The construction industry has been one of the sectors hit hardest by the recession. Because of this, many construction firms have been tempted to take on projects with a narrow profit margin and over-deliver to retain clients in the increasingly competitive marketplace.
As much as this is an understandable course of action, it’s not a sustainable way of doing business, especially given that construction work is affected by so many outside factors. Whether it’s economic decline, bad weather or even the recent riots in many UK cities, construction work often needs to be put on hold which can significantly impact on delivery times and budgets.
The first quarter of 2011 alone saw over 100 construction firms going into administration. In tough times like these, companies need to ensure that their work is as profitable as it can be. There are some straightforward steps construction companies can take to monitor profitability and keep projects and budgets on track:
Learn from previous projects
Setting a project budget and then keeping to it is fundamental of any construction business. Drawing on a database of information on previous projects of similar complexity will accelerate the setting up of new assignments, help organisations to accurately cost and agree a realistic budget and ensure that the terms and conditions are not overlooked.
Resource appropriately
and adequately
Whether deploying your own workforce or involving a third party, companies need to ensure that they assign the appropriate people in terms of capacity, skills and experience. It is a challenge to strike the right balance between under-utilising scarce or expensive resources and over-committing them. Consolidated resource plans from all projects give a true view of your staff’s performance to identify those that have spare capacity. Utilising data logged to similar projects will improve accuracy in planning the resources required, enable managers to chart the critical path task duration through resource assignments and ensure there are enough staff to fulfil the commitments.
Avoid revenue leakage
Keeping detailed, accurate records of time and costs (including expenses) against specific projects is vital for construction businesses. Failing to capture all associated costs, whether incurred by staff or third parties, can lead to either going over budget or falling short on covering your outgoings. Non-chargeable activities such as administration, training, holiday and sickness also need careful recording to ensure that project managers always know where the time has been spent.
Constantly monitor and review and be ready to deal with the unexpected
Construction projects vary immensely in timescales, with some extending over several years. It is nearly impossible to accurately forecast such long periods of time and unexpected situations are unavoidable. Only real-time, accurate and instant information can equip managers with the confidence they need to make what could otherwise be a very risky decision. Managers need to be able to analyse data at any time to explore the time and costs associated with a project and see how the individual alternatives stack up against the actual budget.
Reporting, reporting, reporting
Instant access to meaningful information about projects will not only help to meet deadlines and stay within budget, it enables managers to prepare a wealth of reports for clients with confidence. The right software should reduce the length of time spent on reporting while also enabling companies to present a project’s progress or results as easy-to-understand ‘management dashboards’. By presenting information this way, companies can share detailed, financial or technical data to the clients in a format they can easily understand and act on.
Knowledge is power. Efficient management of data empowers construction companies with the ability to assess which projects are the most profitable, where possible issues are and drill down to the underlying detail where time has been invested. This way, even when under pressure to meet deadlines and client expectations, businesses don’t lose sight of profitability.
IRIS Accounting & Business Solutions
Paul Sparkes, Product Director
