a few
companies have performance management processes
which provide key support for decision-making
(Lynch and Cross 1995; Kaplan and Norton 1992).
This often makes it difficult for company managers
to determine management priorities and define the
key indicators that should be used for comparison
with other companies (Schiemann and Lingle 1999).
Moreover, the effective implementation of a
performance management system is not only a
matter of selecting the right measures, but also a
matter of initiating a deeper change in the decision-
making processes and the learning approaches
adopted within an organization (Lantelme et al.
2001; Costa D.B., et al., 2006). As a tool for
efficient performance management, benchmarking
has become more commonly discussed in
construction industry.
However, as a result of investigating examples of
performance management system using
benchmarking, there are several limitations. Most
performance measurement indicators are lagging
indicators and concentrated on management at the
project level. Moreover, there is still a lack of
learning process that can be used for improving
performance.
Thus, to overcome the limitations of existing
performance management system, this paper aims at
proposing new performance management
methodology and developing benchmarking based
performance management for construction
contractors. The procedures deployed in this
research are divided as follows:
(1) Investigating examples of performance
management systems in practice
(2) Discussing the lessons learned and limitations
147
Jang Y. and Park M. (2009).
BENCHMARKING BASED PERFORMANCE MANAGEMENT FOR CONSTRUCTION CONTRACTORS.
In Proceedings of the International Conference on Knowledge Management and Information Sharing, pages 147-152
DOI: 10.5220/0002293601470152
Copyright
c
 SciTePress

(3) Proposing new performance management
methodology to overcome limitations
(4) Developing performance management system
2 PERFORMANCE
MANAGEMENT IN
CONSTRUCTION
2.1 Performance Management and
Benchmarking
Performance management is a managerial process
that contributes to the effective management of
individuals and teams to achieve high levels of
organizational performance (Armstrong et al. 2004).
The effective implementation of performance
management is not simply a matter of selecting the
right measures. It also implies a much deeper change
in the decision-making processes and the learning
approaches adopted within an organization
(Lantelme et al. 2001). As a method of encouraging
continuous learning for both managers and
organizations, benchmarking has used.
Camp (1989) defines benchmarking as the
continuous process of measuring products, services,
and practices against the toughest competitors or
those companies recognized as industry leaders. The
Construction Industry Institute (CII) has adopted the
definition of benchmarking as a systematic process
of measuring one’s performance against results from
recognized leaders for the purpose of determining
best practices that lead to superior performance
when adapted and implemented (Hudson 1997).
According to Garvin (1993), the greatest benefits of
the benchmarking process are that is allows more
efficient work and that it involves managers
proactively in the process rather than depending
exclusively on results.
2.2 Performance Management in
Practices
In the last few years, benchmarking have mainly
been related to the creation and implementation of
performance management system. Several
performance management systems for benchmarking
have been developed in Australia, Brazil, Chile,
Denmark, the United Kingdom, Hong Kong,
Singapore, and the Netherland. This study focuses
on the U.K.’s key performance indicators, the
Chilean construction industry’s National
Benchmarking System, the Construction Industry
Institute Benchmarking and Metrics Program in the
U.S., and the Performance Measurement System
used in the Brazilian construction industry.
Table 1: Comparison of PMSs in different countries.
Factors U.S. U.K. Chile Brazil
Project level
○ ○ ○ ○
Company level X
△
X X
Leading
indicators
△
X X
△
Lagging
indicators
○ ○ ○ ○
Benchmarking
club
○ ○ ○ ○
Learning
process
△ △ △ △
Web-based
○ ○ ○ ○
Based on the analysis of the performance
management systems used for benchmarking in four
countries, key factors for the design and
implementation of a PMS for benchmarking were
identified:
(1) A learning environment is created within the
companies through benchmarking clubs,
motivating them to apply the knowledge gained
from that forum to the context of their specific
companies.
(2) These PMSs offer an interactive online tool for
the collection and evaluation of performance
indicators. The participating companies submit
data to a database manager. Then, the users are
allowed to access an assortment of documents
and provide immediate feedback to the
benchmarking club members.
