Profit is a result, not an activity. It is not something you do; it is something you reach. This is the first lesson that Norb Slowikowski, president of Slowikowski & Associates, wants contractors to learn. “Profit isn’t something that is guaranteed from every project,” Slowikowski points out. “Profit comes from a well-managed project. It’s what is recovered after all costs are paid. Profits are fragile, and many times contractors bid on jobs that ultimately only add 3 percent to 5 percent of profit to the bottom line.” The journey to profitability begins with productivity. Unfortunately, many construction industry contractors subscribe to the myth that productivity is out of their control, and that profitability is only figured after the project is complete. In fact, quite the opposite is true. Productivity—or the lack of it— is in the hands of every contractor’s management team, and profitability is earned or lost with every step of a project.
“Ask yourself this simple question,” implores Slowikowski, “Are my people working as productively as possible, day in and day out?”
There are three components to productivity, the effective utilization of all resources, which achieve a desired quality and a desired quantity of output. The components are as follows:
- Desired Quality of Output: Every employee must perform assigned tasks right the first time. In order to facilitate quality delivery, everyone must understand the scope of work and the quality specifications of the job. Companies simply cannot afford any rework.
- Desired Quantity of Output: This comes down to meeting the general contractor’s schedule, which typically is very tight. The foremen must manage the resources effectively to meet that schedule. Labor can cost anywhere between 40 percent to 60 percent of a job. Therefore, a subcontractor has to manage labor budget and give the foremen an accurate estimate of the hours for the job.
- Effective Utilization of Resources: Seven types of resources are needed to support a productive environment. It’s up to the project manager to get the resources in place to support the project.
- Tools – Proper tools are needed to do the job.
- Equipment – The right equipment at the right time and the knowledge of how to operate this equipment safely.
- Materials – The right materials at the right time with a secure and convenient place to store them at the jobsite.
- Manpower – The necessary amount of people who possess the right skills.
- Information – The foremen must have all the information needed to run the job effectively and efficiently.
- Training and Coaching – There are some things that workers will need to learn on the job, and they need the right training or coaching from others to build their skills.
- Support – Support each other when problems or conflicts arise.
When all of the components of productivity are in place, a contractor is much more likely to earn a healthy profit.
Costs Affect Profitability
A contractor can get the highest level of productivity from the crew, but still make little profit if costs are not controlled. Recall that a profit is what is recovered after all costs are paid. There are several types of costs:
- Getting the Business: A contractor has to spend money just to bring jobs in the door. This includes putting together marketing programs and materials to create awareness of what the company can do; having salesmen knock on doors and establishing relationships with genera contractors; having engineers and estimators work up a design and bid a project; and so on. It’s possible to sink these costs and not even get the work.
- Delivering Services to the Customer: By far the largest category of cost for contractors, this bucket includes the purchasing department to buy materials and equipment; the manpower to deliver the services; the tools, material, and other resources to do the job by the labor; and more.
- Operating and Maintaining the Contractor’s Facilities: This is largely overhead costs such as office and warehouse space; utilities; equipment maintenance and repairs; vehicles; insurance; support staff salaries; and the like. A portion of these costs is usually applied to each project the company works.
- Staying Ready to Work: A company must maintain its staff through training, certification and licensing; adhere to safety rules and regulations; and maintain information. These costs are investments back into the company.
Organization Is Key
Slowikowski defines the process of organizing as systematically arranging all of the pieces of the work product through effective planning and coordination. “If a project is disorganized, this will diminish your profitability,” he says. Many steps go into the organizing process, such as planning, prioritizing, scheduling, dividing work, delegating, performing, linking up and supporting, monitoring and following up, and problem-solving.
- Planning: Start with the goal of where a contractor wants to be by a certain point in time. The foremen need to document (i.e., write down) all tasks that will be performed during the week with the goal of projecting where the project will be at the end of the week. The plan also must include a list of materials, equipment and labor that are needed to complete the activities and the hours that are budgeted to get everything done.
- Prioritizing: Everything can’t be done at the same time. The foremen need to sequence the tasks of the plan in order of importance.
- Scheduling: The general contractor will provide a macro schedule that outlines where the contractor should be working at certain times. From there, the contractor’s foremen should be creating a rolling two-week plan that is regularly shared with the general contractor’s superintendent.
- Dividing Work: Break large tasks down into smaller, measurable tasks, each with a completion deadline. When the foremen sees the project divided into a series of individual tasks, it’s easier to understand when something is off schedule and to work to get it back on track.
- Delegating: Assign work duties to employees, ensuring that they understand what is expected of them for quality work and adherence to standards.
- Performing: Action is everything. Everyone should be moving forward toward the same goal with the intention that nothing will need to be reworked due to poor quality or failure to meet standards.
- Linking Up and Supporting: Teamwork is critical to succeed. There are worker interdependencies and everyone—including field and office personnel—must be supportive of each other.
- Monitoring and Following Up: Verify that work has been done properly.
- Problem-Solving: Big or small, issues arise all the time and the contractor must be prepared for continuous problem resolution to keep the project on track. The contractor that keeps a project organized through all of these steps is well-equipped to make a healthy profit.
In summary, several practices will help a contractor get organized, improve productivity and increase the likelihood of earning a respectable profit.
- From the front office to the field, people need good information. They need to know what to do, when to do it and how to do it.
- The entire team needs to be organized and on the same page. Everyone needs to be operating from the same playbook and supporting each other.
- The foremen need to ensure that the team uses its resources wisely and is mindful of costs that can quickly eat into profits.
Part II of this four-part series will include Slowikowski’s insight on technology, plans in the foremen’s hands, project management, and communication.
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