It doesn’t seem hard to cut costs on a project by 2 or 3%? That seems to be a low number, is it even worth bothering? Consider this, if your project cut costs by 2 to 3 % it means that the profit will increase by a similar number. Again this sounds like a small number. But let’s consider that most construction projects are priced with a 10% profit margin (if we are really lucky it’s 20%, but in a tough market it could be 5% or less). So, if your project makes an additional 2% profit then the profit increases from 10% to 12%, which is actually a jump in profit of 20% – not too bad! In fact, most medium and large construction companies only make around 4 to 6% profit in a year – go on and check the results of the listed contractors. Therefore most companies would welcome a lift in profits of another 2%. Cost saving can get you those extra percentage points.
But does the construction team truly realize how easily they can dramatically influence the company’s profitability? Sure, there are many other things that can also positively and negatively impact profits, but everyone on the project has a direct influence on profits.
10 ways to reduce costs.
Let’s consider 10 ways we can reduce costs on our projects. In a follow-on article, we will consider other ways.
- Finish your project on time. This would seem obvious advice, yet frequently contractors remain on the project long after they should have completed it. Even when the project is handed over to the client contractors often remain on the project, completing items on the punch list or fixing defects, for weeks and even months. Ensuring that quality work is produced, and those punch items are attended to as work progresses will reduce the time spent at the end of the project correcting defects. Plan how the project will be completed on time so that no outstanding items or documentation will delay completion. Remember, people, remaining on the project after it should have been completed cost money. But also, an incomplete project usually means that the client hasn’t released final payments, bonds and retainage monies which add to the costs.
- Improve productivity. It’s not hard to increase the productivity of people and equipment by 5%. Are everyone and every item of equipment on your project 100% productive? Is there a better way of working? Do you have the right match of equipment and skills? Look around the project – are people standing? Is equipment standing? Why? Continually look at ways to improve processes.
- Reduce waste. Materials are wasted when they are broken. Why? Is it because they weren’t packaged properly, because people are careless, maybe because they aren’t used correctly. Of course, frequently materials are wasted because too much is ordered.
- Negotiate reduced rates for equipment hire for inclement weather, low usage, and site closures. Equipment hires companies frequently charge for the equipment every day it is on the project – whether it’s being used or not. If the machine is going to be on the project for a lengthy time negotiate with the supplier that you don’t pay when it rains or when the project is closed.
- Prevent theft. Theft of materials, tools, and equipment and even time is rife on all projects. Put systems in place to detect and deter theft.
- Adjudicate quotes and prices thoroughly. Is the price you received really the cheapest? What hidden costs are there? Then ensure that orders are clearly shown what’s included.
- Check hired equipment when it arrives. Hire companies to expect their equipment to be returned to them in good condition and usually with a full fuel tank. You will be charged for damage and additional fuel. It’s important to record damages on the machine when it arrives and report this to the hire company, otherwise, you may be paying for this damage. Record the fuel level. Why should you be returning the machine with a full tank when it was empty when it arrived. An excavator could take a hundred gallons of fuel!
- Control over time. Why pay someone 50 to 100% to do the same job. Yet that’s what happens when workers on the project work beyond their normal hours, or on weekends and holidays. But more importantly, people can’t be productive if they work 10 hours or more every day. We all get tired after a hard day’s work. Sure, sometimes some people have to catch up lost time on the project or work longer to complete a task that must be ready for the next day. But control who works longer, ensure there is supervision so that they are productive and ensure the hours worked are recorded correctly.
- .....Continue Reading.....
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