In theory, a construction project follows a straightforward process: estimate the job, win the bid, execute the work correctly, manage paperwork, and get paid – all on schedule and within budget. Unfortunately, the reality is far more complex. Construction projects face numerous challenges, and poor jobsite controls can significantly impact profitability. Let’s explore the top reasons for lost profitability due to inadequate controls at the jobsite.
1. Poor Job Planning and Coordination
According to the Associated General Contractors of America, roughly one-third of all construction projects fail to achieve their profit goals. And ours is in an industry with notoriously slim profit margins to begin with.
Effective project planning and coordination are critical, not just in the pre-construction stages of a project, but also during live construction where construction and project managers must adapt to ever-changing jobsite conditions, labor and material shortages, and the inevitable influx of change orders. Without proper field management systems and control measures in place to keep work on track in the face of constant change, contractors find themselves experiencing:
Schedule delays: Inefficient scheduling leads to delays, affecting project timelines and increasing costs.
Resource mismanagement: Poor coordination results in wasted labor hours, equipment downtime, and unnecessary expenses.
Material waste: Inadequate planning leads to overordering or mismanagement of materials, resulting in unnecessary costs.
2. Problematic Cash Flow
Cash flow in construction is not nearly as steady or predictable as in most other industries. Billings and payments tend to come in large chunks tied to job performance metrics that can be hard to track and verify.
The risk of going out of business can be very real for contractors who take on large projects without the right cash flow controls in place. At a minimum, these contractors can expect to experience:
Operational constraints: Delayed payments disrupt cash flow, affecting the ability to pay subcontractors, suppliers, and employees.
Higher interest costs: Borrowing to cover expenses due to late payments incurs interest charges.
Opportunity cost challenges: Funds tied up in unpaid invoices could be invested elsewhere.
3. Wasted Time and Money
The most obvious detrimental result of poor jobsite controls is waste. Wasted labor hours, missing materials, heavy equipment sitting idle – the list goes on and can include every resource used to complete a project. These three categories, however, rise to the top of the list of potential sources of waste (and thus savings) that need to be closely managed:
Idle labor: Poor coordination leads to idle project workers, increasing labor costs without corresponding productivity.
Rework: Errors due to miscommunication or inadequate administrative controls result in costly rework.
Equipment utility: Inefficient scheduling and maintenance lead to equipment downtime, impacting productivity.
4. Damaged Reputation
Finally, and perhaps most importantly, a poorly managed jobsite affects a company’s reputation. As transactional as construction operations may become, the construction business is still based largely on relationships. While there may not be a line item for it in our ledger books, your company’s reputation is one of its most valuable assets which, when damaged due to poor construction site management, can lead to:
Client dissatisfaction: Delays, errors, and inefficiencies disappoint clients, affecting future business opportunities.
Subcontractor relations: Late payments and disorganization strain subcontractor relationships.
Staffing challenges: In a persistently tight labor market, contractors cannot afford to have a reputation as being difficult to work for.
Conclusion
The business of construction is not for the faint of heart. Typical projects require tracking and controlling hundreds of moving people, parts, and equipment, and just one large poorly managed job can sink a firm.
The good news is that construction vendors are racing to bring new information technologies to market to improve jobsite productivity. The leaders in this race are those whose solutions help empower our construction and project managers in the field, where money is made or lost, and decisions must be made in real time.
Winning, after all, isn’t just about being the smartest. It’s about applying that intelligence when and where it matters most – at our jobsites.
Mike Soniat is President and Co-Founder of mJobTime, a leading provider of field management solutions for the construction industry for more than 30 years. He can be reached at [email protected].
