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Do you have the A-team on your construction project?

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.

"Four flawed characters working as a team achieved the impossible"

What can contractors 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 construction 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."

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.

"Understand the strengths and the weaknesses of those that work for you"

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. Use their strengths and support and manage the weaknesses. In almost every case when I had a problem construction project it has been partly a result of me working with a new team and not understanding when they required support. using the strengths of your employees to build a successful company

What are the essentials for the A-team on your construction project?

Well most would answer to have the best people. My answer is to have the best people for your project.

While we all like to work with the strongest employees this isn’t always possible, and anyway for some construction projects it’s inappropriate to use them.

Case study:
One of my construction projects involved lots of demolition work. We couldn’t start demolishing follow-on sections until we had reinstated and rebuilt the previous one. This was a slow process. We had to work in multiple areas across the facility at the same time with each area requiring its own supervisor. The work was simple, but hazardous because it was in a live industrial facility which was noisy, messy and used a variety of dangerous chemicals. If I had allocated a senior concrete supervisor to each section they would have been frustrated with the slow pace of the works, and with no large volumes of concrete there would have been little job satisfaction for them. Senior supervisors would probably also have come with large teams of workers with inappropriate skills for the tasks.

I, therefore, allocated only one senior supervisor to the construction project. One I knew was patient and wouldn’t be frustrated or unhappy with doing the small portions of work. I also knew he would be willing to assist and train junior inexperienced supervisors. We allocated junior supervisors to the other areas of work. Many of these supervisors were newly promoted to the role, happy to work on their own little section, and only controlling a small team in a limited defined area. They also had a senior supervisor on the project who was willing to give them help and advice when required.

The construction project was a success because we had a happy team, despite the project not being the most rewarding in terms of constructing interesting and new structures. The new construction supervisors were learning and growing on the project and all of them later developed into fully-fledged supervisors, moving to bigger roles with larger teams on other construction projects. The senior supervisor had job satisfaction knowing he coached and mentored junior supervisors. The project was financially successful since junior supervisors earn considerably less than senior supervisors. Importantly the client was pleased because we had supervisors on each section of works and we achieved a good safety record.

Image courtesy of Serge Bertasius Photography at FreeDigitalPhotos.net

"The right person for the project is not always the most experienced or qualified person."

Suitability of construction staff is also not just about the experience of a person. An important aspect on a large construction project, where there may be a number of supervisors and engineers, is that each person should be a team player, willing to share equipment, or to help out in other areas. I’ve sometimes had construction supervisors who thought they should have resources allocated full-time to their sections of work and take priority when materials arrived on the construction project. This can be costly and causes dissent with other staff.

On occasion a supervisor possibly will, due to the size and complexity of the construction project, have to report to a more senior supervisor. This might not suit some who have been used to working alone on smaller projects - again, causing problems. Individuals need to be adaptable when the situation requires.

Of course, individuals must be able to make a meaningful contribution to the construction project. It’s pointless placing an individual in a role they cannot fill. Don’t carry dead weight. Are you employing the right people on your construction project?

Image by Gerd Altmann from Pixabay

"You may have to adapt your plan to suit the players you have."

You may have to adapt your plan to suit the players you have.

Successful projects have the right team, a good plan, and communication

So having the A-team for your construction project doesn’t mean you have to have the very best individuals working for you, rather it means having the right individuals for your particular construction project - people that can work harmoniously together as a team, complimenting each other’s experience and knowledge. What you should consider when staffing your construction project.

"Without proper communication and direction the team won’t be the A-team"

Furthermore, without proper communication and direction the team won’t be the A-team, rather just a group of people performing tasks which may or may not lead to the desired goal. Successful construction demands good communication

More importantly the team needs a plan. A plan that ensures the construction project has the required resources on time.

Don’t you love it when a plan comes together, and a construction project is successfully completed?

This article was first published on the ClockShark website - Get The Industries' #1 Time-Tracking AppRunning a field service or construction business takes coordination and a great team. With ClockShark you get the industries' #1 timesheet app

"This book helps with practical tips learned from real experiences. A must read book for the people who are involved in construction projects, especially project managers." (Reader - Amazon.com)

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
© 2023 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 construction project 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 construction 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 and we had lost over a half million dollars. Sometimes the project construction team is quick to blame the estimating team for losses on the project when in fact the main contributing factors are something else. some Reasons why projects lose money
The cost report doesn’t take into account the costs to completion. Often construction 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 construction project.

Cost reports are a valuable tool for contractors when they are done correctly.

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. Financial checks and controls on construction projects

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.

The CONSTRUCTION project MANAGER'S financial duties

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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Image courtesy of stockimages at FreeDigitalPhotos.net

"Are you listening?"

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?

"Wars have been fought between groups who have been so convinced they were right that they could see no compromise."

