The Key to Running Your Business
Stay Hungry, My Friends
Nineteen-eighty two, 1990, 2001 and 2009. Those are the recessions that I remember. As an estimator, I felt that I would never sell another job. As a project manager, I dreaded that we would actually sell a job, and running it would be my nightmare for the next 12 months. I believed I was destined to inherit a job with no margin, production rates that were too aggressive, and an owner’s rep whose mission in life was to ruin mine. But what actually happened was that during those times we did some of our best work, felt the highest sense of professional achievement, and probably impacted the bottom line more than any other time in the last 30 years. Why? Because we were hungry.
A recession can hit a contractor hard—and this past recession has been no exception. Looking back at numbers released by the U.S. Census Bureau at the end of 2009, the value of construction during that year was $939.1 billion, 12.4 percent below the $1,072.1 billion spent in 2008. While today’s numbers are beginning to trend upwards—the Bureau estimated a seasonally adjusted annual rate of $961 billion in August 2014, which is 5 percent above the August 2013 estimate of $915.3 billion—indicating the recession clearly had an impact.
Still, the question remains: What happens when you come out of a recession? At this point, everyone in the construction industry knows what it is like to go into a recession, but only some know what it is like to come out of one—successfully, that is.
If there is one good thing to come out of the recent recession it is a companies’ ability to adapt to the uncertain landscape of the marketplace. If we were to paint a picture of the construction industry during the past five years it would look something like this: many contractors had to work with smaller staffs due to dramatic budget cuts and had to bid twice as many jobs to stay competitive in the market. More so, competition has been stiff due to out-of-state competitors bidding on jobs which they would not look twice at under normal circumstances.
This intense level of competition has caused many construction firms to turn to new best practices and technology to stay lean—in particular automating takeoff, estimating and project management. However, as the market improves, some construction companies lose the strictness of business, and profits can quickly bleed.
For some reason, when business improves, we take this as a signal to lift our foot off the pedal. All of the results that we achieved during the recession, when we were hungry, begin to erode as work becomes more plentiful and margins increase. The best practices that allowed us to eke out a living, become less important; and before you know it, we’re back to our non-recession behaviors.
With this in mind, I encourage you to learn from the past, in order to move forward.
Learning from the Past
In an effort to survive the recession, construction companies, both large and small discover that they need to redefine their core values. Turning “back to the basics” becomes more crucial than ever before for many businesses as they determine what works and what drains overall resources.
When every dollar counts, estimators and project managers become more diligent in every aspect of their jobs. We appreciate the fact that we took a job “at cost” in order to keep our best people working and make sure that the company’s reputation is not tarnished. But pride in our work drives us to look for profit, not practice. In the days when we still used paper plans, we would joke about lifting them by the spline and shaking the plans until the money fell out. It’s our job to make a job profitable. And just because the job was sold at cost, doesn’t mean we want it to finish that way.
A couple of ways that contractors have increased their profits during the recession are value engineering and production monitoring. Value engineering reduces risk in material costs as well as production. While proactively monitoring and managing labor has proven to be the most effective way to add to the bottom line.
In addition, during the rough times, many construction companies are able to thrive due to their meticulous attitude, which leads contractors to develop solid habits of thoroughly implementing checks and balances both in the field and at the office. This is where best practices and automation can often come in handy.
But it’s not always about technology. Technology is great for automating solid, existing processes; reducing the time a job takes, and improving quality. But if you have a bad process, technology will only help you be bad faster.
When you work on a takeoff, are you thinking of ways to re-engineer the details? Can that soffit be pre-fabricated in the shop? Is your submittal just a list of what’s already in the specs or are you looking for substitutions to save time and money? Are you taking the time to organize your stocking list to reduce material handling on the job? If not, then this is where you should begin.
The benefits of using automation technology boil down to three basic ideas: getting more work done without expanding a workforce, being more efficient and accurate on all projects, and keeping costs and profits where they need to be all the time.
If you haven’t done so already, now is the time to reinvest in best practices as well as technology. Now is the time to shore up business processes, better manage the bottom line, and ultimately prepare for the inevitable uptick in the market.
The world of estimating and project management continues to evolve in the construction industry. When looking to automate workflows, it is important to consider everything from takeoff to bid to build. Information needs to be accessible to everyone—whether that is the estimator, project manager, superintendent, or the foreman in the field. The sharing of data is essential on today’s construction projects.
Still, there are some challenges construction companies face on projects today, such as addressing a more mobile workforce and a continued shift to data availability regardless of where a person is located. Technology companies are working to address the challenges of a mobile workforce and help companies move data from one person to the next—whether in the office or at the jobsite.
With the construction market beginning to trend upwards, projects that were initially frozen due to risks and lack of capital are now getting started again. Companies are beginning to be more selective on the type of jobs they are bidding. The big caveat is construction companies need to ensure they do not fall back into the old “routine” of doing business.
When business starts streaming in, contractors need to ensure that the solid processes that were established in the past, are not lost now that there’s money in the job. If having a solid job-start process involving the estimator, the project manager and the foreman, served you well in the last recession, why would you stop that practice now? If proactively managing field labor added 5 to 10 percent gross margin points to your jobs, why would you ease up?
What can construction companies do to avoid falling into the same routine? The answer is simple: continue to run every job, as though it has no margin, your production rates are too aggressive, and the owner’s rep is out to get you. Cling to those best practices. They’re what got you through the Great Recession, aren’t they? But also look for ways to reduce redundant work, share information and knowledge and work more efficiently. As technology evolves, there will be new ways for contractors to automate more processes. Keep your eyes open for those opportunities.
When looking to the future of estimating and project management, two big trends to keep in mind are collaboration and the ability to work from anywhere. Managing digital plans, working on takeoffs and bids online, and collaborating between the office and the field will be essential. A system that offers a single source of data residing in the cloud ensures that no matter where the data is being accessed from, everyone is working with the same set of data.
The big value is the fact that contractors can use both best practices, along with technology, to move away from the guesstimating game. It is just a matter of putting solid processes in place before the market really begins to pick up.