Where Is Profit Margin Hiding In Every Construction Project?

December 12, 2017

For general contractors, running a profitable construction project can be challenging to say the least. Not only are the margins often fairly thin to start with, but there’s always some uncertainty when going into a project as to how smoothly everything is going to go, how well the initial plans and estimates will play out, and whether or not the client is going to be satisfied with the finished product.

One of the key sets of skills a successful contractor brings to the table is the ability to effectively plan and manage their projects so that they achieve success more often than not. Otherwise, they won’t be in the business for long. But, there are generally little things here and there even the most skilled and experienced construction pro can do to help eke out a little more profit from each project and increase their chances of success. Three areas you can look at with your next project focus on eliminating waste, planning more effectively, and improving quality, speed, and accuracy.

Eliminating waste

Inefficiency and poor management of resources is the single greatest killer of profit on the average construction project. When you consider all the moving parts on each job, it’s easy to see why this is such a problem.

Many firms will go for years without ever making a concerted effort to analyze their processes with an eye toward identifying and mitigating construction waste. Meanwhile, their profit margins are constantly eaten away by duplicated effort here and a late shipment there, making it harder for them to compete each day it continues.

On the other hand, a firm that places a high priority on eliminating time- and money-wasting issues will find it easier to remain competitive and will often find jobs becoming more profitable as time goes on, due to the iterative nature of continual improvement.

Planning more effectively

As inefficiencies are identified, it becomes apparent early on that many of them can be lessened or even eliminated through more effective planning. Virtual Design and Construction (VDC) is leading the charge in this area. It’s the process of virtually building a project to identify opportunities that may not have been apparent before. These opportunities can include things like prefabrication, testing the construction schedule for scheduling trades, 3D model coordination, and estimating. Using VDC to identify any inefficiencies and eliminate problems before they start is one of the major ways to plan projects more effectively.

If analysis reveals that hours or even days of productive work are lost due to the necessary tools not being readily available where and when they’re needed, it stands to reason that more effective planning and coordination between the project manager and the tool crib manager will likely resolve the issue. Likewise, if the fabrication shop routinely causes delays because they’re not yet finished pre-fabricating a particular job component, more effective planning earlier in the process should be able to get them the materials they need. Offering an accurate timetable ensures the fabrication process can be started and completed during the optimal window.

The project estimator, procurement, human resources, and every other department involved in the beginning stages of project planning, should always be focused on collaborating to develop the most thorough and accurate plan possible if they want to successfully find profit that would otherwise be lost.

Improving quality, speed, and accuracy

Beyond working to eliminate waste and improve the planning process, everyone involved in the project workflow can potentially find hidden profit by focusing on high quality, efficiency, and accuracy in whatever tasks they’re carrying out.

While skilled and experienced professionals generally know how to do their jobs quickly, accurately, and with the highest-quality finished product, other factors can get in the way of accomplishing that goal. For instance, settling on lower quality materials and supplying poor quality or poorly maintained tools and equipment can lead to skilled workers doing a subpar job. This results in rework and schedule delays to correct the errors. Likewise, unrealistic deadlines can force workers to rush at the expense of quality and accuracy. Thoughtless scheduling can cause professionals from various disciplines to have to work around each other or waste time waiting for others to finish, which can also lead to unnecessary rushing to completion.

While producing barely acceptable work may technically yield more profit on a single project, the negative impact on a firm’s reputation and future prospects will certainly result in less profits overall.

In every one of these examples, modern construction technology is available to help contractors identify and extract hidden profit from each and every project in a sustainable way.

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