The successful contractor

Do you have the A-team?

27/2/2016

Do you remember the A-team? It was a popular TV series in the eighties, later made into a film in 2010. (Apologies to younger readers, who may not have seen the series, but it was good fun even though the plots got repetitious.). The series revolved around four Vietnam vets who sorted the bad guys out, helped those in need, and kept one step ahead of the law who didn’t approve of their methods. The most memorable character was Mr T, the mechanic who provided the muscle – he also incidentally wore lots of gold chains and had an interesting hair style. The group was led by Colonel Hannibal Smith who developed the plans and gave direction to the others. His favorite saying was “I love it when a plan comes together”. The 3rd member was Templeton Faceman Peck a suave organizer and con man who could organize anything. The 4th was Murdoch their crazy pilot.
All four characters had critical flaws and wouldn’t have been able to operate on their own, yet, when put together in a team they performed impossible missions – even though of course these were only on the TV screen.

What can construction and field service companies learn from the A-team?

We need to work as a team – I know in some instances there are one man (or woman) businesses where the owner does everything themselves – quoting on the project, ordering materials, doing the work, issuing invoices, etc. But this is hard work and invariably mistakes are made. Most of us rely on an estimating team, accountants, project managers, supervisors, tradespeople, and on bigger projects planners, contract administrators, safety officers and quality managers. We rely on these people because they often have knowledge which we don’t possess or have more experience in a particular field than we do. Invariably we also can’t cover all the bases and require help. The most successful football teams aren’t always the ones with the most star players, but rather the team that plays as a team, using the strengths of their strongest players. Invariably they have a well-practiced game plan which matches their players’ abilities and their opponents’ weaknesses.
There was always a plan which included who needed to do what, what resources had to be found, the timing of the project and a predicted outcome.
The plan was communicated to the team ensuring they understood what was required from them and the timing.
Often things didn’t go exactly according to plan, and in these cases alternative plans were rapidly made.
When someone on the team was in trouble the others stepped in to help.
The individuals had their arguments and disagreements, but the next day these were forgotten and the team got on with the job at hand.
They celebrated their successes.
Most importantly though was that each individual wasn’t perfect and wouldn’t have been our first choice for the A-team. But the leader adapted the plans to suit the strengths of each team member and to cover for their weaknesses. I always emphasise how important it is to understand the strengths and the weaknesses of those that work for you. In almost every case when I had a problem project it has been partly a result of me working with a new team and not understanding when they required support.

So what are the essentials for the A-team on your project?Well most would answer to have the best people. My answer is to have the best people for your project.

Continue reading.........

(The full article written by Paul Netscher is published on the ClockShark website)

To read more about the author’s books and find out where you can purchase them visit the pages on this website by clicking the links below:
'Successful Construction Project Management: The Practical Guide'
'Building a Successful Construction Company: The Practical Guide'
'Construction Book reviews'
To read more about the author visit the page 'Paul Netscher'
Want to contact Paul Netscher please enter your details on 'Contacts'
Find out how Paul Netscher can help you

Order your books from Amazon
Order your books from Amazon UK
© 2016 This article is not to be reproduced for commercial purposes without written permission from the author.

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Don't make these 10 mistakes with your cost reports

23/2/2016

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Image courtesy of stockimages at FreeDigitalPhotos.net

Project cost reports are useful and can supply contractors with valuable information. Last week I published a post ’10 Reasons why you should prepare project cost reports’. Readers seemed to agree that project cost reports were essential.

Unfortunately some cost reports can be complex and time consuming to prepare. I’ve known some companies with cost reports that took several days to prepare. You couldn’t find the Project Manager for two days as he was locked away in his office trying to complete his report before month end. This meant that things went unattended on the project while the cost report took priority. Then when the report was completed nobody bothered to read it because it was too lengthy and difficult to interpret.

Furthermore contractors sometimes make errors in their cost reports which then provide the wrong information. Occasionally management ignores the cost report and doesn’t take action to figure out why the project is incurring losses or they misinterpret what the cost report is showing. In extreme cases I’ve known managers instruct that losses shouldn't be shown.

Some Project Managers leave the preparation and interpretation of the cost report entirely to their Quantity Surveyor or Contract Administrators and pay scant attention to the end report. They view it as just another document produced for their senior managers.

