Hey Contractors These Tracking Systems Keep Your Eye On The Ball
n an article titled How
Contractors Get Rich, I Most construction companies are
introduced you to the six so small, monitoring the
systems that control the fate of effectiveness of their staffing
your construction business. Once systems is unnecessary. Staffing
again to refresh your memory, performance should be readily
they are: apparent: Are you finding and
keeping good workers?
1.Marketing
2.Sales Onward to tracking systems. We
3.Staffing will start with financial
4.Planning tracking.
5.Tracking
6.Financial Control FINANCIAL PERFORMANCE
We have covered the first four in EXPENSES VS BUDGET (JOB and
detail. Now it’s tracking’s turn. COMPANY)
The purpose of tracking systems Your annual budget is your plan
is to make sure your business is for creating the net income you
performing as you need it to. seek this year. The same holds
Today, I am going to expand on true for project budgets. You
the numerous tracking systems you need to keep a close eye on their
would be wise to install. progress.
I have grouped the tracking Only by monitoring your actual
systems into four categories: expenses against the expenses you
financial, operational, planned for will you be able to
marketing, and sales. You may make adjustments on the fly as
notice that I left staffing out. your year or project unfolds
differently than planned. profit is the fuel that feeds
your company’s growth.
Check company expenses monthly.
Check the cost of small jobs when RECEIVABLES OUTSTANDING
their work is completed and the
cost of big jobs weekly. Paper income is all well and good
but it needs to be turned into
REVENUE VS. BUDGET cash at some point in time.
That’s why you should monitor
You need to track your sales your receivables closely.
closely. If they drag behind your
plan, you may need to adjust your Remind (pester) clients that are
overhead. If they exceed your over 30 days out. You may need to
plan, you may need to add pull the plug on some very slow
overhead to keep up with quality paying clients.
standards and client
expectations. Contractors must watch their cash
flow closely. Cash flow is a
GROSS PROFIT vs BUDGET (JOB and serious problem in the
COMPANY) construction industry, especially
at the end of jobs when trying to
Gross profit is the single most collect retention.
important financial number to
track. You cover your overhead OPERATIONAL PERFORMANCE
and increase your wealth via
gross profit. Your budget assumes LABOR PRODUCTIVITY (JOB and
you are going to hit a specific COMPANY)
gross profit goal. If you don’t,
the company will not generate the Labor productivity is the key to
net income you counted on. Gross operational success. If your
crews don’t hit their a motivation thing and it works.
productivity targets
consistently, your business is Since productivity is a ratio of
going to struggle mightily. work quantity divided by time,
you need to determine the best
At the very least, you need to way to measure the amount of work
track the hours budgeted for a your crews are performing. That
job and the hours used on it. If item varies for each trade. Refer
your projects last more than a to my newsletter on job costing
day, you should be tracking their for more direction.
productivity by major work
activity (see the next subtopic). ON-TIME COMPLETION
LABOR TIME by PRIMARY TASKS You should track how frequently
you meet project deadlines,
When a typical project lasts more regardless of the man-hours used.
than one day, you should break
the work down into major activity If you cater to home owners, bear
based cost codes and direct the in mind that they expect you to
crews to track and record their finish when you initially tell
time accordingly. This them you will. Excuses will not
information is very valuable to cut it. If you are working
estimators, schedulers, project through general contractors, the
managers, and superintendents. call on whether you are on-time
or late will be more difficult to
It is also very valuable to the make.
crews. It lets them know how fast
they should be working. That way Obviously, on-time completion is
they know when they’ve done well not cut and dried. Use your best
and know when they haven’t. It’s judgment when deciding whether
the job was legitimately delayed
or whether your crews were simply I’m not going to lecture you on
late finishing. safety. Either you believe it’s
the moral thing to do or you
EQUIPMENT COSTS don’t. Regardless, you need to
keep track of your safety efforts
You need to know how much it (weekly talks) and accident
costs you to own and operate your reporting. It’s the only hope of
major equipment on an hourly staying out of OSHA’s crosshairs
basis. Otherwise, you will have when something goes wrong.
trouble determining whether you
are better off owning or renting Monitor your Experience
your equipment. Modification Rate (EMR) closely.
