In the good old days, construction companies were owned and run by builders. These hard-working men (and women) learned their trade in the field, had years of practical experience, and knew what it took to get their projects finished on time. It was about delivering solid structures with unsurpassed craftsmanship. It was about building a project the contractor could be proud of, and then relying on their customers for recommendations and new work.
Now successful construction companies are run by professional managers, engineers, and accountants. These business leaders are focused on the bottom line and following what is only required by the contract. Combine this lack of real field construction experience at the top of many companies today with the lower and lower profit margins.
More Demands=Less Profits!
Over the last 40 years, the number of contractors has tripled while the total amount of construction has stayed relatively flat (adjusted for inflation). Therefore, now there are more contractors than needed to do all the work required by the market. In addition, with increasing competition, construction customers are now demanding more than ever before. They now demand faster schedules, safer projects, better quality, more communications, better technology, all at much lower prices.
These added customer demands on contractors who are willing to sign contracts for less than they should, have killed the construction business as it once was. Add to these demands poor architectural plans, problematic engineering, incomplete specifications, conflicting contract documents, material shortages, price fluctuations, more regulations, added paperwork, lenders’ requirements, third-party inspections, construction managers, and red tape, have all but eliminated a fair profit for the risk contractors take.
It’s Time to Refocus on the Field!
These issues have put pressure on contractors to save more and more money in the field. Consider your challenges fighting against competitors who charge less than they should, have inexperienced and untrained field crews, and building projects that now require more paperwork and increased risk. A need now emerges for contractors to refocus on improving field productivity as their only viable solution to compete and improve their profit margins.
Construction profitability is about reducing risk. Contracts require contractors to assume more risk than ever today. Have you considered what’s at stake? How do you reduce risk and increase your bottom line? Your choices are many. Where can your company gain the biggest advantage over your competitors?
- Lower Material Costs
- Better Subcontractor Costs
- Better Equipment
- Better Supervision
- Better Project Management
- Labor Productivity
The 5% Factor = 100% More Net Profit!
Most construction companies only make an average annual net profit between 2% to 3%. If you can IMPROVE your LABOR costs by only 5%, you can IMPROVE your net profit amount to 4% to 5%. This can be as much as a 100% increase in your bottom line!
Is Your Crew Working Efficiently?
Consider how productive your crew is every day out in the field. Studies of typical construction field crews show revealing facts and much room for improvement. Field employees spend some of their time planning the work. Then they produce the work. Some of the time they support the work doing layout, seeking information, fixing equipment, looking for tools, repairing tools, locating the right material and asking questions.
And, of course, some of the time is wasted standing around, starting late, quitting early, extending their breaks, smoking, making personal cell phone calls, waiting deliveries or running out of materials. Where do you start to improve productivity? It starts with identifying the areas that take away from your crew’s efficiency.
Time is Easy Money!
Look for the little things that really cost you money. When you don’t focus on faster, it doesn’t happen, and you let your crews go with the flow. When you focus on speed, you get the whole team moving faster and becoming more efficient. When you start every project, get the easy money flowing by getting your supervisor and crew together. Explain the projected and budgeted schedule. And then ask them to brainstorm ideas how they can improve the schedule by a minimum 5% to 10%. Explain to them how 5% faster will translate into dollars and will keep your company competitive in the tougher marketplace.
In addition to saving on your crew labor budget, the overall project will finish faster as well. You will save even more money concurrently on general conditions, equipment, cleanup, temporary facilities and supervision costs. This money adds up fast!
Double Your Profits!
Call an all-crew team meeting and discuss ways to improve your schedule, save a few minutes every hour, define your exact hours for production expected, create meaningful incentives, improve your tools and equipment, increase efficiency, and strive to implement the 5% factor to get more every day from everyone.
George Hedley, CSP, CPBC, helps contractors grow and profit as a professional business coach, popular speaker and peer group leader. He is the author of “Get Your Construction Business to Always Make a Profit!” and “Hardhat BIZSCHOOL Online University,” available on his website. Visit www.hardhatbizschool.com for more information.
