It is generally agreed that motivation is the key factor for generating higher production levels. A well-motivated workforce greatly influences the operational efficiency, especially in production-intensive industries like manufacturing and construction. Since the construction industry is highly labor dependent, it is essential to not only keep your team well-managed but to also maintain high levels of employee motivation across the board.
2020 has thrown us a curveball with the pandemic, changing the way we manage our construction projects and businesses. Any change mandated by OSHA (like social distancing on the job site, Covid19 daily checks, etc…) that define daily requirements and the way crews work will change productivity. How do you know how much that’s costing? “If you can’t measure it, you can’t manage it”, it seems simple but Peter Drucker is saying you cannot determine or predict success if you do not have the tools and the means to measure what it is that you are doing. And now more than ever construction companies need to be nimble. You need to react in near real time to those changes and challenges that affect the profitability of your job. With so much uncertainty pitfalls abound and new techniques need to be adopted to avoid being one of the 100,000 businesses that are predicted to go out of business this year
Now more than ever it’s critical to compare actual project costs to your original estimate, put another way comparing Actual to Plan. Those companies that do compare Actual to Plan often use Excel to manually aggregate information to compare them on an ongoing basis. Aside from there being a ton of copy and paste (double entry), there are timing issues with some financial reports. Most are fortunate to get a project cost report every month, but even then that’s a long time to wait to see if something financially on a project has gone South. The best thing to do is to automate cost tracking as much as possible to help with the timeliness of reporting.
Changes in project and job site productivity caused by the pandemic are widely unknown and likely differ between regions and trades. The most important thing to do in these pandemic times is to create a timely feedback loop for estimators to learn from. Constantly comparing Actual to Plan is the simplest way to improve estimator experience and accuracy. A learning feedback loop between Estimators and Project Managers opens discussions of the accuracy of assumptions and expectations that can foster teamwork and more accurate bidding.
CrewBuilder is a tool used to measure project costing and automates the comparison of Actual to Plan. I invite you to take a look at CrewBuilder to see how this digital tool can help your company.
I love the adage “If you can’t measure it, you can’t manage it” by Peter Drucker. It’s an important message about defining what success means for your company. What is the difference between a winning and a losing bid? I wish the answer were as simple as just “pricing”. The truth is more complicated. Let’s discuss some of the areas to look at and measure.
Categories
Do you track the types of bids you win and lose? More importantly, how do you categorize your business: Service, new construction, remodel, commercial, or residential? And do you bid outside your area of expertise, and if you do-do you know your win loss percentages? Tracking where you win and lose customer bids is important to understand customer losses. Do you win more public projects but lose more private ones? The expertise of your estimator may have to do with where you find success and more importantly where you are losing. Tracking the types of bids your company responds to and where you are succeeding is a good indicator your company understands that part of the market. And if you are a subcontractor it is a telling way to understand what your generals perceive your expertise to be.
Let’s look at a possible scenario of where to increase your win/loss bid ration. If you are a remodeler and you are winning commercial TI bids but losing on residential kitchen and bathroom remodels, do you know why? Start by tracking the types (categories) of bids you win and lose. This will give you areas to do a deep dive to find out why you are losing some types of bids. Maybe your estimators have a great understanding of commercial projects but don’t have detailed understanding of residential projects and over bid out of an abundance of caution. You don’t know until you start measuring and tracking your bids.
Many contractors have around a 10% win rate, meaning that of all the bids they respond and submit a bid/quote they win roughly 10% of the work on those bids. In one way the more bids a construction company responds to the more work they will likely get. For every 100 bids/estimates they submit, they will win 10. That’s a lot of estimating and pricing work. The most common digital tool companies use is Excel; a wildly flexible business digital tool used by nearly everyone. You can reduce the time it takes to create a customer bid in Excel by using templates like everyone else , however it’s easy to make formula mistakes that could end up costing you a bid or under estimating the work required. And if first impressions through your estimator count then it’s much harder to differentiate your company using everyone else’s template. But speed is important, the faster you can create an estimate the more bids you can respond to. Focus is important as well, if you’re winning bids in some areas and losing them in others, you may want to look at focusing on the areas you are winning in or increase your understanding in the areas you’re losing at.
