Business

Build a Lasting Foundation of Profitability

Implementation of the soft science of organizational management integrated with appropriate financial controls can ensure profitable job execution.
By Rob Nowak
July 20, 2018
Topics
Business

Financial benchmarks, financial statements and job costs are typically top of mind when a construction professional uses the word profitability. However, building a lasting foundation of profitability relies on non-financial factors such as people, communication, KPIs and a culture of accountability.

Implementation of the soft science of organizational management integrated with appropriate financial controls can ensure profitable job execution.

Put People First

Underperforming jobs typically start with unsatisfied, under-qualified, under-trained and overwhelmed team members. Staffing jobs with the best people is easier said than done. Finding qualified people with a solid work ethic is proving to be more difficult.

Increased competition fueled by an expanding economy is partly to blame. A decrease in engineering degrees coupled with the accelerating retirement rate of seasoned talent worsens the problem.

Be proactive in the battle for good talent and develop a culture that attracts the best people.

Money is increasingly less important to younger employees than the quality of their experience. Effective managers listen to employees’ ideas and provide a well-defined career path to the supervisory level. They do not micromanage, but they also do not give employees free reign.

Young project managers expect access to tech tools that help them communicate effectively and meet or exceed expectations.

When a company has qualified, motivated project managers running jobs, the potential for surprises and cost overruns diminishes.

Establish KPIs and Critically Review Project Performance

It is typically more expensive to develop a new client than maintain an existing one. Imagine the profitability boost by retaining just 5 percent more clients.
Client satisfaction directly correlates with job performance in cost, time and quality. Develop KPIs that stress performance in all of these areas. A KPI model is unique to a company, but it must be able to identify deficiencies in all three areas on a consistent basis.

Implement a KPI dashboard that enables project managers, company executives and internal finance support to regularly monitor job costs and on-time performance. Dashboards allow users to rapidly drill down into project metrics to learn the “whys” rather than the “whats” of project performance. Successful companies develop metrics to monitor quality, safety and customer satisfaction. Use a dashboard to monitor job performance in real time to prevent small problems from becoming big problems.

Communication Is the Tool of Profitability

If hiring and retaining qualified people is the foundation of a profitable construction company, then communication is the bedrock on which the foundation rests. Developing systems that facilitate open, transparent communication builds trust and forms lasting relationships. Young professionals in particular understand that communication fosters idea sharing and innovation.

Project teams are built from diverse backgrounds typically comprised of hundreds of years of combined experiences. Effective communication models harness the power of shared experiences. Failure to execute on this wellspring of expertise limits the ability of the team to identify and prevent job performance issues.

Make communication a safe, collaborative activity. Avoid timeline-driven meetings (e.g., weekly or monthly). Instead, schedule meetings when the need to meet arises, such as when key milestones are met or KPIs necessitate it. Invite all team members with a stake in the project to the discussion.

Do not waste precious meeting time on trivial matters. Solicit meeting agenda items, develop a 15- to 30-minute agenda and stick to it. At the beginning of any meeting, be aware of the purpose of the meeting and rely on team members to offer ideas and potential solutions. Do not allow meeting time to devolve into a forum for group complaints or base-covering.

Hold Leaders Accountable

Management is responsible for setting the tone for project accountability, which in turn drives profitable results. Team members who realize a sense of accountability will be apt to drive a project to meet higher standards of cost, time, quality and safety. Accountability will only be part of a company’s culture if management and owners walk the talk. When owners and management make commitments, they must follow up and follow through appropriately.

Building a culture of accountability requires deliberate action. Provide employees with a clear understanding of the importance of being personally accountable to their own job function and how to conduct themselves when engaged with other team members. Do not accept selective accountability. Be specific when communicating, place clear directions on tasks, and effectively summarize discussions where assignments and tasks are to be executed.

Emphasize a “return and report” management style. Team members who have accepted or been assigned tasks should be expected to report on the status of tasks rather than be chased by managers for follow-up and results.

Celebrate team members who embrace accountability and confront those who shun it. Use team members as real examples of what accountability looks like and demonstrate that the company will practice accountability at all levels of the organization.

It is not coincidental that the contractors that care about their people, their culture and their legacy are not only profitable, but are also often regarded as the best companies by their employees and their clients.

by Rob Nowak
Rob Nowak, CPA, serves as tax partner with national public accounting and advisory firm, Weaver. He has more than 25 years of public accounting experience, providing proactive tax consulting and planning services to businesses and family offices across multiple industries, with a concentration in the real estate and construction industries. Weaver has built a nationwide presence on an unwavering commitment to its clients’ success, acting with integrity and always striving to transcend expectations.

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