Executive Summary: Sustaining a business, and more so growing a business, relies heavily on consistency in business practices. Start today with improving your company’s practices so that profitability can be maintained and even improved. Better yet, let your consistent practices help you better predict the future.
What is inconsistency? In construction, inconsistency can be seen in all phases of winning and executing the work. Here are some common examples of singular tasks being accomplished in different ways within a contracting company:
- Takeoff: scales and highlighters vs. on screen takeoff
- Pricing: Excel vs. ledger paper vs. a canned estimating software
- Budgets: three cost codes for a $20 million utility job vs. 300 cost codes for a $100,000 size project
- Quantity reporting: one project manager says formwork is 100% installed when the form is stood up vs. another project manager who says this effort represents 60% of the work
- Asset management: alpha-numeric number for your gear vs. no number at all vs. superintendent-specific on-the-job numbering
- Logo usage: color variation, different aspect ratio, and rules of when and where to use the logo
And here are some excuses as to why these inconsistencies exist:
- Takeoff: “on screen takeoffs are too confusing” or “I’ve been doing it this way forever and it works fine”
- Pricing: “that software doesn’t work for our type of construction”
- Budgets: “our guys in the field will never use all those codes”
- Quantity reporting: excuses seem to exist here more because foremen do not report quantities (not so much that they’re inconsistent). Let’s just try to get them in!
- Asset management: “I’ve got a better numbering system”
- Logo usage: “my 13-year old son is real good on the computer and made a logo”
I’ve heard them all.
Why be consistent? Here are specific reasons to be consistent:
- Takeoff: if all of the takeoffs are done in the same program, the information can be found easier for other estimators to use during the bidding phase; the data looks the same, it’s laid out the same, its source of calculation is familiar. Secondly, it makes it easier on the project management team to execute the jobs you win since the takeoff is accessible and follows a pattern regardless of takeoff person.
- Pricing: using different methods of pricing means that labor rates, equipment rates, production rates, taxes, and markups will all be different. This method of estimating means that the chief estimator must know the variances in all of these rates as (s)he closes the bid and makes last minute adjustments.
- Budgets: using identical methods and codes in project budgeting allows accurate cost recording during the project and establishes the beginning of historical costing. If the separation of labor and/or equipment and/or material is not consistent, your company will never know unit costs, or more importantly, unit production rates. Mature companies who have redundancy in their work should have the same code on all jobs for, say, Form and Pour Curb. This means that on every job in your company there is one code for this item, say, 1234-5678. This means that you can open any cost report in your company and know that 1234-5678 will provide historical cost data on Form and Pour Curb. And here’s the bonus tip: estimating softwares can link this performance data in job costs to your estimate databases (all the better reason to generate a Master Cost Code List).
- Quantity reporting: having a consistent quantity reporting methodology results in more accurate cost projections which comforts your surety and bankers (and you!)
- Asset management: choosing a consistent numbering system results in
- better equipment utilization because your equipment manager can see the fleet on one piece of paper in a clear order
- quicker cost coding of invoices by management
- a quicker annual insurance renewal because your asset list is intelligently grouped, and
- less hourly cost for your CPA to do your depreciation schedule, again, because your gear is grouped.
- Logo usage: A consistent logo shows professionalism to your clients and to your employees. As a consequence, clients will be inclined to hire a firm with a clear presence, and employees will want to come aboard for the same reason. I’m sitting here in my hotel room in beautiful Victoria, Canada and the PCL logo is outside my window on a bridge job. It’s in the same color and proportions as 2,700 miles away in the middle of the Pacific Ocean in another country where I saw it at an office building project in downtown Honolulu. This, among other reasons, is what makes PCL an excellent construction company.
My story. I was assigned the role of project manager on our company’s largest job-to-date – a $100 million wastewater treatment plant project for a major municipality. I walked into the trailer, set up my desk, and when I asked about the budget for the job I was told that I had to set it up. That’s no big deal, I’d done it many times before. But, the problem was that the working documents for this budget were literally in a cardboard box over in the corner of the 60’ long double-wide trailer. I was assigned the responsibility of collating Excel spreadsheets, green ledger paper, and HCSS HeavyBid worksheets. Of course we were in the process of mobilizing into the job so I was simultaneously dealing with project operations and budget setup. It was a nightmare and we didn’t have a budget for the first three months of the job. Then I had to reallocate all the costs (from the past three months) I dumped in holding codes awaiting budget completion.
The lesson here is that we should have had one estimating system for the entire job (and company) – it would have been magnitudes easier to estimate the job, close the bid, and then generate the budget.
My advice to companies. If you’re trying to sustain or grow, consistency in controls is the most important item. If you are a leader in your organization with profit and loss responsibility, you need each of your teams’ estimates and reported costs to come in an identical manner. Those that want to fight you in these controls are free to do it (they just have to put their own name on the front door and on the sides of all the pickup trucks). Those that want to stay and grow a great company are welcome to contribute to making your systems better than they are while supporting what’s in place.
Set the standard operating procedure and do not waver. The results you see coming at you may or may not be to your liking, but they’ll be consistent and this will allow you to make informed decisions. It will allow you to more accurately predict the future of your company.