Experience
What’s more important, accuracy or speed? If we are talking about service work, speed may be more important than accuracy because of how small the jobs are and the flexibility of defining hourly work in a customer estimate. Even then, accuracy is king for setting customer expectations and accurate scheduling. More importantly accuracy in your bidding process is the only way to make more money both in the bid and in the project work. The real need in today’s crazy pandemic environment is improving accuracy, something that only comes with experience.
People Factor
It’s harsh but true, some people play favorites and don’t like you. I have heard this one before: “Whenever we give Joe a bid we always lose, it seems like he uses our bid to shop around to his favorites”. If this has happened to you, you’re not alone. It makes sense to track your wins and losses with your customers. If you keep giving ‘Joe’ bids you will most likely lose, why waste the time. If you can focus your efforts on customers you are more likely to win, you can improve your win/loss ratio.
Reviewing Customer Bids
Are all customer bids/estimates reviewed by at least one other person? If not, they should be. Your customer bid is the beginning of a contractual agreement, one that binds your company to the customer. Reviews are essential for improving accuracy and serve as an ongoing training tool. Some review requirements may include:
New estimators that need training
Tiered bid value amount, larger bids require multiple reviews to ensure accuracy
New resources (people or equipment) that may need additional reviews for accuracy
New types of work, if your company traditionally bids on commercial but are now bidding residential projects, you may need additional reviews for accuracy
Tight schedule, some bids may be required tight deadlines that include penalties for schedule delays
Bottom Line
Improving your win/loss ratio with customer bids/estimates can make a huge difference in the work you win. For example, if you are bidding on 400 projects a month (100 per week) and you are able to increase your win ratio from 10% to 12% (a 2% difference), that’s an additional 8 projects per month or close to 100 projects more per year. If you average $50,000 per project (keep the math simple) that’s close to a $5 Million increase in annual revenue. That simple increase is worth investing time and effort into.
The pandemic continues to change the construction economy in ways economists will be studying for decades. There is no silver bullet to solve worksite issues, all we have are people, process, and tools to solve the challenges of social distancing, supplier slowdowns, uncertain project schedules, a workforce susceptible to the pandemic, and a global economic slowdown.
What do we need to make it through the economic pandemic? In a word, innovation. Our industry has been slowly adopting a digitalized workflow process by strategically implementing software and new technologies to improve productivity, safety, and lower costs. In addition, the construction industry is dealing with a historic labor and expertise shortage. There are still a significant number of companies that use a paper process for managing timecards and schedules. Surprisingly, this is part of the pandemic issue. I met with one company who’s bookkeeper refused to touch the paper timecards crews turned in. Migrating to a digital workflow in part or entirely will help with issues like this. A digital process allows your team to work and view project health from anywhere, even if they are home on self quarantine.
The momentum of any construction project moves forward like a micro-economy with its constituents working together in coordinated lurches in productivity. A large part of ‘moving the ball forward one yard at a time’ in construction is balancing schedules and compromise. With Covid19, there are and will continue to be unexpected areas that will require compromise. Some of these compromises on the job site are mandated by OSHA and social distancing. Others will be in schedules where workers testing positive for Covid can cause delays and safety issues. Any successful project has always required some degree of compromise working together with contractors, suppliers, subcontractors, service providers, and workers. Figuring out how to keep project and job momentum moving forward requires additional tools to measure and manage resources in a detailed way, all the way down to the individual crew or worker.
A digital process also helps keep track of the financial health of a project. Near real time reporting and timecard/daily integration give you the benefit of knowing exactly how your projects are doing. Proactively managing projects gives you a degree of flexibility to proactively work with customers on change orders and schedule changes.
2020 is also an election year and November is sure to provide more uncertainty than confidence that our newly elected officials will break with tradition and actually work together. I sure do miss the days when contentious government still got work done for the benefit of the people.
We get through 2020 with two concepts that are somewhat foreign to construction; innovation and compromise. The new pandemic normal requires compromises on field and office practices. The faster you can identify and measure job site related changes give you greater flexibility in how to safely and effectively respond. Innovation as noted above, in digital tools across the construction industry are making a difference. One of our customers is saving over $16,000 in a single month just on labor time savings. Automating processes, such as timecards and project costs enable you detailed insight for decision making and proactively managing customers and expectations.
One of the few bright spots in the future is the possibility of a Covid19 vaccine speculated to arrive in December with production ramping up in January and February. Thousands of brave souls volunteered to receive the vaccine for FDA stage 3 testing, necessary to determine safety and effectiveness.
