When done right, construction can be a hugely profitable enterprise. At the same time, if not approached with an eye for efficiency and effective project management, it can result in a net loss even as significant revenue comes in. Paying attention to the following key tips is the best way to ensure a steady, consistent profit throughout your career.
FIRST STEP: DEFINE YOUR GOALS
While it might seem obvious – you’re in business to make money – setting a series of distinct and narrow goals is the best way to ensure that you actually make the amount of money you need. What is your definition of success?
For some construction businesses, the bottom line is the first and foremost measure of success. For others, company growth is more important – these businesses will forfeit immediate opportunities to turn profit if they can leverage those opportunities into brand expansion.
If your company doesn’t have its own unique mission statement, you should develop one and refer to it during important decision-making sessions. Using your mission statement as a starting point, you can also develop reasonable expectations for how you plan on achieving your goals.
SECOND STEP: SET REASONABLE EXPECTATIONS
Once you have identified your specific goals, you are in a position to set expectations based on them. Communicate these expectations with your employees and with clients alike. Examples include:
– Under what conditions does the cost of a contract change? How do you bring up these changes with your clients?
– Under what conditions will you stop working for a bad client, and how will you go about the process?
– Do you plan on rewarding good employees with better wages, increased responsibilities or fewer work hours? Communicate these expectations to your employees.
A great deal of potential profit is lost by executive indecision – not knowing what employees or clients expect and then giving them the wrong incentives.
THIRD STEP: ESTIMATE FOR PRODUCING PROFIT
If you don’t have a detailed and accurate estimate that results in profit, the execution of your plan will not produce any profit. When crafting estimates, you need to avoid a few important mistakes that construction managers often make.
1. Improperly Estimating Overhead Costs
Your company’s overhead include all of the costs that don’t directly impact the completion of a project. Utilities, bookkeeping, insurance, rent, and telecommunication are all examples. If a bad storm hits and your crew stops working for a week, you still have to pay for these services.
2. Not Taking Risk into Account
Speaking of storms and other contingencies, every line tem in your budget should include padding for risk. Every aspect of a project carries some risk. You’ll find that time and materials carry the least amount of risk while bidding for contract jobs carries the most.
3. Miscalculating Labor Costs
Get to know your employees well so that you can accurately estimate their efficiency at getting jobs done. One small miscalculation here can throw off the entire project schedule and lead to significant costs down the line.
Planning and Productivity Ensure Profits
Place a premium on planning and productivity to ensure reliable profits. Put these guidelines into practice to eliminate waste in your construction business.