Determination of the key operational variables of construction companies that impact on their corporate performance

Abstract

Small building contractors in South Africa often struggle to produce quality work on time and have a high rate of business failure. In an effort to improve the effectiveness and viability of smaller construction firms in South Africa, this research investigates key operational variables affecting their corporate financial performance. Operational variables relevant to financial performance were identified through a literature review. A questionnaire was then designed to assess the extent to which these variables are perceived to influence the financial performance of construction companies. The study participants were technical and management staff at small and medium-sized building and civil engineering construction companies categorized from grades 2 to 6 on the South African Construction Industry Development Board (cidb) registers, in four provinces of South Africa. Sixty-two valid responses were received. Based on how the respondents rated the variables in the study, it appears that contractors generally perceive four factors as having the greatest impact on corporate performance: technical ability (the possession and effective use of plant and equipment), financial management skills (in order to accumulate financial capital), training of staff in organizational knowledge in skills transfer and networking with industry stakeholders. Contractors across the five cidb grades did not differ significantly in their ratings of the importance of the operational variables and their indicators. The study also found that the perceived importance of three key operational variables (technical ability, financial capacity and networking) was positively related to the actual financial performance of companies, as measured by turnover, net assets and profit margin. The study concludes that construction companies need to prioritize the development of these key factors to improve their corporate performance. The findings will be of significance to contractors, industry practitioners, project managers and members of the research community in understanding the key operational variables that are crucial to construction firms’ success and effective project delivery.