Business Advisory Services Blog

Five Ways to Build Profitability in the New Construction Landscape

Since the economic downturn, construction firms have been constantly adapting to the new industry environment.  Shrinking profit margins, reducing staff, and cutting overhead are just a few examples of ways companies are trying to stay above the line and build profitability.

However, it is important to take a step back and ask yourself, “Does my company operate from a place of ‘disconnect’?”  Meaning, have you given thought to merging the accounting and operations activities of your company to improve workflow and profitability?

Most operations personnel (foremen, superintendents, project managers, etc.) are technically trained to build.  They developed their trade skills from the ground up (apprenticeships), through engineering backgrounds, or construction management training.   All of these are focused on the construction process, and they frequently have little to no financial training.  

On the flip side, financial personnel are trained to organize numbers and analyze, most often at a high level.  These individuals may have training in information systems and forecasting but generally it is minimal, and they typically have little to no construction training.

This doesn’t necessarily imply that operations and finance personnel are completely unaware of what the other does, or that experienced individuals don’t have some working knowledge about each respective discipline.  There are steps construction companies can take to narrow the gap; what can you do to ensure better integration and improve profitability? 

  1- The Culture Club
Bridging the gap between the accounting and operations personnel begins with creating or reinforcing a sharing culture within your firm.  A typical hesitation within construction firms is the amount of time, resources, and energy required by the individuals who are usually responsible for teaching and sharing knowledge.  It is important to spread out the duties to more individuals to avoid overwhelming the "go-to" employees.  Firms should evaluate their staff and identify as many "all-stars" as possible to distribute the teaching and sharing responsibilities.

2 – Sharing is Knowledge
After pinpointing these individuals, firms should turn their focus to the pertinent knowledge that needs to be taught and shared between accounting and operations. Start with using historical examples the company has experienced.  Emphasize key performance metrics (KPMs) to illustrate company performance on actual projects. For example, controllers can provide details on the company's top ten most over-billed projects to illustrate best practices for billing. 

These training and sharing activities should involve all team members, including payroll employees, project managers, superintendents, and controllers.  All of these individuals have specific knowledge to bring to the table that can be helpful for all personnel who are part of the process. 

3 – Who and Why?
Ask questions – create an environment in these sessions that encourage dialogue among the separate disciplines.  After these sessions are complete, make sure to incorporate these discussions into your company's internal knowledge base and human resource center.  Holding these meetings without creating a repository of the information shared can result in time wasted.

4 – Empower Your Team – Strengthen the Project Review Process
This is a process that should be a team-centered practice where companies gather the smartest people to evaluate how to build a better project at a lower cost.  Avoid common pitfalls in the review process. Don’t just use the "project came in as budgeted" line to evaluate jobs.  Drill down into individual cost codes to improve estimating accuracy and productivity improvements.  In addition, don’t just focus on the strong performing jobs.  Evaluate the weak performing projects and challenge the team to provide strategies to project profit goals.  Avoid meeting the minimum required metrics from the bank or surety.  While meeting these metrics are important for obtaining project funding and bonds, companies should expand the review process to improve profitability and cash flows. 

5 – Set Yourself Up for the “Just Rewards”
Finally, "we don’t have the time or resources to implement this culture" is not an acceptable excuse.  Margin fade alone can end up costing companies more in profits than making the decision to invest the resources required to create a sharing culture.

While we have considered numerous examples and practices for integrating accounting and operations activities, the important factor in accomplishing interdepartmental integration is execution.  Often, companies will fall short in implementing new practices and procedures due to a lack of commitment.  With a shared responsibility between the accounting and operations departments to work to a higher standard, your company will quickly notice an improvement in its fiscal performance.

Are you ready to learn more about improving your bottom line? Call Mike in our Real Estate and Construction Group at 440-449-6800 to start the conversation and learn how you can adjust your accounting operations to become more profitable.

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