Know Your Business

Many construction companies suffer from a lack of visibility into data and metrics that can help them make critical short- and long-term decisions. We call this “keyhole visibility” because it’s the equivalent of trying to evaluate what’s happening in a room by looking through a keyhole. Likewise, with insufficient visibility to project and business details, you are forced to make decisions with only a small portion of the information.

Business visibility helps you open the door, flip on the light switch and see everything in your operations. It shows you what has happened, what’s happening now, why it’s happening and what might happen next. Business visibility improves decision making, allows for quick course corrections, helps secure adequate bonding and funding, prevents profit erosion and reduces risk.

There are five types of visibility you should have in place to assure you have more than just a keyhole view into your business:

Reporting

– See what has happened in your operations by synthesizing data into project reports and financial statements. Many contractors have some form of reporting in place but lack the detail or accuracy needed to make the right decisions.

When you use reporting to track your job costs, it keeps your project on budget, and data can be used to assure the competitiveness of your bids. Field reports are also key, allowing you to document what has happened on the jobsite, identify issues, make adjustments and prevent claims by showing work was performed in good faith. For many contractors, field reporting is a challenge, but new mobile technology promises to make this process easier.

Well-prepared financial statements contain an incredible amount of information that can help you understand your business’s financial position, including its strengths, vulnerabilities and challenges. Four useful indicators you should track from your financial statements are debt-to-equity ratio, gross profit margin, average age of accounts receivable and working capital ratio.

– Learn what’s happening by using key performance indicators, automated alerts and dashboards to track major risk areas and act quickly. 

Key performance indicators are used to measure, monitor and manage performance. Common indicators in construction include liquidity, work backlog, labor productivity, schedule variance, budget variance, unapproved change requests, cash flow and committed cost.

You can set up alerts to notify you through email, text or desktop message when exceptions occur. For example, an alert can be set up to notify you when a project’s current profit is less than a specified percentage. Dashboards can offer an effective solution to the overwhelming amount of data that you have to deal with every day. They provide a personalized graphical view of data based on the user’s roll.

– Use analytic capabilities to assess your company’s performance and plan your business strategy. To shape the vision of your company and make continuous improvements, it is essential to use business analytics.

What should you analyze? The temptation is to say “everything.” However, for most construction firms, it is neither cost effective nor feasible to apply analytics to every aspect of the organization. Focus is essential. You may want to start by thinking about what you want to analyze from a competitive perspective. How do you choose to compete? What distinguishes you from the competition? What information or insight would help you further your competitive advantage? Can you measure this and take action upon it?

– Know what might happen by spotting trends and forecasting costs critical to profitability. Your forecasts help you develop budgets, establish a vision for the future, identify potential problems and create benchmarks. When forecasting, it is helpful to plan for the best but prepare for the worst.

It’s also important to consider how external factors will impact your organization. For construction businesses, external driving forces typically fall into five categories:

– Will the industry rebound or continue its recession?

– What new regulations are on the horizon?

– How will an aging population change the type of buildings and services in demand?

– How will innovations in mobile devices, cloud computing and BIM impact the industry?

– In what new directions will the “green” movement pull the industry?

– Access data using mobile devices so you can make informed decisions while away from your desk. The use of mobile devices on the construction site is exploding. Your field management can access and submit project reports, view plans and capture and approve hours worked from their smartphones and tablets.

Make sure you have a mobile policy in place to protect your company data. Some things to consider are whether your company will issue company-owned devices, and which devices and applications your company will support. You also need to specify and communicate security guidelines to guard against a data or security breach. These guidelines should include password protection, encryption and the ability to enable a “remote wipe” if a device is lost or stolen.

Gaining greater visibility into your business doesn’t happen overnight. While software and other computer technology is available to help you achieve better visibility, the concept is driven by you, the business owner, and your vision for the company. Start by understanding your business goals. In fact, it’s a good practice to step back at least once a year and identify which areas you want to focus on. Is it profitability? Do you want to grow top-line revenue? Maybe you want to focus on improving your labor productivity. Then, through an annual business visibility audit, make sure processes and data are in place to measure your progress toward reaching those goals.