So how do we get from here to there through the 4th quarter of 2020. Like many, I will be glad when 2020 is safely behind us and we can get through to the new normal. Whatever that may be, it will be different than past years. Construction forecasts for the 4th quarter of 2020 look pretty bleak. Some believe it will be the closest thing to a construction economy collapse as we have ever come. Some are more optimistic citing the continued demand for new construction and enough booked work to get through to next year. Construction is very regional, some areas are thriving while others are not. The US economy has officially been in a recession since February 2020. There was some help with the PPP and emergency Covid19 business loan initiatives from the federal government. These programs were well intended but they were a drop in the bucket compared to a thriving economy. I have listed below some of the more useful sites and you work your way through the challenge of 2020 and onto a brighter 2021
If you haven’t taken a look at CrewBuilder yet, I invite you to spend some time with me to see how CrewBuilder can work for you.
The U.S. economy suffered its worst period ever in the second quarter, with GDP falling a historic 32.9%
Neither the Great Depression nor the Great Recession nor any other slump over the past two centuries have ever caused such a sharp drain on the economy
Even with new construction starts down 10%-15%, cash flow patterns are still indicating nonresidential construction spending will be up in 2020. Greatest strength is in non-building work. A reduction in 2020 new construction starts will show the greatest impact in 2021.
Expect 2020 spending declines in Amuse/Rec, Lodging, Offc, Mnfg. Expect increases in CommRtl (it’s all in warehouses, stores are down), and most non-building markets.
Highway and Bridge represents almost 40% of non-building markets and starts are up 8% for the 1st half 2020 compared to same period 2019.
Capacity planning is at the core of good project management; having the right resources scheduled at the right time can determine project success. Understanding your capacity needs will determine when you need to hire more people and when you may need to let them go.
Please join us with Shadow Ventures for TrenLot’s Startup Showcase on May 7th at 3:00 PM Eastern (noon Pacific). The CrewBuilder solution will be showcased by Shadow Lab’s community. “We are thrilled to once again participate in the premier Construction Tech Community at Shadow Labs”, said Greg Howard, Co-founder at TrenLot, Inc. “Shadow Ventures is a valuable resource to TrenLot. Our participation in the Shadow Labs Community continues to be rewarding.”
Please join us on May 7th for the Startup Spotlight:
Construction needs to move to the cloud – and TrenLot’s CrewBuilder done that. With making it easy to implement and increase project profit, what isn’t there to like? The labor shortage in construction is forcing companies to try and squeeze out every bit of labor they can out of their existing workforce. How can you make the most out of project management, business scaling, and more – all while wasting less time and resources? 1 answer – CrewBuilder.
WHAT YOU NEED TO KNOW ABOUT PAYING TOO MUCH FOR INSURANCE
One of the things every smart company must have is insurance, it’s simply the cost of doing business. Why do we need it? It’s simply to protect you by reducing the risk to a company if something goes wrong. Most contractors have general liability, worker’ compensation and some commercial auto insurance. When you purchase an insurance policy, the underwriter of the policy will have a range of questions that helps the underwriter understand how risky your organization will be to insure. The underwriter is the company that will guarantee payment in case of some damage or loss, they take on the financial risk for liability to your company.
WHY IS THE UNDERWRITER IMPORTANT?
The underwriter and the insurance broker (if you are using one) determine the cost of your insurance policy. You guessed it, the more risky your organization is, the more your policy will cost.
WHY AM I PAYING TOO MUCH?
There are several reasons you may be paying too much, but two big areas are safety and type of work.
SAFETY CHECKS, NOT JUST FOR OSHA
Having a great safety record pays dividends. It’s not just the safety meeting logs that OSHA wants to see, it’s the daily safety check your underwriter may want to see in an audit as well. If you have a daily safety check that your insurance company can audit, it could reduce your insurance costs. Sometimes it’s hard to keep up the required safety meetings, but it’s worth it. You must have safety meetings and safety checks documented. If you use construction software, the software should provide a place to document safety meetings and daily safety checks. We think its important enough to include in our products.
The other big area for insurance, especially with subcontractors, is the type of work you do. Was that job commercial or residential? The difference could be thousands of $$$ dollars a year in the cost of your annual insurance policy. It costs more for residential construction contractors insurance than it does for commercial. Why? Because it’s riskier to the underwriter. If you can’t document the split in business between commercial and residential business you do, then you have to pay the higher residential price. If you use construction software, it should include the ability to generate a report that tells your insurance company the split between residential and commercial projects you do.
