Departments — March/April 2006

Productivity: Three Keys To Improving Profits

Today's contractors have more tools than ever to help them reduce waste, monitor the progress of projects and track day-to-day changes on the jobsite

Brad Mathews VICE PRESIDENT Brad Mathews is a vice president and owner of Dexter + Chaney, based in Seattle. Over the past 14 years, he has worked with hundreds of construction companies on the implementation of new software for their businesses. He holds a bachelor's degree in business administration and an MBA, both from the University of Washington. E-mail: info@dexterchaney.com

Increasing productivity is the engine that has fueled economic growth at home and around the world. Each year, productivity improves at an average of slightly below 2% across the U.S. economy. Unfortunately, the construction industry has not enjoyed this kind of improvement. In fact, over the last 40 years, the level of productivity has actually fallen across the industry as a whole.

But it doesn't have to be this way. Today, smart construction companies follow a number of strategies to improve their productivity, reduce costs and ultimately become more profitable. You can follow these same strategies to improve many of the processes your company uses every day.

Technology Can Help

You don't have to go it alone. Powerful tools are available that can help make the difference. Today's construction software running on a modern computer network with Internet capabilities can make the tools available to everyone in your company who needs them.

How well do your operations and financial groups work together? Are they frequently at odds over a variety of issues? Or do they work from the same set of numbers and share information easily? It's very common to see both of these critical groups performing overlapping tasks that waste time and money.

Let's use the example of vendor invoices. The processing of vendor invoices includes copy, file, route/fax/overnight, code, approve, route/fax/overnight, data entry and payment. The back-and-forth between financial and operations people can take weeks. Not only does this waste time but more importantly, critical information about job status is held up in the process.

As a result, operations struggles to produce accurate cost-to-complete estimates based on the latest information. These projections are critical to identifying cost overruns in time to correct them. So, operations either doesn't perform regular cost-to-complete estimates (the construction equivalent to flying blind) or they create an elaborate stand-alone system in an effort to have real-time information.

Today's construction software can put both your operations and financial groups on the same page. They can share the same numbers, anticipate cost overruns and save time in the process.

Driving Down Overhead

Overhead is a drain that sucks down potential profits. How can it be cut? Let's look at change orders as an example. How many steps are required from the first moment a potential change is identified until payment is ultimately received? How many places are records stored? How many times is the same data re-entered in different software programs and spreadsheets? Is there visibility across the company to changes that are in progress? Is adequate back-up documentation readily available to those who need it?

The right software will allow your company to process change orders every step of the way from the moment a potential change is identified to recording the actual payment, all within a single program. At the same time, the original documentation, including photos, project logs, signed change orders, etc. can be stored within and accessed from the same software.

A unified construction software program using a single database can make this possible. No data is re-entered and no information is lost. Visibility exists in every step of the process. Approvals and collections are improved because of early and complete documentation. As a result, you save time and money on each of the necessary steps, and you're more likely to get paid in the end.

Reducing Waste

Wasted labor hours, unused materials, lost equipment time all drive up costs and reduce profit on your jobs. You know they exist and you'd love to cut them out, but how do you go about it? The first step is to identify the waste, understand where and how it occurs. Once you do this, you can set out to attack the specific causes of waste.

Today's construction software makes it possible to identify waste in many ways. Wasted labor hours, equipment hours and materials can all be tracked and quantified. Existing technology makes this possible. At the same time, you'll need to create a culture that encourages everyone in the company to point out waste wherever it occurs. So get everyone on board. Recognize those who identify waste and report on company successes in cutting the waste.

If you put this approach into practice, you can turn your staff into a waste-cutting machine that will help bring jobs in under budget while simultaneously reducing company overhead.

Improving your company's productivity is not a one-time fix. Each improvement will yield benefits in the current year and in the future. Putting your company on the path to better productivity can be the engine that helps fuel profitability now and for years to come.