A term commonly used for the Hire someone to perform a
calculation is Effective Rental detailed review of your EMR
Rate. It should be updated once a annually. He or she may save you
year. thousands of dollars by catching
rating errors. They are very
The rate is based on the EXPECTED common.
lifetime cost of the equipment
and the equipment’s life RE-WORK
expectancy. When the ongoing
Effective Rental Rate climbs Doing it right the first time is
above the cost of buying new, you ALWAYS cheaper than doing it
should start thinking about twice. Doing it twice is called
replacing the equipment. re-work. You need to track it and
address it.
SAFETY EFFORTS and LOST TIME
INJURIES You will always experience some
re-work, either due to effectiveness of your advertising
unrealistic customers or to new investments.
employees. Address on the re-work
that keeps popping up Advertising is expensive. And it
consistently. That’s the re-work is tricky. The simple rewording
that can be fixed. of a headline often improves
advertising response by a factor
EMPLOYEE PERFORMANCE of 10.
Each employee’s performance Don’t let a marketing consultant,
should be formally reviewed and or anyone else, tell you they
documented annually. know EXACTLY what words and
Significantly improper behavior phrases will produce the
should be documented upon breakthrough results. They don’t.
occurrence (especially actions They can’t. Ad copy has to be
that endanger others). tested.
MARKETING PERFORMANCE As the opportunity arises, ask
how the prospect found you and
ADVERTISING EFFECTIVENESS (LEAD ask what motivated them to call.
GENERATION) If one of your ads isn’t pulling
its weight, change it.
There is a reason many
advertisements contain strange SALES PERFORMANCE
codes - it helps management
determine whether the ad worked. SELLING EFFECTIVENESS
Since more money is wasted on
advertising than on any other All salesmen are not created
business investment, it is equal. The great ones really
imperative that you track the stick out. The rest you need to
keep an eye on. backlog. You should have targets
for it and compare it against
Sales effectiveness is best your detailed budget. If your
measured by the quantity of gross backlog starts to slip, you need
profit generated. Keep track of to re-prioritize some of your
the gross profit each of your time towards selling.
salesmen generates. Pretty
simple, huh? ESTIMATING ACCURACY
If you are in the mood to split This one is pretty simple. Your
hairs and complicate the estimator’s chief responsibility
measurement, track the amount of is to accurately predict the time
gross profit each salesman landed it will take to complete the
above the low bid or through work. You need to verify that he
negotiated work. You see, that is or she is doing that task well.
the salesman’s role: land work
that pays better than your It’s a pretty simple calculation
estimator could get just by to run. Divide the actual
winning a bid on low price. man-hours used on the job by the
estimated man-hours. Focus on the
SALES BACKLOG average from several jobs.
A backlog of attractive work is a If the ratio is consistently
beautiful thing. It gives you a above 1.0, the estimator is
bit of financial security and probably being too optimistic
peace of mind. It strengthens with his predictions. If the
your resolve to only accept work ratio is considerably below 1.0,
at the prices you want. the estimator is probably being
too cautious.
You need to keep track of your
Before you start howling that offered markups. The markup
your estimator doesn’t control should shrink as project size
field performance, remember that grows. Look for that trend. If
it’s the estimator’s job to guess you are winning more than 50% of
how long it will take your field the work with new customers, you
crews to perform their work. If should be able to raise prices
they are consistently running quite effectively.
over budget, it’s probably not
the field leader’s fault. I’m not DISPLAYING THE INFORMATION
saying that the field leader
couldn’t speed up the crews, I’m The best form or format for
just saying that to assign all presenting the information is
blame to the field leader is whichever one works best for you.
probably misguided. Some people prefer to look at
graphs. Some prefer to look at
MARKUP SUCCESS tables. Some are comfortable with
hand-written tables and graphs.
If you don’t systematically track Others want them printed from a
the effectiveness of your computer.
pricing, you will never know what
your customers are willing to It doesn’t matter which format
pay. When you leave money on the works best for you. What matters
table, you give up the easiest is that you and your team review
money you will ever make. the performance information in
time to correct ugly trends
Track mark-up success by before they rob you of the money
comparing close rates against you are working so hard to make!
About the Author:
Ron Roberts, The Contractor's Business Coach, teaches contractors how to turn their businesses into money making machines. To receive Ron's FREE Contractor Best Practices Newsletter visit http://www.FilthyRichContractor.com.
Published At: www.Isnare.com
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