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Contractors execute a wide variety of project types across diverse markets and customers. Project scopes vary from simple to highly complex, each having different requirements for managing the project budget, procuring materials, tracking project documents, managing scope changes, preparing forecasts, etc.

Project managers have a lot of balls in the air, so it is imperative they have the proper tools to enable them to do their jobs with confidence. From a financial performance standpoint, the difference between a good year and a mediocre year is often just one or two bad jobs. Bad jobs result in losses that erode the positive margin contributed by successful jobs. Project managers and jobsite supervisors need tools to help them identify potential problems as early as possible, enabling them to take action with a goal of maximizing the amount of margin earned on each job.

All projects should have a baseline budget for labor hours and project costs broken down via a work breakdown structure that allows a project manager to accurately track the progress of their job. This is not just for fixed bid jobs, but also time and material (T&M) jobs. Overruns on time and material jobs may not result in current year losses; however, consistently overrunning on T&M projects can negatively affect the ability to secure repeat work with that customer in the future.

A project manager’s ability to manage risk is an important factor that contributes to his or her ability to complete projects successfully. Following are some of the key functions that introduce risk and therefore must be controlled by the project manager.

  • Labor productivity. Jobs are bid based on estimated labor productivity factors. Being able to identify early on labor tasks where actual productivity is below target allows the project manager or site supervisor to address the problem.This is a critical requirement on large, labor-intensive jobs.
  •  Materials management. Having materials and equipment at the jobsite on a timely basis ensures jobsite crews are not delayed. At the same time, having materials arrive at the project site too early creates problems with storage and materials can get in the way or become damaged.
  • Project documents. A tremendous amount of documents and communications can be associated with a project, including contracts, requisitions, purchase orders, daily reports and jobsite photos. It is important for project managers to be able to easily generate needed documents, review and approve documents, communicate between internal and external parties, and have a central and secure location where all documents are stored and accessed.
  • Forecasting. Accurately forecasting hours to complete and costs to complete resulting in a projected cost at completion is essential to identifying and managing margin fade on projects. As forecast costs creep up in excess of the approved job budget the planed margin is reduced.
To help project managers manage these risks, they need tools that highlight exception conditions that may require their attention. This way they can focus time where problems may exist in lieu of having to review all details across all their jobs searching for potential issues. Following are key performance indicators that can provide this information.

  • Labor productivity analysis. There are a number of ways to highlight labor cost codes where productivity is not on target. For example, a labor productivity factor can highlight cost codes where the actual units per hour total is less than the estimated units per hour. Another example is where the forecast hours at complete exceed the total approved estimate. Having the ability to analyze similar labor tasks across different phases of a job, or across multiple jobs, can point out those tasks where a workforce generally is not performing in accordance with how those tasks are estimated.
  • Gross margin variance. Being able to track the current margin variance [(current contract less current estimated cost) minus (current contract less the project manager’s forecast cost at complete)] as well as view a trend of how the margin has changed over the course of a job helps identify potential problem jobs well in advance of the final billing. Having the ability to roll up and view margin variance across all jobs for a project manager or an operating division can identify potential issues at a more global level.
  • Cash position. Having positive cash flow on projects is important to ensuring continuing operations for a construction company. Being able to easily identify projects that are in a negative cash position as well as understand the over/under-billed status of a job can indicate where there may be a billing issue or a slow paying customer.

Leverage Technology to Increase Efficiency

Once a project manager has the right key performance indicators to effectively manage risk, he or she can leverage technology to increase efficiency. One example where applied technology can make a tremendous impact on risk reduction is in the requisitioning and purchasing of materials, equipment and subcontracted services.

Ensuring the right materials and equipment are onsite at the right time is critical to project success. But there are several other factors to consider: Were they ordered from the suppliers providing the best negotiated rates and terms? Can some materials be pulled from inventory, or equipment acquired from jo sites where it is idle? Were the orders placed by someone with purchase authority? Is there visibility into the current status of requests and orders, or do these simply fall into the email abyss, leaving project managers hoping that everything will arrive as planned?

In a fast-paced project, it’s easy for a project manager to quickly become entangled in managing the procurement process, taking time away from more valuable project tasks. Fortunately, systems can now automate much of this workflow.

  • Requisitions and purchase orders. Contractors often utilize a requisition system, prior to purchase orders being issued, in order to ensure the right materials and services are being procured by those that are authorized. Automation systems accommodate quantity and dollar value authority and multi-level approval rules for both requisitions and purchase orders.
  • Document generation and distribution. Look for a system that makes it simple to generate a variety of customer- and supplier-facing documents, in the formats required, and incorporating organization branding. It should include the ability to distribute documents to the appropriate parties according to your business rules. Types of documents include requisitions, purchase orders, subcontracts, invoices, RFIs, submittals, quotes, work orders and maintenance contracts.
  • Status notifications. As an approval item’s status changes, notifications should be sent automatically. For example, when a requisition or purchase order changes from pending to approved, interested parties receive notifications to keep the process moving. If approvals are overdue, reminders can be sent to the approver and process managers automatically, ensuring timely delivery of materials and services. Often reviewers can approve, reject and comment directly from a smartphone or other mobile device.
  • Audit trail. Today’s leading workflow and approval systems leave no doubt about the path from procurement to payment. With auditable workflow processes, these systems can facilitate communication with customers and suppliers regarding materials costs, provide standardization and optimization of many processes like procurement, and satisfy internal and external audit requirements, all while keeping efficiency at a maximum level.
  • Three-way matching. Software can help ensure delivery tickets match orders and the contractor’s expectations in terms of received quantities, price per unit and terms, prior to invoice approval and payment.
A project manager adds the greatest value when making smart, informed decisions to reduce risks for projects. If there never seems to be enough time for project managers to focus on the big picture, one remedy is to automate processes. Getting the right materials in the right place at the right time is important to overall margins, but automation can make the process highly efficient while conforming to organizational standard operating procedures.
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