Margins in the construction business are low compared to other industries. For many (larger) construction companies, an EBIT margin of 3-4% is already seen as a very good value, whereas in many manufacturing industries EBIT margins of 7% and more are the usual range. The reasons for this margin weakness range from poor prices, which are often caused by suppliers who are already in danger of bankruptcy, to increased quality costs, which are inherent in the technically complex construction business, which often takes place under time pressure.

This makes it all the more important to optimize the use of capital. And it is precisely for this purpose that the construction industry also offers numerous opportunities that are completely unknown in other industries. These include largely rentable or leasable "plant" or equipment and, above all, advance payments, which are widespread in the construction business.

To put it bluntly: the return on equity of a construction company that manages to achieve a 3% EBIT margin and to always be "cash rich" on all orders is only limited by the URG requirements of an equity ratio of at least 8%. And this on a very high level...

But how can construction companies be managed in a "value-oriented" way?

In order to manage the company in a value-oriented way, it is first necessary to know the capital employed at the level of the smallest unit to be managed; this is usually the construction site.

In practice, this prerequisite already poses problems for many construction companies, since a construction site usually does not have its own bank account. The question therefore arises as to how to arrive at an appropriate presentation.

For smaller construction companies, the pragmatic answer is to keep lists of incoming and outgoing payments, i.e. export the bank statement to Excel and assign a construction site to each payment from the bank account. For larger construction companies with a corresponding ERP/BI application, care should be taken to ensure that two essential pieces of information can be added to each payment. Firstly, the construction or administrative cost center, and secondly, the underlying P&L item or cost type.

The ongoing generation of payment lists creates the basis for value-oriented controlling. In order to be meaningful, however, internal further allocations and apportionments must still take place at the respective reporting time, ideally on a monthly basis, so that the administrative cost centers are debited and the construction sites are charged. The "account balance" of the construction site determined in this way forms the basis for the calculation of value-oriented key figures. In the case of larger construction companies with a regional and/or divisional reporting structure, the values of the construction and cost centers belonging to the respective division must be added up.

With regard to the selection of value-based management ratios, the old adage applies that EVA and ROCE are the names of CFOs' favorite affairs. There are many guidebooks on how best to present these affair to your partner, so I will not go into more detail here.