Bleeding Money?

If your construction firm seems to be taking on one project after another that is bleeding money, there’s a good chance that your estimating and field functions are out of sync, causing a disconnect between what is sold, and what is built. In addition to diminished profit margins, you’re probably burning out your people and eroding customer trust too. The good news? You can get to the roots of the problem. Read on for pointers. 

Higher Margins, Stronger Business

You are far from alone if your construction firm is churning in the gap between artful estimates and unrealistic field work. Construction consultant and coach, Jerry Aliberti points out that misfires between estimating and fieldwork are notorious for eating away at profit margins, and the cost of the misalignment is rising:

This disconnect between what gets sold and what actually gets built is tearing construction companies apart…Your estimating team lives in spreadsheets and historical data. Your field team lives with weather delays, actual site conditions, and the mess that happens when plans meet dirt….The estimator thinks they nailed it. The project manager thinks the estimate was garbage. The superintendent feels set up to fail. And you’re stuck in the middle, watching your profit margin disappear while everyone points fingers at each other. According to the Construction Financial Management Association, the average construction company operates on profit margins between 1.4% to 3.5%. That means there’s almost no room for error. When estimating and field operations aren’t aligned, those thin margins evaporate fast. A McKinsey study found that poor communication and coordination issues cost the construction industry billions annually….That’s not just big company problems. That’s your problem.

Once you accept the problem, there is a good fix: getting everyone working together from estimating on through to completion, as you get information flowing and ensure that there is common understanding about the assumptions involved in the estimate. 

As Aliberti explains, creating this kind of synergy is possible, via a shift to more highly structured processes:

• It starts with your estimators creating a structured handoff process to bring field staff up to speed on the bid. Not just tossing over a number and saying Good luck. A real handoff that covers the assumptions they made, the scope they included, the productivity rates they used, what’s in the bid and what’s not, and all the thinking that went into putting those numbers together. This is the most critical process every construction company MUST absolutely nail….

• From there, you need clear accountability where everyone knows who owns what outcomes. You need structured meetings that move projects forward with real-time cost tracking, especially if you’re labor-intensive. And you need financial transparency so your people are making informed decisions based on actual data instead of guessing….

• You need real schedules built, purchase orders and contracts locked in fast, and all of this has to happen in the beginning…when everyone’s energy is at its highest. 

Ramp Up Your Sales Process Too

Though closing the gap between estimating and fieldwork is crucial to improving your profit margins, you also must focus on bidding better. Not every project is worth winning, or the right fit for your company. To ensure you go after the right projects, you need a consistent, documented and methodical approach. According to Chad Prinkey of Well Built Construction Consulting, a solid sales process should arm you to:

• Quickly evaluate and separate the wheat from the chaff. You probably don’t have unlimited sales and estimating resources to effectively chase every project so focus on the ones that fit your business and have a high potential of converting to a sale.
• Create interactive conversations with your buyers. In most cases, humans are making buying decisions, and without talking to them you’re just another number.
• Gather essential information about the project, buyers and competitors. A little key information goes a long way to help your team highlight key differentiators beyond price in your proposal.
• …Close the deal. You need an opportunity to present your unique approach to the project and your team’s ability to deliver optimal results. You should also plan to field questions from the customer to put their mind at ease. Without this opportunity, your bid is all the information available to your buyer to make a decision.

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