I’ve seen some managers who only see ‘black and white’. There is no ‘grey’. Unfortunately life is never as 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. Of course there are somethings that shouldn’t be compromised in construction such as safety and quality. But, the simple act of listening and considering another’s opinion may be enough to convince you that you aren’t right, or possibly that it’s not actually worth fighting a war over – getting into an argument that may just cost you a customer, might damage your reputation or may negatively impact your relationship with a supplier, subcontractor or employee. Good communication is essential in construction

We can all learn in construction

There are some people who believe only they know what’s best. They’ll either rudely dismiss another’s opinion, or politely listen and then carry on as they think best. They are either so arrogant that they don’t believe anyone else could have a better suggestion, or too stupid to realise they aren’t as brilliant as they think. They truly believe they have an abundance of poise, charm and natural talents and believe they’re special, when in fact the opposite is probably true and they’re quite boorish. Yes, others too have opinions, knowledge and expertise. Even with 28 years of construction experience I know I can learn from others.

"We cannot sit back and say we’re doing it like this because that’s the way we have always done it."

Construction is a team effort and no one can do everything themselves. Also no one can know every facet of construction. Furthermore construction is evolving with new methods, equipment, technology and materials. Our customers are expecting more from contractors these days – unfortunately often more paperwork, lower prices and quicker build times. We cannot sit back and say we’re doing it like this because that’s the way we have always done it, or it worked for me in the past so there’s no reason why I should change.

Business is different these days. Our employees are different – they’re all tech savvy. We have to become smarter. It may mean we need to listen more.

Why ignoring the opinion of others may harm your construction project

Invariably people who don’t listen to others come unstuck.

They are trapped in their old ways resisting change and advancement and are left behind by their competitors.
They aren’t moving with the latest equipment, technology or materials. Often hanging onto equipment that’s more trouble than it’s worth. Equipment that negatively impacts productivity and demotivates their employees. They’re still doing everything on paper.
Their team becomes demotivated because their ideas aren’t listened to. Employees are often forced to do things which they know are wrong and which are sometimes doomed to failure. Innovation is stifled.
Customers move to other contractors who can offer a more innovative approach and solution.
Customers leave because they don’t like arguing with a contractor who isn’t prepared to compromise, who always believes they’re right. A contractor who’s standard response is ‘that’s the way we do things because that’s the way we have always done things’.
Mistakes are made because expert advice wasn’t sought. The opinions of those closer to the problem weren’t listened to.

"Employees get tired of offering solutions and suggestions which aren’t listened to."

Image by Michal Jarmoluk from Pixabay

Employees get tired of offering solutions and suggestions which aren’t listened to, resulting in a breakdown in the information chain which means that the manager only gets told what they want to hear. The truth is often hidden until it’s too late to take action to rectify a situation.

Listening makes better construction managers

Listening to others doesn’t mean you have to believe them or follow as they suggest. In construction we frequently work with older and more experienced Supervisors and Craftspeople. They sometimes know what’s best, but often they (like you) may have become fixed in a routine, doing things a certain way – become set in their ways. They resent being told to do things differently. But, if you genuinely believe your method is better than theirs, and you have listened to their reasoning you should be able to explain why your methods are better than theirs and convince them to follow your instruction. By understanding why your methods are better they’ll often be more committed and motivated to follow your advice, instead of reluctantly following your instructions, or even possibly ignoring them.

Listening improves us and our construction project outcomes.

"I may not always be right."

I should listen more, maybe even compromise when necessary. I’m not as brilliant as I may think, and could learn from others around me. (Shock and horror) – I may not always be right!

But listening also provides an insight into others' thoughts and fears. This insight provides us an opportunity to convince others we’re right, and to get their buy-in to our methods. Successful construction demands good communication

Paul Netscher has written several easy to read books for owners, contractors, construction managers, construction supervisors and foremen. They cover all aspects of construction management and are filled with tips and insights.
Visit to read more.
The books are available in paper and ebook from most online stores including Amazon.

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Does your construction project need rescuing?

16/2/2016

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Some time ago 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.

"Do you know what your employees are up to while they should be working?"

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? Corruption, Fraud and Theft in Construction

Now I’m not advocating you rush out and install cameras around your construction projects, 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?

"Some managers walk the project but fail to see obvious problems because they aren’t paying attention to what's going on."

I also know some managers that walk the project but fail to see obvious problems because they aren’t really paying attention to what's going on. 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.

Employees aren’t given adequate training. This included bartenders that couldn’t mix basic drinks to cleaning staff that used the vacuum cleaner outside residents’ rooms at 4am in the morning (although this might be seen as simple common-sense). I’ve seen construction companies promote employees into management positions but fail to give them adequate training or mentoring. These employees often fail and are then blamed for their failures, when in fact their managers are the ones really at fault. Training and mentoring in construction
Employees don’t know what’s expected from them. This is partly related to training. But do your employees understand what’s expected of them? What are your quality expectations? What are the accepted safety standards? What part of the project are they responsible for? What are their limits of authority? Often employees take decisions they aren’t authorised to make, or fail to take action on items they’re accountable for simply because they don’t understand their responsibilities. Does Your Team Know What's expected From Them

"I’ve seen construction companies employ or promote people to positions they weren’t capable of filling."

