One of the most crucial aspects of operating a prosperous trade specialty or construction company is the ability to efficiently and accurately track a projects profitability. There is no use in winning dozens of contracts every day if half of your projects aren’t profitable.
To counter this, you can either hire the best project managers in the area and hope they can keep up with it on spreadsheets or you can develop a set of rules and metrics that ensure every project will come to completion with a positive balance. In this post, we will focus on the later.
1. Use Accurate Estimating to Build your Budget
There are a few items to consider when creating your construction budget. According to Buildrite Construction, the following elements should be included in your basic budget consideration:
- Permit
- Insurance
- Blueprint drafting and review
- Interest and fees
- Site preparation
- Foundation
- Exterior
- HVAC
- Interior
- Contingency allowances
And this is only scrapping the surface. If you’re afraid your PM might overlook some items or underestimate others, I would recommend looking into an estimation software such as QUESTware or MBS. These programs allow you to design your building into their software platform and then use this information to estimate the costs of developing software.
QUESTware Estimating:
MBS Estimating:
With their wide variety of options and the precision of their metrics, these programs take the guessing out of your budget, which can provide substantial savings and increase the profitability of your projects.
2. Have a Process When Changing Scope of the Project
Can all the people who managed a large project without needing a change of scope raise their hands?
…
No one?
It seems that changing the scope of the project is a sort of specialty of every customer. And it doesn’t have to be a bad thing. As long as you can handle it without affecting your profitability. The scope defines the great edges of the projects and its deliverables at a high level while the business requirements add more details to the project. But when the scope changes, how can you process it without damaging your bottom-line?
Here is a 9 steps method:
3. Develop relevant KPIs
Managing a project effectively requires the establishment of key performance indicators (KPIs). KPIs help you determine project costs and the extent to which the project’s actual budget differs from planned. To run a construction company efficiently, many KPIs can be valuable:
- Project Management
- Actual Cost (AC) of Project
- Cost Variance (CV)
- Earned Value Management (EVM)
- Planned Value (PV)
- Return on Investment (ROI)
- Salesforce Performance
- Total Sales per Month/Quarter/Year
- Sales Variance (compared to previous period)
- Sales by Region
- Sales by Salesperson
- Customer Acquisition Cost (CAC)
- Lead vs Customer Closing Rate
- Customer Management
- Number of Customer
- Customer Satisfaction Score (CSAT)
- Customer Lifetime Value (CLV)
- Net Promoter Score (NPS)
- Human Capital
- Percentage of Cost of Workforce
- Salary Competitiveness Ratio (SCR)
- Employee Satisfaction Index
- Employee Turnover Rate (ETR)
Various software platforms will allow you to measure those metrics, but they usually focus on one aspect of your operations. Only an ERP software with right code quality metrics can give you the ability to track and measure all those KPIs at once. Since ERP platforms are plugged in to every aspect of your business, they naturally store this information. You only need to select what you want to see and start running your business based on the true performance of your operations.
4. Increase Operational Efficiency
A fully integrated construction accounting module reduces data integration headaches while eliminating manual data entry, reducing errors, and maintaining rules consistent with your core accounting system. ABIS’ Accounting module for example is directly tied into every other department, automatically sharing every financial activity to allow you stay on top of your bottom-line.
The Job Cost feature will impress you single-handedly. It gives you the ability to track cost revenue information down to the fine detail for every job or project. It allows you to calculate estimated costs in preparation for a proposal and track the results of your bids. After a proposal is accepted, you can easily estimate information in order to create budgets for the new job. Once in progress, all financial pieces of information are automatically allocated to the project which lets you know in real-time if you are on target or misaligned.
With the right Accounting module, it has never been easier to ensure all your projects stay profitable.
5. Track Staff Time
In most firms, your team is your most valuable asset. This is even true for construction projects because many crews with different skills are involved. Concrete, drywall, plumbing, electricity, many skills are needed and several different employees or crews will be involved. At this point, the project manager has several problems:
- How do you schedule the right resource at the right time?
- How do you keep track of how much time they spend on your project?
To keep track of profitability, project managers must be able to accurately track every hour spent on site. If the crews are external hires, then the project manager can rely on billing, but if they are employees of your company, then you need to have a system in place to track how and where they spend their time. Especially if you stretch those resources across several projects.
To do it, there is nothing better than a software built with scheduling capabilities and a time punch clock.
Imagine you have 5 projects managers running 3 projects at once with the same crew of 50 employees. How do you know which resources are assigned to a project and which are free to use? The advantage of a software is that you can look up the schedule of every team member and realize right away if you can assign them to your project or not.
Once the task is complete, either you or the employee can punch in and track how much time was spent on a project. In this example, John Doe worked on 3 projects Monday, Tuesday, and Wednesday:
You can clearly know how many hours have been spent on which part of the project. Better yet, if John Doe is paid $22 an hour, those costs are directly assigned to project 1, 2, and 3, calculating for you the exact cost of your project in real-time.
As you can tell, there are many ways to keep your construction project under budget, and technology can play a great part in it. If the right Construction Software can help you tremendously, you must also choose the right partner.