When you own a construction business, there’s no better feeling than winning a juicy project and having it go exactly as planned. Unfortunately, of course, so many things can go wrong. That’s why having the patience and discipline to put systems in place, and consistently use them, turns out to be the secret sauce for sustained success.
The Perfect Project: Behind The Scenes
“Construction is one of the most difficult processes to monitor, manage, and control as there are just too many variables contractors can’t control.” That’s how construction business coach, George Hedley aptly sums up the challenge of running a construction business, adding: “There are too many variables and things that can and will go wrong on every job. Potential problems range from material deliveries to the weather, from complete and accurate plans to crew workloads, and from field conflicts to getting paid.” Despite the difficulties, however, Hedley finds that sustained success is possible, though it requires breaking down the essential components of every project, and ensuring that standardized systems and processes are in use for each aspect of execution:
Successful construction companies work hard and enforce standardized systems and controls to lower risk factors, eliminate potential problems, reduce the chances for things to go wrong, and improve their odds of achieving results. Some examples of systems and strategies that improve project results include pre-job planning meetings, weekly job cost production scorecards, tool and equipment checklists, regular training sessions, pre-installation inspection reports, and detailed subcontracts with inclusions and exclusions clearly identified….To produce optimum results on your construction projects, you must have a system that guarantees performance 95% of the time….To improve your field and project performance, standardized and utilized systems will improve your chances of eliminating problems, errors, rework, callbacks, or over-budget completion.
Though writing and implementing detailed systems and processes for each aspect of the work requires an investment of time, consider the payoff. Imagine, for example, more projects that deliver successful results like these:
- On-budget completion including crew field production.
- On-schedule completion with timely close-out.
- All contract requirements, targets, and goals met.
- Safe with no accidents.
- Quality workmanship without callbacks or punch list items.
- Proper documentation and communication without conflicts, issues, or disputes.
- Prompt and complete payment.
- A satisfied customer who provides excellent performance ratings and referrals.
How Are You Actually Doing?
At any given moment, successful construction company owners know where the business stands, and use key data points to inform daily decision making. Toward that end, Shawn Van Dyke at Built To Build recommends a simple approach to KPIs (key performance indicators), and points out: “Imagine KPIs as the scorecard of your construction business. They track the critical aspects of your projects, like schedule variance, change orders, and project and operational profitability, giving you real-time feedback on how you’re doing.” Cautioning that there is no need to get sucked into the sea of “complex data bases and spreadsheet formulas” to effectively use KPIs, Van Dyke suggests these 5 Simple Performance Indicators (SPIs) “every contractor can track and produce”:
- Real Cash Profit (RCP) – the actual amount of cash you have in a bank account called PROFIT.
- Average Weekly Billing (AWB) – the total amount of money you’ve billed for this week, or the total value of the work you’ve put in place this week compared to the year-to-date average your business requires to hit your budgeted revenue goal.
- Closing Rate (CR) – the ratio of the number of Projects Awarded versus the number of Leads acquired.
- Revenue Per Employee (RPE) – the total amount of revenue produced during a giving period of time divided by the total number of employees (usually measured quarterly and annually).
- Gross Profit per Project (GP/P) – the total amount of revenue received (price) for a single project less the Cost of Goods Sold (COGS) to produce the project, expressed as a percentage of the total price.
Toward Ever More Success
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