If you’re in construction, you probably are faced with the daily threat of job schedules and exceeding margin projections. The arrows come from every angle attempting to delay a job or steal valuable margin from it. In this article we will expose the thieves of time and, money while providing a few tips on how other construction firms are winning the battle.
Threats to the margin come in many shapes and sizes but these are a few that we hear often.
Common Problems With Margin Fade
Here are a few examples of issues with margin fade in the construction industry with solutions to these problems.
Late Change Orders – We projected the job margin was X at 25% complete only to find that it was Y. This is because we didn’t have the systems or processes in place to capture the change orders discussed verbally onsite or still in a project manager’s job trailer.
- Solution: Call a meeting to implement a process from the top down that all change orders discussed must follow an approval flow that is documented before any changes can be agreed upon. Furthermore, software solutions can provide rigidity to this process to ensure adherence is maintained. No change orders will be approved that aren’t in the company-mandated process.
Equipment Usage Not Reported – Whether it be owned equipment or rented, equipment rarely gets billed to the job accurately if at all.
- Solution: For owned equipment, agree upon a dollar per hour charge that covers maintenance, labor, and allows for some profit to be billed back to that job. Ideally, usage should be easily documented at the time of use through a mobile app and integrated system of some sort.
Underestimated Labor – “Shift happens” and when unexpected changes to estimated labor come, we must have preparations in place to make up for the change. Many contractors don’t bill a proper cushion for shifts in job schedule, to provide a lower bid. To compensate, some will throw more laborers or more time to the problem to stay on schedule which steals margin from the job.
- Solution: Properly implement a field solution that captures all time, material, and equipment costs at the moment they are incurred. This will allow a lower and more accurate bid on the front end because the job’s margin will not be stolen by the other “Thieves” in the group.
Miscoded Expenses – All too often the laborers run out of a material or need a small tool and will make a parts run then submit the expense receipt. Sometimes these don’t get coded to the correct cost code or even the job but only get reimbursed to the card used.
- Solution: Competent field technology solutions should provide forms with approval workflow for purchase requests in the field to be entered and approved, easily.
We’ve explored common challenges and solutions to margin fade but where do the threats come from as it pertains to time loss?
Weather Not Documented Accurately on Daily Reports – In most construction contracts there are provisions for project delays due to inclement weather. However, if the weather is not reported on a daily report, days lost can be used against a contractor as there is no accurate documentation to back up the loss claim.
- Solution: If you don’t have a weather section in your daily report, implement one and discuss with your managers the importance of documenting job site weather with notes.
Poor Contractor Performance Issues – Performance bonds can protect against subcontractor non-performance. However, smaller-scale performance issues can creep up leading to delays or problems affecting other trades’ work. This prompts change orders later in the job.
- Solution: Equip your project managers and protect your progress reporting accuracy with daily reports including job photos in a mobile application. If there is progress, have verifiable proof and sign off of the progress to also protect against over/under billing. Daily accountability is key.
Equipment Failures and Repairs – Improper maintenance schedules lead to costly equipment failures onsite. If there is no backup equipment on-site, usually rental equipment is utilized at a high hourly or daily rate. This steals margin from the job but also costs time during the equipment downtime.
- Solution: Provide maintenance logs with reminders to shop/field personnel on preferably a mobile solution, where a manager is alerted if maintenance is not completed on schedule. Automating these types of functions will add margin and keep productive “Yellow iron” on site.
Construction Software Solution
Many of these well-known productivity challenges can be solved by proper internal process management and accountability, but many turn to software to help implore personnel process adherence. This is sometimes a good strategy but can lead to an “Appageddon” scenario where the field/office has a different app for every need. This then can cause tech adoption issues and ultimately stale data in reporting.
The industry is progressing towards intranet portal technology that can deploy all of these solutions, simply for the field and integrate with back office accounting systems.
To learn more, visit www.omnidek.com