With the construction industry being pretty buoyant at the moment, attention should be turned to improving operational efficiency as the best way to increase profits.
Last year I ran a couple of seminars based on the results of an industry survey on the frustrations builders have in project management. It sparked some interest so I thought I would cover off some of the key points presented over the next few posts. An increasing construction market can be as dangerous as a declining one, as cash flow and profitability weaknesses tend to be magnified by the increased turnover. Things can be seeming to be tracking okay, then quite suddenly turn septic. Focusing on some of the points we covered in the seminars (and summarized over the next few posts) will help you avoid the pitfalls.
The first frustration we covered was around budget blowouts. Of critical importance with fixed price contracts, it can also be an issue on charge-up as well. A charge-up project that goes well over budget will be a big source of potential argument with the client and often results in the contractor swallowing some of the extra costs, just to keep the peace and the payments flowing. Whether it is a fixed price or charge-up situation, seeing a big chunk (or all) of your profit leak out of a project is a soul destroying situation. And it can happen quite quickly; usually towards the end of the project when the client is low on money and looking to make savings. So what can you do to avoid this?
Like most problems, look at the earliest possible source of the problem and start from there. That could be a poorly put together costing estimate in the first place. That in turn may have been caused by poor communication with the client on exactly what they wanted and were prepared to spend. A bit of extra time spent here can avoid a world of hurt later on.
Poor monitoring of costs (especially labour) on a real-time basis can also be a big contributor to blowouts. You need to know how the actual hours are tracking against the estimated hours on at least a weekly basis, if not daily. Estimating hours by task and then recording hours by task will help here. As soon as you can see the project is going off track, you can make minor adjustments to counter this, before it’s too late.
Not recording and billing for variations is another biggie. “But I thought that was included” is all too common a saying. “Pre-liminate” these discussions through better planning and explaining the variation process in detail BEFORE the project starts. Document the variations at the time to minimize arguments.
Other areas to watch out for and work on implementing systems to control include:
- Poor subcontractor management
- Poor field supervision
- Weather conditions
I will cover off some of these in later posts, but if you want to discuss how you can up your game around job profitability, email me at email@example.com and we can have a chat. Also visit my website at www.tradescoach.co.nz for further help.
Andy Burrows – The Trades Coach