Don't make these 10 mistakes with your cost reports
I’ve found the following problems with costs reports:

The reports take too much time to prepare. This is either because:
1. The information isn’t readily available.
2. The cost report is too complex to fill in.
3. The cost report breaks items down into too much detail making it difficult and time consuming to track down the costs and revenue.
The reports deal with historical data – often a month or more after the fact. This means by the time we detect a problem it may be too late to take corrective action, or the problem may already have become worse than that reported. The more up to date the cost report the more useful it is to the project team. We need to understand the historical nature of the information and adapt our actions accordingly.
The reports take into account claims and variations which haven’t been approved and which might be too optimistic. I’ve had managers instruct me to add in variation claims to our revenue, even though these claims hadn’t been accepted by the customer. As long as the customer hasn’t approved a claim it is in doubt, and may be rejected, or the final agreed valuation may be less than what we claimed. I don’t like trading on claims which haven’t been approved since it’s dangerous. I would rather show a loss, and at least the project team is reminded to resolve the outstanding claim as soon as possible.
The reports don’t include all of the project costs. This may be because:
1. Subcontractors or suppliers are late with their invoices
2. Not all of the costs have been captured by the company's accounting system
They aren’t comparing revenue against the correct costs. Although the overall result may be correct the report may indicate we are making money on some items while losing items on others. This is normally because costs and revenue haven’t been allocated to the correct cost codes.
The revenue used is incorrect. This is usually because:
1. The information hasn’t been entered correctly into the cost report
2. The monthly valuation or claim is incorrect and includes an over claim
3. Often the preliminaries are claimed each month according to a set percentage. However the costs associated with the preliminaries are usually not incurred at the same rate. These costs usually vary depending on the stage of the project.
The reports aren’t used or the information in the report is disregarded. Some project teams don’t like to show a loss and will manipulate the cost report to show a profit. Of course ultimately the truth will come out. Unfortunately I’ve never found a project making a loss to suddenly turn around and become profitable unless action was taken to stem the loss and reduce costs or uncover additional revenue.
The report has arithmetic errors or the data hasn’t been entered correctly. Sometimes in the rush to complete the report the project team makes the incorrect assumptions or even guesses costs.
We assume the wrong reason or cause for a loss. I’ve previously written about a project where the cost report showed the project was losing money on concrete materials and the project manager attributed the loss to the fact that the client had changed the mix design and asked for higher cement content which we would claim later. Yes, this did contribute to the loss, but when we eventually uncovered the real cause which was that cement was being stolen from the project we had lost over a half million dollars. Sometimes the project team is quick to blame the estimating team for losses on the project when in fact the main contributing factors are something else.
The cost report doesn’t take into account the costs to completion. Often projects appear to be profitable (their cost reports show a profit) until the last few months when things suddenly go wrong. This is especially the case with projects that run past their completion dates. Invariably the costs of remaining on the project beyond the scheduled completion date haven’t been allowed for. Project teams regularly underestimate the costs of completing punch-lists (snag-lists), completing project documentation, and handing over the project.

Conclusion
Regular construction project cost reports are invaluable and can provide much useful information. However cost reports with the incorrect information can give the project team a false sense of security. It’s essential that cost reports are kept relatively simple and also that companies have accounting systems which quickly and easily provide accurate data to support the cost report.

It’s important to investigate anomalies in cost reports. Don’t just take the report at face value. I’ve discussed investigating your losses, but sometimes it’s equally important to investigate where you are making money. You don’t want to find later that where you thought you were profitable you actually aren’t, and there were in fact errors with your report.

Like any useful system the information produced from a cost report must be easy to interpret. This information must be used correctly to uncover losses and either recover the money or at least prevent further loss.

What errors have you uncovered in your cost reports?
Do you believe everything on your cost reports?

To read more about the author’s books and find out where you can purchase them visit the pages on this website by clicking the links below:
'Successful Construction Project Management: The Practical Guide'
'Building a Successful Construction Company: The Practical Guide'
'Construction Book reviews'
To read more about the author visit the page 'Paul Netscher'
Want to contact Paul Netscher please enter your details on 'Contacts'
Find out how Paul Netscher can help you

Order your books from Amazon
Order your books from Amazon UK
© 2016 This article is not to be reproduced for commercial purposes without written permission from the author.

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Are you listening

20/2/2016

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I’ve seen some managers who only see ‘black and white’. There is no ‘grey’. Unfortunately life is never that simple. Wars have been fought between groups who have been so convinced they were right that they could see no compromise. Construction is often the same and we have to compromise.Are you listening?
Or is it your way or the highway?

Do you listen to other people’s ideas? Do you do things the same way as you have always?