Employees are hired just to put a bum on the seat and there’s little checking to see they’re the right person for the position. Employees who clearly weren’t good with people were allowed to interact with customers. In the same way I’ve seen construction companies employ or promote people to positions they weren’t capable of filling. Again when the person fails they are blamed, when in fact their manager clearly made a poor decision. Employing the right people in construction
Employees don’t abide by basic rules. Employees aren’t given rules and boundaries, or in the case when they are they are allowed to bend and even ignore them. This is disruptive to other employees and generally results in poor service.
Employees are disinterested and demotivated. This leads to poor performance and mistakes. It rubs off onto other employees. Sometimes it’s because the manager is disinterested, sometimes because they were simply the wrong person for the job – they were just filling a position and earning a salary.

"Proper safety and quality controls and checking needs to be set-up on your projects."

There’s no one checking. In the hotel scenarios some of the failures were because no one checked what employees were doing. There was no quality control. Rooms weren’t checked after they were cleaned. Maintenance faults weren’t detected and made good. Guest feedback wasn’t reviewed. Unfortunately, we can’t always rely on our employees. They will make mistakes. They will sometimes take a chance. Proper safety and quality controls and checking needs to be set-up on your projects.
Owners and management don’t get out onto the project. Some are so busy doing paperwork – some of which could be delegated or could be simplified if the latest technology was employed – or they’re attending meetings, or resolving minor problems and they don’t review the overall operation. Some seem to walk around with their eyes closed, not seeing how their methods inconvenienced and irritated customers. Managers need to delegate affectively, they should be using smart technology to improve their productivity. Managers need to get into the field and be attentive to what’s going on and where the problems lie. Don’t Let Disorder In Your Construction Project
Workers aren’t provided proper equipment. Poor quality equipment is a safety risk and reduces productivity. It also demotivates employees who have to battle with poor equipment. Managers sometimes only think of the cost of the equipment and not the benefits of the equipment which are improved productivity and safety, better quality and a more motivated worker. The Alarming Truth about Using Old Construction Equipment

"Look at the product you are selling and ask yourself if you are a customer would you be satisfied with what you are offering."

Managers are stuck in their old ways. They fail to move with the times. They aren’t innovative. New technology is taking over the construction industry. Customers expect new products. You aren’t always right. You need to listen to new ideas. Look around to see how competitors do things. Look at the product you are selling and ask yourself if you are a customer would you be satisfied with what you are offering.
Sometimes employees aren’t treated fairly. At some hotels employees weren’t paid correctly, or they were expected to work excessive hours. In one case they weren’t given their roster for the week until Sunday evening. How were they expected to plan their lives – who would be looking after their kids and taking them to school while they worked? I’m sure I’m guilty of asking employees to work extra hours and weekends at the last minute – expecting them to change their family plans for the company. Is your construction project paying employees correctly?

Now all of the above could have applied to most businesses, and in particular to construction.

But good employees are the glue that holds your project together

What was also very apparent from the hotels was that many employees did a fantastic job, sometimes going beyond the call of duty. Without their loyalty and dedication the hotel would have closed. They were the very glue holding everything together. Yet, owners don’t always appreciate how valuable these employees are. They aren’t adequately rewarded – often not even being thanked. Their conditions of employment are poor. They aren’t given opportunities to take on more responsibility, to grow and to add more to the company.

Learn to recognise these diamond employees and look after them. The more diamonds your company has the more rewards you’ll get. Don’t let a diamond slip through your fingers.

Construction project rescue

Using the lessons above why don’t you start your project rescue plan. Let’s try construction project rescue, or maybe construction company rescue. Begin by having a good look at what your crews are doing. Are they delivering the project with the desired quality, safety and productivity? Do you have the right people in the right positions? Do they know what’s expected from them? Do they have the proper training? Are you utilising the best systems and equipment? Are you delivering a product that your customers want?

Maybe it’s even time to call in an expert? Fresh eyes often see the obvious problems which you miss because you accept them as normal. Well, the old normal isn’t the new normal. Take action now to rescue and improve your construction projects.

#constructionprojects #constructionpeople #construction #constructionmanagement

"Take action now to rescue and improve your construction projects."

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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.

"Some construction companies, especially smaller ones haven’t a clue whether they’re making or losing money on individual projects."

What is a construction project cost report?

Cost reports usually compare the costs spent on the construction 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. What do you do when your construction project is LOSING money?

"Project cost reports help uncover material wastage and theft"

Why project 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. Corruption, Fraud and Theft in Construction
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. Are you working for free on your construction project?
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. How poor labour productivity impacts the success of your project.
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. Where do estimators get their prices?
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. Negative cash flow – the death for many construction companies
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.

Know if your construction money is losing money

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. 'Avoid these 10 cost report errors'

Do you prepare project cost reports?
Have you found them useful?
#constructionprofits #constructionmanagement #contractors #constructionfinances

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