Last week I asked the question what you do when your project is losing money and how important it is to find the correct reasons for the loss so that appropriate action can be taken to stem the losses and hopefully recover money already lost. (Read this article).This week I’ll explore some reasons why projects lose money.
There are many reasons that cause projects to lose money, and often more than one for a particular loss. Some reasons may be:
1. There are too many people. The work area may be congested or people standing idle
2. Inadequate, weak or insufficient supervision. Materials may arrive late, or workers are standing waiting for instruction or allowed to take lengthy breaks. Supervisors don’t have the necessary skills to manage and motivate their teams or the knowledge to ensure tasks are carried out correctly
3. The wrong mix of trades and skills. For instance workers may be standing waiting for others to erect access scaffolding, or maybe there are too many general workers and insufficient craftspeople.
4. Low worker morale resulting in poor productivity
5. Poor discipline and time-keeping resulting in low productivity and lost time.
6. Under qualified workers resulting in poor quality or low productivity. Skilled workers can usually perform tasks more quickly and with less waste.
7. Poor safety resulting in accidents.
8. Too much equipment or the inefficient utilisation of equipment. Also the poor scheduling of servicing and refuelling which interrupts work cycles.
9. The wrong type of equipment for example large excavators being used in congested areas to dig small trenches, or small excavators loading large trucks.
10. Equipment that continually breaks down, resulting in workers and other machines standing idle waiting for them to be repaired.
11. A shortage of materials, which delays work and results in special trips and additional costs to get the missing materials and delays the work
12. Defective materials which results in delays while material of the right quality is procured as well as additional costs to replace the defective material.
13. The project is poorly planned and managed.
15. Subcontractors not performing as they should, delaying follow on trades.
16. Poor workmanship resulting in work having to be redone. Lack of appropriate quality systems or not enforcing the quality standards.
17. Theft of materials and equipment.
18. Wastage of materials.
Of course sometimes the reasons are because of the client, in which case it's important that the contractor notifies the client, claims for the delay, changes, or additional scope, and assists the client to rectify the problem. Read: Are you working for free on your construction project?
Sometimes the loss may be just because the contractor measured completed work incorrectly or made mistakes on their invoices. This sounds difficult to believe but I have had on occasion projects make arithmetic mistakes or fail to measure some construction drawings.
On occasion suppliers or subcontractors are paid more than they are due or haven’t been charged for services supplied to them which they should have paid for or provided themselves.
Occasionally the problem is due to a mistake in the tender in which case the estimator should be told so the same mistake doesn't occur on the next tender.
By implementing a good costing system it’s possible to detect losses on a project earlier so that action can be taken before the loss accumulates.
But even with a reliable cost system it may still be a month before the problem is detected. Project Managers should get into the habit as they go around the project site to ask the following questions:
1. Is this included in the project scope and our tender price? Are we being paid for this? Have we claimed for it?
2. Is this the most efficient way of executing the task?
3. Does this meet the quality standards and specifications?
4. Is this safe?
Other relevant articles by the author:
Managing subcontractors on your project. What you should consider.
Is the cheapest really the cheapest?
How poor productivity impacts projects
The importance of planning your construction project
Will your construction project be completed on schedule? Read this.
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(Paul Netscher is the author of the acclaimed books ‘Successful Construction Project Management: The Practical Guide’ and ‘Building a Successful Construction Company: The Practical Guide’. Both books are available in paperback and e-book from Amazon and other retail outlets. This article is adapted from information included in these books.)
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The opinions expressed in the attached articles are those of the writer. It should be noted that projects are varied and different laws and restrictions apply which depend on the location of the contractor and the project. It's important that the reader uses the supplied information taking cognisance of their particular circumstances. The writer assumes no responsibility or liability for any loss of any kind arising from the reader using the information or advice contained herein.
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