However, the existing PMSs also have limitations;
they are as follows.
(1) Most performance indicators are KPOs (key
performance outcomes, or ‘lag indicators’),
which are based on project outcome. Although,
KPOs are important in assessing the success of
a company’s strategic objectives, KPDs (Key
performance drivers, or ‘lead indicators’) are
also necessary because KPDs help anticipate
the impact on future desired results. Moreover,
many of the existing indicators are more
adaptable to individual projects. This limited
view communicates only a single metric
performance for a specific project, and no
insight is provided into the overall performance
of the company. Clear distinctions between
project level performance indicators and
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company level performance indicators, and
their relationships, are needed.
(2) In these systems, the performance management
process is mainly focused on comparing
companies’ performance. Therefore, to develop
a more comprehensive PMS, the transmission
of knowledge must be emphasized. In fact, a
new performance management process is
needed that is not only aimed at the
identification of common measures for data
comparison among companies, but also geared
towards taking advantage of potential learning
opportunities through the sharing of managerial
practices among companies.
3 BENCHMARKING BASED
PERFORMANCE
MANAGEMENT
METHODOLOGY
In an attempt to overcome existing PMSs’
limitations, a new performance management
metrology is proposed.
3.1 ‘Construction’ Balanced ScoreCard
(BSC)
Construction is a technology-intensive industry as
well as a labor-intensive industry. Improving the
core capability of the overall industry, and yielding
higher value, is required. In regard to this notion,
there is a wide range of opinion on linking strategy
to performance management. Recently, construction
companies have used a more balanced approach for
the monitoring of nonfinancial measures
(H.A.Bassioni, et al., 2004). The Balanced
Scorecard (BSC) has the advantage of making up for
the weaknesses in existing frameworks by selecting
leading measures as well as lagging measures. The
BSC has been described as one of the most
influential business ideas of the past 75 years by the
Harvard Business Review, and it is estimated to be
used by 50% of the Fortune 1,000 companies, which
is 45% of the major companies in Europe.
Therefore, the proposed framework adopts the
BSC framework. However, for construction
companies that operate many projects, this
framework can be limited. Construction companies’
performance must be evaluated by measures of
performance of each project, and by activities of the
head office and supporting organizations. However,
with the original BSC, it is difficult to measure
performance at both the project level and company
level.
Thus, in an attempt to provide a balanced approach
to construction performance measurement, the
framework is customized for construction
companies. This ‘construction’ BSC consists of two
levels (company level, project level) and four
perspectives (financial perspective, customer
perspective, internal business perspective,
innovation and learning perspective) at each level.
Figure 1: 'Construction' BSC with two levels and four
performance perspectives.
The four perspectives and their associated key
performance indicators are adapted to the specific
characteristics of the construction industry. Figure 2
shows the procedures of the KPI derivation.
Figure 2: Procedures of the KPI derivation.
To determine management priorities, the
relationships between KPIs are showed in form of
strategy maps. The concept of strategy maps was
introduced to the business world by Robert S.
Kaplan and David P. Norton as a mean to illustrate
BENCHMARKING BASED PERFORMANCE MANAGEMENT FOR CONSTRUCTION CONTRACTORS
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and elaborate their earlier concept, the BSC.
Strategy maps are a way of providing a macro view
of an organization’s strategy, and provide it with a
language in which they can describe their strategy,
prior to constructing metrics to evaluate
performance against their strategies. Strategy maps
show the cause and effect links by which specific
improvement create desired outcomes.
According to Walsh (1996), KPIs can be
classified as two types: Key performance outcomes
(KPO) and Key performance drivers (KPD). Key
performance outcomes (KPOs) are measures of
performance that indicate progress towards company
objectives. Key performance drivers (KPD), on the
other hand, are measures of performance that have a
direct influence on these outcomes. Improving KPOs
will result in the improvement of the KPDs (Paul
Walsh, 1996). By determining the relations between
KPOs and KPDs, companies can subsequently
decide which actions need to be taken. For example,
if the attainment of sales goal(KPO) is low, a
company will have to check the schedule
delay(KPD) and rework(KPD) which are linked to
the attainment rate of sales goals. In the proposed
‘Construction’ BSC strategy map, it shows the
relationships not only between KPO and KPD but
also between company level and projects level.