Continue reading....

This article is written by Paul Netscher and published on the ClockShark website. Please click on the link to continue reading.

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Does your construction project need rescuing?

16/2/2016

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The other night I watched a program called Resort Rescue followed by Hotel Impossible. The programs visit hotels which are performing poorly and suggest improvements. Now I know there are many similar programs from reviving restaurants, businesses, hotels, shops, etc. Many follow similar lines. But can construction learn from them?
In these programs the hotels were generally a mess and the rooms were sometimes dirty and in a poor state of repair. Service was poor – sometimes even rude. Customers were writing bad reviews. I’m sure you wouldn’t have stayed there!
In one program they installed cameras around the hotel to record what employees did as they went about their work. What happened shocked owners. Employees were seen stealing liquor, smoking pot and drinking alcohol on duty, they goofed off watching their favorite soaps on TV instead of cleaning the rooms. One chef microwaved all the food (including burgers). Others were disinterested, provided poor customer service and did whatever they wanted.
It got me wondering – do you know what your employees are up to while they should be working? Are they stealing from you – both physically as well as company time? Are they doing their work safely, productively and delivering the quality product both you and your customers expect?
Now I’m not advocating you rush out and install cameras around the project, even though this might provide interesting information. But, every good project manager, supervisor and construction manager knows what their crews are doing. They’re regularly in the field checking quality, safety and productivity. They know when someone in the crew is goofing off, arrived late or left early. Generally good managers have a decent relationship with their crews and know when something isn’t right. Are you a manager who sits in the office doing paperwork and attending meetings, or are you out in the field a couple of times in the day?
“Do you know how to correct that?” “Nope, I spend most of my time in the office, check with Jeff”.
I also know managers who can walk the field looking at the project, failing to see obvious problems because they aren’t really seeing. Maybe they don’t know any better, but often it’s just because they’re preoccupied with their own world – a world of telephone calls and meetings.
Watching these programs reminded me how most of our problems in construction are caused by people. Although the hotel industry may seem distant from construction I was surprised by how many problems were similar. I guess most industries have similar people related problems.
How people can wreck your construction project and your company.
Continue reading

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10 reasons to prepare construction project cost reports

12/2/2016

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Image courtesy of renjith krishnan at FreeDigitalPhotos.net

Some construction companies, especially smaller ones haven’t a clue whether they’re making or losing money on individual projects. They think it’s too tiresome to produce cost reports for each project. Some contractors just look at their bank accounts at the end of the month and if there’s cash in the bank they’re happy.

What is a project cost report?
Cost reports usually compare the costs spent on the project with the income earned. Usually these cost reports allow contractors to break the cost and income down into separate cost codes. Contractors can then compare costs versus income for labour, equipment and various materials. Some reports can be quite detailed and break the report down even further to different types of labour and equipment. There are dangers of breaking cost reports down into too many different categories as it can become difficult to monitor, which inevitably leads to errors.
Cost reports are usually done on a monthly basis. However they can be done more frequently, even done daily for a particular task. Contractors often don’t do cost reports as they believe they take time and one needs computer access. Yet, I have done simple exercises in the field on a daily basis. So for instance, on a bulk earthworks job if you know what each item of equipment costs it’s easy to work out the hourly cost of the equipment team (say excavator and trucks). If you know how many cubic metres of earth the team is moving in an hour it’s simple to calculate the cost per cubic metre.

Why cost reports are useful
Project cost reports can yield much useful information. They often save contractors money, or help contractors make more money.
I’ve always done monthly project cost reports and found them useful for a number of reasons. They:

Uncover theft or fraud - One of my projects was in a remote area of a foreign country. The project required twenty thousand cubic metres of concrete, which was produced from our mixing plant on site. The cement was transported in bulk from a cement factory six hours drive from the site, using our own cement tankers. We couldn't seem to get cement delivered fast enough and the project was constantly delayed due to shortages. Our monthly cost reports showed that we were losing money on concrete materials. The project team couldn’t explain the losses which became worse each month. Eventually the site team reconciled the concrete materials and found that half a million dollars of cement was unaccounted for. On investigation we found that when our cement tankers carried a load of cement to the project they made a detour, stopping off and discharging cement from one of the tanker’s compartments, which the drivers sold. In fact, a third of every load of cement was being stolen from the truck en-route to the site. Not only was there the direct cost of the stolen cement, the project also had insufficient cement as every truck only delivered two thirds of what they should have, and the trucks took a couple of hours longer on each return journey because of the detour to unload cement. The project suffered serious delays due to a lack of cement. We have often uncovered similar cases of theft and fraud by reviewing our monthly cost reports. Some of these involved suppliers double invoicing us, or delivering less materials than were on the delivery dockets.
Ensure materials aren’t being wasted – Sometimes projects use more materials than they should. Concrete slabs are cast too thick. Materials are broken in transit, while in storage, or when being installed. Materials aren’t mixed properly and too much of one product is added. There are often wasted off-cuts because the wrong size material is ordered, or the installers aren’t working to a cutting schedule.
Act as a check that all work has been claimed correctly – On one project it appeared we were losing money on reinforcing steel. The contract administrator was convinced it was because there was unfixed stock on the project. I eventually convinced him that we didn’t have that amount of stock. After further investigation he sheepishly came to me and admitted he had overlooked about 120 tons of reinforcing steel which we had already installed. If we hadn’t been doing monthly cost reports we may never have claimed this steel.
Can indicate whether the project has grown in scope or when there’s been a change to specifications - For instance I’ve had projects where the customer has changed the specifications for materials. On one project the specifications for stainless steel pipes was changed. If we had claimed according to the original pipes specified we would have shown a loss as the new pipes were considerably more expensive than those originally priced. Losses on cost reports are sometimes an indication that quantities have increased or that the customer has varied the contract in some way.
Highlight problems with productivity - Losses incurred with labour or equipment is often an indication that the productivity on the project is lower than allowed. Investigating the cause of this low productivity could lead to solutions to improve productivity.
Form the basis of future tenders and prices - Estimators assume certain rates of production and material wastage rates. If projects don’t do accurate cost reports the estimators don’t get feed-back whether their estimates are accurate or not. The risk of this is that the contractor wins projects that are bid too low, or they don’t win projects because their price is too high because they haven’t used the correct rates.
Provide information on which types of projects are profitable - Over the years we constructed two separate sets of cooling towers. Both times we lost huge amounts of money. Although the projects appeared straight forward they were obviously more complex than our estimators envisaged. After that we made a conscious effort to avoid similar projects. Some contractors keep constructing projects even though they are always unprofitable, simply because they don’t know these projects are unprofitable.
Afford a target for the project team to aim for - Without a target profit to aim for the project team can become complacent, not focussing on productivity and the smart and efficient use of materials.
Give the company early warning when a project is losing money - Knowing there’s a loss enables the company to prepare themselves and check they have adequate cash to sustain the losses. Recently I witnessed a company declare losses of $500 million on two projects. How was it possible that the projects had been under construction for more than two years and were reaching their completion stage when the company suddenly declared this huge loss? Regularly accurate cost reports should have shown this loss developing over the course of the project. Needlessly to say the company went into liquidation leaving suppliers, subcontractors and employees unpaid. Detecting these losses earlier could have allowed the company to take action to stem the losses and also to put in place measures to cover the cash-flow problems that these losses induced.
Can be very satisfying. I usually enjoyed completing my monthly cost reports. It was fun to know we had made money in the month. Unfortunately the occasional project lost money which wasn’t nice.

Conclusion
An accurate cost report is a useful tool on construction projects providing information on where the project is making and losing money. Unfortunately many cost reports are poorly done or the information is ignored which can lead to problems. I’ll deal with cost reporting errors in my next post.

Do you prepare project cost reports?
Have you found them useful?

Read: 'Avoid these 10 cost report errors'

To read more about the author’s books and find out where you can purchase them visit the pages on this website by clicking the links below:
'Successful Construction Project Management: The Practical Guide'
'Building a Successful Construction Company: The Practical Guide'
'Construction Book reviews'
To read more about the author visit the page 'Paul Netscher'
Want to contact Paul Netscher please enter your details on 'Contacts'
Find out how Paul Netscher can help you

Order your books from Amazon
Order your books from Amazon UK
© 2016 This article is not to be reproduced for commercial purposes without written permission from the author.

5 Comments

Do you have the A-team?

Don't make these 10 mistakes with your cost reports

Are you listening

Does your construction project need rescuing?

10 reasons to prepare construction project cost reports

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Construction Books

Construction services

Do you have the A-team?﻿

Don't make these 10 mistakes with your cost reports

Are you listening

Does your construction project need rescuing?

10 reasons to prepare construction project cost reports

Archives

Categories

Construction Books

Construction services

Do you have the A-team?