How to Maximize Profits on Your Projects
Small changes add up to big dollars
By Bill Goodman
Every dollar counts, and every penny wasted is precious. Losing incrementally small amounts on your construction projects can add up to thousands of dollars very quickly by the end of a project.
So what can be done about it? Maximizing profit must be a top priority along with completing projects on time. It’s key to not only focus on daily tasks and responsibilities, but to make time for cultivating the financial tools and strategies that can help you meet your goals. Consider implementing these two proven strategies to maximize your bottom line and grow your competitive edge:
- Accurate General Conditions. General conditions in construction include the onsite administration, supervision, temporary facilities, temporary protection and soft costs required to get a project built. Estimating accurate general conditions for projects can be a simple task when the estimator is accountable for getting it right. Most estimators use unit prices that are rarely checked against the actual final job cost. For example, creating a budget for a temporary toilet seems easy, right? An eight month job should cost $100 per month, but when the field superintendent sees that there are 40 extra men on the job and more than one toilet, it means that more than one service a week is required. This might increase the actual job cost by as much as $200 per month. These extra costs will add up to lost cash.
The estimator’s primary job is to calculate an accurate estimate of what it will cost to build each project. After each completed project, the estimator must look at the actual job cost to see if he miscalculated, overestimated, or underestimated any of the project line items. Before pricing any project, the estimator should meet with the project manager and field superintendent to determine what will be required to run the project that’s being bid on. Estimators should also research to determine if they are charging the right price for the project needs and staffing, specifically temporary signage and barricades, fencing, temporary power, safety and first aid, and final clean up, just to name a few.
- Charge for All Amendments on Change Orders. Change orders are written documents amending the original contract agreement between parties observing an addition or change in scope, price, time, schedule, terms or work items on a construction project. Most often they require extra finances for the additional services required by the change.
If formal approval or authorization for extra work is postponed for days, weeks or months after the event occurred, then the customer is in a great position to settle or offer to pay a discounted price, change his/her mind or decide that the additional work should have been included in the original contract. To avoid this problem, present a complete cost breakdown for every proposed change order that your customer requests before starting the job. Use a standardized format, cost template and rate sheet to ensure that you include all additional costs ensued from added work. Every time extra work is performed, extra costs become evident. What are these extras costs? Some examples include processing paperwork and payments, writing change orders to subcontractors and ordering materials and equipment. Liability insurance and overhead cost may also go up. If the project has a payment performance bond, this should be calculated into the pricing. The general condition costs that are needed due to time extensions caused by the additional work or services should be included. Some items may have to remain on the job site for extended times, such as: construction trailers, temporary facilities, fencing, protection, etc. Do not short change your company by failing to ask for everything necessary to complete a job. Most commonly, change order requests are presented as labor, materials and hard cost plus markup, without extra required soft costs for many of the items noted above.
Making money is not easy in the construction industry. Look for every advantage that you can to boost your net profit margin, so that you are not giving it away.
William Goodman, Senior Project Manager for Triune, is a highly accomplished, multi-talented project manager with over 30 years of construction experience. He encompasses excellent skills in preparing schedules and managing job costs, budgeting, contract negotiation, design-build and pre-construction services.
The Punch List is Triune’s proprietary blog for discussing issues and providing insight specific to the commercial construction industry. Copyright 2013 TMV, LLC (Triune). Any and all rights reserved.