Current State of The Union For Contractors By FMI FMI and most of our clients are seeing increased construction opportunities and projects in many markets across the US. However, in spite of the increased opportunities, margins remain tight. Another interesting observation is that the top 25% of labor-intensive trade/specialty firms are performing much better than their peers and competitors. Recent CFMA data showed that the operating profits of the top 25% of specialty firms was right at twice that of the average of their peers. Because FMI has an opportunity to work with many of these firms, we get to see what they are doing, that is producing uniquely different results. Below are a few of differences that we are seeing between the most profitable firms and the average and under-performing ones. • Project Selection – The projects that you decide not to bid or pass on below some acceptable price, could be some of your most profitable projects. Saying no to an opportunity is one of the most difficult thing that a contractor can do. However, the most profitable contractors in today’s market are very disciplined in this area. They know their costs on bid day, they understand what type of margin that they need to make to cover their overhead and produce an acceptable bottom-line, and they pass if they cannot get it at a price that is acceptable. With limited resources and a shortage of talent in both the field and office, the last thing a contractor needs is a big, bad, long-term losing project, that ties up a significant portion of their people. While growth provides opportunities for shining stars in your organization, you may want to ask yourself whether you want to be big or profitable. These two options are not mutually exclusive, but in most cases operating profit percentages decline, as revenue increases. • Talent Development and Training – There is no surprise that there is a shortage of talent, both in the field and at the project management ranks. This is not unique to your market, nor is it going to get any better. Therefore, figuring out how to recruit, train and retain is more critical than ever. Many contractors complain about the level of competence with their field managers (superintendents and foremen) and project managers, but few do anything meaningful about it. More than ever, field managers and project managers need to have leadership skills, management skills and business acumen to have any chance at success. Having great technical skills just doesn’t cut it anymore. The difference that FMI sees relative to this trend is that the best in class companies are investing heavily in training for their field managers and project managers. Training requires an investment, but so does one bad management decision by a PM or field manager. For some reason, many contractors will accept labor overruns and margin fade, but balk at the idea of investing similar amounts in the training that their people need. Best of class firms are investing heavily in their people and training. • Project Execution – If you want consistent results, you better have consistent management processes that are followed on every project. Projects today demand good planning, communication, measurement and feedback processes. A 5% - 10% overrun on labor may sound small, but could be difference between making your estimated margin or tying up resources and losing money. As I tell contractors that are not satisfied with their profitability, “you are perfectly designed to achieve your current results”. The quality of project execution is impacted by many things, including culture, leadership, structure, management processes and compensation. Understanding how all of these variables are impacting your current operational performance is difficult for most companies, as it often requires them to look in the mirror and admit that they have leadership and management issues. Regardless of what many people believe, poor productivity is not the result of bad field people. In most cases, the productivity issues in the field can be traced back upstream to poor management processes and inadequate support from the office. Productivity is a result, so if you’re focusing only on the result, you are going to assume your problems are in the field. Until you step back, look at everything upstream and determine where management and/or the processes are breaking down, you’re not likely to create any sustainable improvements.
Posted on: Sat, 15 Nov 2014 00:37:19 +0000
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