How to Develop a World Championship Construction Team, Part 2

Editor’s Note: This is the second in a 3-part series titled “How to Develop a World Championship Team,” that discusses criteria for project managers; Part 3 will explore how to select superintendents and foremen; and Part 1 examined how to evaluate estimators. Part 1 can be found here.

As discussed in the first part of this series, the construction industry deals with similar challenges to what Oakland Athletics’ general manager Billy Beane faced: finding good talent.

After examining estimators, construction business owners must develop criteria to assess their construction project managers. Project managers often serve as the link among all project elements. Consider a project manager to be like a catcher communicating with the pitcher, signaling to the outfield and aligning the infield according to the hitter and pitches to be thrown.

In many cases, a construction project manager’s success or failure directly correlates to how well he or she communicates with these different parties. For instance, a project manager may do a great job when communicating with the field. However, this same manager may lack finesse when dealing with a sophisticated customer. The best managers communicate effectively at each level.

Developing Statistical Criteria

To properly assess project managers, business owners must find appropriate statistical criteria. Construction business owners often praise a project manager who achieves a high gross margin. However, a manager can make money but fail at achieving the company’s strategic goals.

Final project profitability provides short-term success, but in an industry founded on relationships and the ability to communicate with customers and trade partners, you must determine what defines long-term success.

Consider the following example. In Figure 1 on page 11, a firm grades its project managers on two external criteria: customer satisfaction and trade contractor coordination. Customer satisfaction collected at the project’s conclusion may be based on submitting documents in a timely manner, providing quality work, communicating clearly, meeting predetermined standards, etc. Trade contractor coordination might be based on adhering to the baseline schedule, communicating proactively, employing planning processes and being fair.

This firm also measured their 10 project managers’ final profitability. Project manager #4 exhibits the highest final margin. But this person also has low scores in both customer and trade partner coordination.

Also, this profitability may not be sustainable in certain markets. For example, what if this contractor operates within a small metropolitan area with limited trade partners and within a niche that has a finite customer list? This company might begin to wear out its collective welcome.

This analysis must be examined within the context of the firm’s overall strategy. For instance, consider the four quadrants in Figure 1. It may be likely that the managers in Quadrant 4, while lower in overall profitability compared with their peers, may be in a very customer-centric market (i.e., design-build, negotiated market, etc.).

On the other hand, the managers in Quadrant 1 may be suited for a hard-bid, highly competitive market. If this firm operates within multiple markets/niches, it will be important to use this tool to find each individual’s appropriate role. If this firm operates within one market or niche, distinct misalignment may lead to customer attrition, poor market perception and possibly long-term profit erosion.

With as much variability that exists within this firm, it may be important to examine overall company standards relative to operating procedures.

Downstream Results vs. Upstream Results

Managers must have a standardized model to govern their work. Downstream results such as profitability, direct cost variance and safety scores provide a historical benchmark but do not explain why successes and failures occurred.

Consider the baseball analogy. A team may win a ball game, but the result may be skewed by the other team’s poor performance (i.e., numerous errors, injuries to key players, etc.). The team may win in spite of themselves.

Downstream results in baseball, such as wins and losses, are no different from a construction firm’s profit and loss statement. While important, it would be difficult to make measurable changes from these metrics. Measuring practices, film sessions, etc., would be a better indicator of a baseball team’s health.

In the case of a construction company, “upstream” metrics must be measured first, such as process compliance. Did the project team effectively plan the work and prepare for the project? Did the project manager continue the planning process throughout the project and conduct a project exit strategy session and a post-job review to determine winning project tactics?

Measuring adherence to firm-wide standards provides an excellent performance indicator. Projects planned from beginning to end will often make money. Measuring upstream results (processes) achieves the desired downstream results (high margin).

Figure 2 on page 12 demonstrates the measurement of both upstream and downstream key performance indicators.

The firm modeled in this graph demonstrates a steady linear adoption to the firm-wide preconstruction planning standard.

For example, in March, the firm completed preconstruction planning on 50 percent of its projects. The firm’s labor expenditures have also started declining. As the firm plans more, the overages on its direct labor decline.

Figure 2 also shows a labor comparison in dollars and hours. In January, the firm spent 120 percent of its labor budget dollarwise and 115 percent in hours. Through this analysis, two major conclusions can be drawn. As the firm’s managers improve their planning capabilities, their costs decrease. The variance in dollars and hours exposes a potential flaw in the firm’s estimating rates. The estimators could use a higher blended labor rate than they actually use in the field.

A firm-wide upstream scoreboard illustrating the right behaviors to be exhibited by managers reinforces a fair standard needed to make long-term improvements. Just like practicing improves a baseball team’s performance, planning improves a construction firm’s profitability.