To appreciate how construction firms can make a greater profit on projects, you first need to recognize that one of the most common way to lose money is with unproductive labor. Downtime, overtime and reworking a project will kill profits – and oftentimes, morale.
However, when management and the field work together to reduce costs, you can beat the labor budget and complete the project on time or ahead of schedule. Not only does this make the project more profitable, it also makes everyone proud to be a part of such a successful project.
Here are the six most common ways construction projects get hit by unproductive labor:
1. Sloppy documentation – If a job isn’t well documented and organized, things get missed. Schedules get jammed, materials and equipment aren’t delivered when they are needed, and crews are standing around. All of this results in lost production, unproductive labor – and lost profits.
2. No job schedule – Job schedules change, but you still need a plan to manage the job. The easiest way to lose money on a job is to fly by the seat of your pants and be in reaction mode. Map out the job from start to finish, and then fine-tune the plan in small increments (about once every 2 weeks). This strategy is fluid enough to adjust, yet solid enough to keep the project on schedule.
3. Weather – You can’t control Mother Nature, but you should be documenting weather-related issues and delays in your daily log. You also need to communicate these hold-ups with others who need to know so the schedule is adjusted accordingly.
4. Miscommunication – In the construction industry, it is important to have good external communications with architects, owners, general contractors and subs, but good communication skills always start internally. If your staff isn’t communicating with each other, mistakes happen. Everyone should understand the common goal of making the projects as profitable as possible and appreciate how their role benefits the overall health of the company.
5. Inaccurate job cost history – A crucial element of developing a solid estimate is knowing production rates and the cost of labor. How much is your fully-burdened labor rate? How many feet of pipe can you run per hour? Don’t guess. You should have access to past history from your job costing report. When you don’t use historical data to estimate, the bid you won can quickly turn into a company loss.
6. Resources not available – The quickest route to unproductive labor is to have guys standing around because equipment or materials aren’t available. To make sure you have the right resources at the job when they’re needed, you need to manage the project with organizational skills, good communication and an accurate job schedule.
So how do construction jobs make money?
By addressing all these common mistakes – which all revolve around having an accurate job costing report. When you have an accurate picture of the job, you know:
- Work in progress and where your resources are being used compared to where you allocated them.
- Project costs to calculate if your project is on target with the estimate.
- Labor analysis to determine if your labor hours are on target with the estimate.
- Unit productivity so you can see if you are completing the work at the pace you estimated.
When you have solid construction accounting software in place, the ways in which construction jobs lose money become more visible – which means you can adjust and fix any issues quicker. You are more organized, which makes you better equipped to schedule jobs. This leads to better communication and more productive labor. The only thing that job costing still can’t control is the weather.
Find more job costing tips in our webinar, “How to Optimize Your Profits through Job Costing.”