It’s an established fact that construction projects regularly go over budget. Studies show that as many as nine out of ten construction projects incur cost overruns.
Even if a project is completed on time, exactly according to specs, and serves the purpose it was created for, those involved in the construction would be hard pressed to consider it a success if they did not make a profit.
There are many reasons construction projects routinely go over budget. Some involve factors that are simply impossible to control, including the weather. Onsite construction is wholly dependent on weather conditions (as opposed to offsite construction, where the elements are a non-factor).
With the daunting track record of budget overruns and uncontrollable factors involved in the construction process, companies need to be laser focused on the bottom line to retain viability. Although some line items on a budget may be exceedingly difficult to predict or maintain, there are ways for construction companies to save money.
Let’s take a look at some ways construction companies can save money, maintain their bottom line, and really think profit.
Adopting CPM Software
Whether a company is the general contractor or subcontractor on a construction project, they are part of a team. As such, successful completion of a job must involve external as well as internal communication. Clear, consistent, and regularly scheduled communication will help construction companies and contractors save money.
Smarp, an employee communications platform, says, “effective business communication is essential for success and growth of every organization,” and “its main purpose is to improve organizational practices, eliminate silos, keep employees informed and reduce errors.”
Corporate Performance Management (CPM) software is a vehicle for improved communications because it relates to finances. B2B software and services review platform G2 says, “Corporate performance management (CPM) software defines and manages the strategies that large companies need to monitor the performance of their business activities. CPM software is used to create and implement methodologies and processes, allowing corporations to track key performance indicators (KPIs) relative to corporate business objectives.”
Automating Away The Waste
Many science fiction novels forecast a future where humans are pushed aside and machines take control. These creepy visions of the future seem less far-fetched as machines become more intelligent.
In the construction world, machines or automation are regarded as a solution to the challenges of filling positions in the field. Before the Covid-19 pandemic and the resulting economic impact, one of the biggest issues in construction was the insufficient labor pool. A 2019 survey by the Associated General Contractors of America and Autodesk found that “eighty percent of construction firms report they are having a hard time filling hourly craft positions that represent the bulk of the construction workforce.”
So, it’s no surprise that companies have developed machines and robots to fill the roles that humans had been doing.
Automation can also benefit and improve the performance of traditional back-end functions.
Taking a step back, Inc. defines office automation as “the integration of office functions usually related to managing information.” Further, they note, “however, office automation is increasingly understood as a term that refers not just to the mechanization of tasks but to the conversion of information to electronic form as well.”
But why implement automation on the back end of a construction company? The employee crunch that is felt in the field does not seem to exist on the back end.
Oracle lists 10 benefits of automation: operational efficiencies, productivity, morale, governance and controls, cost reduction, workforce allocation, reduction of human errors, collaboration, improved insights, and greater availability.
Forecasting for Labor
According to a 2017 McKinsey report, labor productivity growth rose an average of just one percent per year for the past two decades. For a wider perspective on the impact of this low growth, also consider McKinsey’s calculation that “…if construction labor productivity were to catch up with the progress made by other sectors over the past 20 years or with the total economy…we estimate that this could increase the construction industry’s value added by $1.6 trillion a year.”
How can construction companies save money and increase labor productivity to tap into the value that McKinsey believes is out there?
One answer is labor forecasting. McKinsey points to “more readily available new technologies…” as one of the types of disruption that could lead to higher productivity.
Forecasting labor needs is a time-consuming process. However, appropriate labor forecasting software, according to Paychex, a leading provider of integrated human capital management solutions, “can help managers effectively project staffing needs and create an optimized workforce plan.” On the flip side, poor labor forecasting drives down productivity and increases labor costs.
With thin profit margins the norm in construction, saving money wherever possible can mean the difference between failure and success for a project and even for a firm.
Read the full eBook on How to Think Profit here.
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