WHAT’S ALL THIS MEAN?
Save money on your insurance by keeping a good, well documented safety record. Make sure your paperwork clearly defines which projects are residential or commercial. Documenting all of this takes time, many have streamlined the process by using software to keep everything together. When your organization grows, it’s worth examining products like ours that can help you grow for less by enabling fewer people to do more.
Please give our software a try, we think TrenLot can help you save money, run your organization more smoothly and be more profitable.
Capacity planning is at the core of good project management, having the right resources scheduled at the right time can make the difference between a profitable project and a loss. Keeping everything together is challenging, but it’s required to keep your projects and company profitable.
By its definition capacity planning is “the process of determining the production capacity needed by an organization to meet changing demands for its products”. For construction, this means the existing process you have to determine what resources you need to complete all projects. Capacity, generally speaking, means labor and materials.
If you are a sub-contractor, this means you need to forecast the labor you need to complete when scheduling a project. Managing crews and be challenging with understanding accurate labor costs, keeping accurate timecards, and assembling & scheduling the right crew with the right certifications/credentials. Most of the time materials have a reasonable lead time to delivery. That said, a poorly trained or misinformed framer can make a costly mistake and short cut hundreds of feet of boards on a project, increasing the materials cost. Things like this happen and can put project profitability at risk. Not tracking these kinds of things make it even more impossible determine if a project if profitable or not. Tracking performance is a key part of capacity planning.
If you are a general contractor or are a sub-contractor managing other sub-contractors, this means you need to work with sub-contractor schedules and material delivery forecasts. It goes without saying (which generally means it needs to be said), the more effective and timely communication you have with your sub-contractors and vendors, the more likely you are to develop a realistic project completion date.
At the beginning of a project, we can schedule resources—things like crew/team time and materials or other contractors. With business booming, work for many contractors’ ebbs and flows with their bid conversion ratio. The age-old contractor challenge: when you don’t have enough work, you drop your prices to make sure you have work in the future… when you have too much work, you increase the price you bids because in the event you win the job you will need to hire more people to execute the project.
Why is capacity planning important in construction? The obvious reason is to reduce the risk to your company by developing a strategy that handles the increase or decrease in your project pipeline. Here are a few things to consider in your capacity planning strategy…
What’s forecasted in your future? Filling the project pipeline is the front office activity of sales and marketing. Forecasting sales for your business can be one of the most difficult things to do. Some contractors view their forecast as simple as winning one out of ten bids, so the more bids you participate in, the more work you will have. Forecasting you project pipeline can be a much more detailed process. Suffice it to say that your sales team matters and needs to be included in capacity planning. If your sales people aren’t used to forecasting the deals they are likely to close, train them up.
Your people matter in capacity planning. You will likely know how much your people can handle. You should be tracking how your people perform with a good understanding of their capacity. Some people can indeed do more than others, but with the right tools and training everyone can do more. Managers often have a good feel for how much labor they need or sub-contractor availability. Managers need to be part of the capacity planning process, they can often identify likely issues with vendors, material delivery. Also, they will have valuable input on other variables, such as an opinion on the weather and how it may impact a project schedule.
I’m oversimplifying this, but there are basically two approaches to capacity planning, being proactive and being reactionary (technically there are 4, so I’m oversimplifying here). It may sound strange but both are valid strategies.
Getting ahead of a short-term labor shortage can save you in terms of customer relationships, company reputation, and the ability to complete a project. On the opposite side, investing in recruitment and a vendor diversification plan that you ‘may’ not need costs money. Adding people, vendors, and new sub-contractors as you need them is a conservative strategy that ensures you are paying to acquire only the resources you need. This ‘Lag Strategy’ (adding resources only after existing capacity is peaked out) can be detrimental to a project’s schedule costing more to complete the project the longer it takes. Finding the right balanced strategy is what you will need to determine in what’s right for your organization.
SO, HOW DO I DO THIS CAPACITY PLANNING THING?
Ideally you would use tools that are collecting the information you need, such as bid tracking conversion rates, employee management, project management, budget management, communications, document management and others. For the construction industry, some of the construction management software like ours or others help with capacity planning. There are software developers that just focus on human resources capacity planning (though they generally have a focus in IT projects). You don’t need software to determine capacity planning, but it makes it a lot easier. There are lots of resources, tools, and books that focus only on capacity planning. Here is a simplified approach:
Start with your forecast. Talk with your sales team to figure out a realistic sales forecast. This means they need to look at each deal and determine how likely (generally as a percentage) your company is going to win each bid. Besides, and arguably as import you need to know when the award will be made. You need to know what bids you’re most likely to win and when those projects deadlines happen.