Figure 3: Framework of ‘Construction’ BSC strategy map.
3.2 Learning Process using Knowledge
Push
Benchmarking process can be used to improve
performance by helping managers understand the
methods and practices required to achieve higher
performance level (Camp 1995). In the
benchmarking process, it is important to understand
how practices and measures can be translated into
practical knowledge. It is equally important that the
company knowledge transfer is actively encouraged
(Hinton et al. 2000). Therefore, by the means of
effective and efficient benchmarking process,
knowledge push is suggested. Knowledge push is a
mode of knowledge service can accelerate
knowledge transfer, eliminate the asymmetric
phenomenon of knowledge, and promote the
application and innovation of knowledge (Yong
Feng 2008). Figure 4 shows operational mechanism
of knowledge push. The server retrieve knowledge
based on KPI derives to manage, company
information and post-knowledge requirement and
push it to user. User can acquire knowledge through
knowledge push and pushed knowledge is evaluated
by users.
Figure 4: Operational mechanism of knowledge push.
4 SYSTEM DEVELOPMENT
To have a learning opportunities and process,
knowledge sharing between companies is needed.
Mills (2007) recognized the importance of sharing
knowledge and has insisted that the Blog can be
used as a knowledge management tool in the
construction industry. Indeed, it has proven to be an
effective and efficient means to share performance
information, knowledge, and Best Practices among
companies. While project level performance
measures and knowledge are stored in a project blog,
company level data are kept in a company blog.
Also, as construction companies deal with a variety
of projects, the company blog connects different
project blogs together.
Figure 5 shows the key components of the proposed
performance management system. This system
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integrates project blogs and company blogs in the
information system, and these blogs are
synchronized. Project managers store performance
measures in the performance management system,
which, in turn, is stored in the project blog. Then, all
the projects’ measures of performance are displayed
together in the company blog. Consequently,
company managers can compare all projects to
determine Best Practices and identify performance
reports, ranking lists, and etc. On the other hand, in
the company blog, the performance management
system and knowledge management system are
linked. Therefore, knowledge that is related to
performance measures is pushed from the
knowledge management system to the performance
management system. As a sharing database, both a
company’s own knowledge and the knowledge of
other companies can be pushed.
Figure 5: Performance management system architecture.
Furthermore, the project blog and company blog
are developed based on ASP.net, HTML, and java
script. Performance measures and knowledge are
sent to the company blog in XML format in real-
time. The application is based on the Internet
Information System (IIS) and Microsoft SQL server
(MSSQL).
5 CONCLUSIONS
This paper analyzed existing performance
management systems in the U.K., U.S., Chile, and
Brazil and identified limitations; (1) focusing project
level’s indicators which is KPO (2) lacking learning
opportunities to improve performance. To overcome
these limitations, a new performance measurement
framework customized for construction companies
named ‘Construction’ BSC was proposed that
incorporates the four perspectives of the original
BSC and two levels for measuring project and
company performance. Then, ‘Construction’ BSC
strategy map, which is aimed at finding out related
KPIs and managing both lagging KPIs and leading
KPIs, was suggested. Based on resulting of
performance measurement, Knowledge is
automatically retrieved and pushed though the
knowledge management system, which is linked to
the performance management system.
By adopting ‘Construction’ BSC, construction
companies can use a more balanced approach for the
monitoring of KPO and KPD as well as company
and project level. Moreover, the benefit of the
proposed PMS is that can be used to improve
performance by pushing knowledge that is related to
performance results measured by ‘Construction’
BSC.
The proposed performance management system will
enable construction companies to enhance their
competitiveness by providing them with information
pertaining to other companies’ performance and by
pushing knowledge. However, to be a generalized
performance management system, verification
should be conducted in future research.
ACKNOWLEDGEMENTS
This research was supported by a grant (05CIT-D05-
01) from the Construction Technology Innovation
Program funded by the Ministry of Land, Transport
and Maritime Affairs of the Korean government.
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