Once you have a realistic (or as realistic as you can make it) forecast, you can overlay forecasted projects with existing resources. Managed growth is good, unmanaged growth is risky. Analyze the current snapshot of your organization and compare it to 30, 60 and 90 days out. Depending you’re your business, you may need to look 6 months to a year out for some resources, such as heavy equipment purchases and other resources that may be required for growth.
Identify the things you need and make a plan that include how and when to acquire it. For people, there are two basic ways to get the expertise you need, acquire them (hire, generally expensive) and train them (takes longer but you tailor their training to your company needs). If you need to hire a key project manager, it could take up to 90 days to find the right one. If you need sub-contractors in 30 days and your existing subs are too busy, use your sub-contractor evaluation and approval program to find and approve new sub-contractor resources. If you don’t have a vendor evaluation process, you should create one.
You need to task someone with the responsibility of always keeping an eye on capacity management and provide regular reports. Armed with knowing what you have and what you need, it’s easier to decide on when to take action to add the resources you need to handle growth.
Once you have a good understanding of what you need to add the resources you need to complete forecasted projects, you need to decide that suites your company’s situation and needs.
THE BASIC STEPS:
Task someone with the responsibility of capacity planning.
Generate sales forecasts on a monthly and quarterly basis.
Implement a system for measuring the performance of existing resources specifically to understand existing capacity.
Compare forecasted project resource needs to your company’s capacity.
Identify under and over capacity in your organization with forecasted capacity needs.
Create a plan to acquire or adjust the necessary resources your organization needs.
Every manager is responsible for setting and enforcing business culture expectations. At the top of every successful company’s priority list is safety. Setting a company culture starts at the top and starts with clear policies and procedures that are supported and enforced down the line. Having the right tools to keep clear communications between the office and field are a fundamental requirement for promoting safety. Even with State and OSHA safety requirements, it seems inevitable that accidents happen that could have been avoided. Construction deaths from injury are up from 937 in 2015 to 991 in 2016 according to the Bureau of Labor Statistics.
The slight uptick in deaths resulting from injury in construction, it’s fairly normalized with the increased number of total hours worked multiplied by average hours (more hours were worked by more people in construction in 2016). That said, it’s comparable to the 951 people who died from “Contact with powered lawnmower” in 2016.
OSHA and State(s) require safety plans and regular safety meetings, generally 1 meeting every 10 working days or once a month depending on industry. These are great opportunities to help set your company’s culture with an emphasis on safety. One way to support your focus on safety is to create a simple reward plan for following safety policies that result in zero injuries. Part of promoting safety is to keep everything together and organized.
THE REWARD PROGRAM
A safety incentive program should include everybody, from the back office to the field. The program reward can be something everyone gets, such as a lottery scratcher ticket. Every month, when there are no injuries, everyone on the team gets the reward. It may seem like a simple reward, but companies that have implemented a program like this have seen solid results. Some employees get upset when they don’t get their incentive reward—they are vocal with others to ensure the safe record. Obtaining this buy-in from your people will help automate accountability and profitability. Teams that have a vested interest toward a common goal will often self-police to ensure everyone is on the same page.
If you want to keep your team more engaged with safety, consider a slightly more elaborate and fun way to keep people involved. A friend of mine uses Safety Bingo to promote safety. Every month, each crew member is given a safety bingo card (you can get a free bingo card template here) At the end of each work week all crew members are given the bingo number or word. At the end of the month, the person that gets safety bingo gets a $100 tool. You would be surprised at how proud of a new quality tool some people can be. It’s a small price to pay to promote a safe work environment. The alternative of increased insurance rates and potential business loss is likely more expensive in more ways than one. One safety issue can send a project into a dizzying financial tailspin and damage your company reputation.
BE CREATIVE
There are plenty of ways to be creative and effective with your safety incentive program. Create a program with rewards that suite your company culture. Rewards don’t always have to be monetary, they could include special recognition for safety contributions.
The bottom line is that when everyone in the company in mindful of safety, everyone benefits. Safety mindfulness as part of a healthy business culture influences all aspects of operations, including the bottom line.
