There’s a big problem in the construction industry. Yes, the economy is booming, capital projects are being funded at all-time levels, and governments seem more committed to investing in infrastructure. The problem is that the labor pipeline has slowed to a drip.
Contractors are transitioning from staying afloat to getting more work. They’re eager to grow their business, but are running into walls because they simply can’t find enough experienced people to hire. While the challenge sounds daunting, there is some good news. Yes, it is possible to grow a labor-based business amid a labor crisis, but it’s critical your organization embraces technology and employs robust project cost management software to make that happen.
Before discussing solutions, let’s review how the industry got into this situation. Flash back to the 2008 recession, when a huge number of contractors leaving the business. These were experienced people who had worked in construction their entire careers, but had to move on to something else. Compounding the problem is the attrition left by the construction workers who are now retiring after surviving the economic downturn of 11 years ago.
The final element leading the industry into the current situation is the new generation of workers entering the construction workforce, who are generally comfortable with technology. These new workers grew up with mobile phones, apps, software and tablets and don’t need hand-holding with technology like the baby boomers who spent a great deal of their careers armed with colored pencils, a stack of full-sized drawings and reams of paper spreadsheets.
Technology that Teaches
The use of technology isn’t the issue when hiring these workers who are fresh out of college, it’s the simple fact that they don’t yet understand the construction industry and the estimating and project management skills that are necessary to be successful in it. In plain speak, they don’t know how to build things yet.
Successful organizations will leverage technology that helps teach them the business. When businesses are looking for the best project cost management solutions, they need products that capture their business logic. Those systems must tell the talented but inexperienced user, “Don’t do that! You’re trying to place concrete at 300 cubic yards a day and that’s something we haven’t done in the history of our company.”
I see this often in my experience teaching construction management courses at Arizona State University. A graduate enters the workforce with some basic estimating and project management skills, but lacks the practical experience needed to effectively apply those skills to the tasks of estimating a job or managing a project. But with the right project cost management solution, a system can guide them through the process, helping them understand the business while ensuring they make fewer mistakes.
Technology is a key driver in growing your business, as companies that embrace it will be able to ramp up these inexperienced workers more quickly. With digital solutions, you’ll help them overcome the learning curve faster while also reducing the time older workers take to figure out the system and how to make it perform as needed.
You want your workers analyzing the work and figuring out the best way to build the job, not spending a lot of time manipulating the data. With more time, they can more effectively consider different approaches to building a job and are more likely to identify opportunities to complete the work faster. They’ll reduce costs and build more efficiently, thus giving your company the opportunity to win more work at the right price.
Estimating by Overwhelmed Joe
As you consider ways to grow your construction business during a labor shortage, you’ll require much more organization and insight during the estimating process and less of a scatterbrained approach. With that, I’d like to introduce Joe the Paver.
Joe wakes up early one morning and grabs a cup of coffee as he heads into the office. There, he takes a phone call from the superintendent who’s found an issue with the budget on a new job that he’s recently been assigned, and he needs an answer to start planning this work. Joe helps answer the question and starts going through his emails making sure there is nothing he needs to handle right away. While doing that, he realizes there are five bids due within the week.
Joe is familiar with three of these jobs already but has not yet even looked at one that bids in a couple of days. He makes himself a list of the bids he must work on, putting them in the order he will likely do them. At this point, he doesn’t have any idea what is involved with the job that’s due in a couple days, other than he knows he needs to look at it.
There is a bid due later that afternoon. His junior estimator has been doing the takeoff and getting things ready. So, Joe calls him into his office for an update on how the bid is going. The junior estimator says it’s going well, and he needs a few more hours before he’ll have something for Joe. At that point, the phone rings and it’s the material supplier asking if he got his number for the job this afternoon. Joe thinks he’s seen it come through his emails, but he doesn’t know off-hand the exact number he was quoted. Scratching his head, he promises to get back to the supplier.
Things are heating up. A couple of hours before a bid review meeting, Joe digs through an estimate to see if he is using the number the supplier was asking about. The phone rings again and Joe wants to dunk the thing into his mug of now-cold coffee, but he answers it and it’s someone else asking if they are bidding on a job that’s coming up next week. Harried, Joe says yes, he’s looking at it, but he’s got another one he’s working on right now. He’ll have to call him back too.
As soon as Joe hangs up, in walks the junior estimator who needs a question answered about the takeoff he’s doing. Joe goes over to help him and when he returns to his desk, he places chin-in-hand and wonders, “Now, where was I again?” Joe the Paver has morphed into Joe the Overwhelmed.
Unfortunately, this approach to project cost estimating is a seemingly endless cycle. Joe is continually trying to figure out what he needs to work on next. He’s getting high-level information from someplace that he’s not even sure he has to worry about. He’s also getting detailed information on some things that may not even be relevant to him. This is a scatterbrained approach, and one that’s quite common in the construction business.
Maybe you can relate to Joe or have experienced the feeling. Just know that if you plan to grow your business and build more work, you’ll need to do more than just add additional overwhelmed people to the mix. You’ll need a system—a technology solution.
Gain Valuable Insights
Managing the estimating process with the help of technology aligns everyone to what’s important and what they should be looking at. By having the right project cost management tools at your disposal, you can go into any estimate and see how it’s progressing at any point in time. Not only can you better manage the bids you have coming up, but you can better answer questions like, “How many plug numbers am I still carrying in my estimate?” or “How does this estimate compare with similar jobs I’ve done in the past?” A good estimating solution provides a high-level summary of an estimate, while also supporting the very granular needs of estimating staff working in the detailed numbers.
This is not a scenario in which you are giving up your spreadsheets but instead, are using technology to complement them. Sure, spreadsheets are good to count man-hours and multiply them by the labor rate to come up with a number, but can they handle a lot of the other questions you’ll face? Also, spreadsheets can be fragile. If you have too many formulas, one bad input can render your sheet broken beyond repair. That’s a lot of risk you’re exposed to, unnecessarily. However, by incorporating a digital estimating solution, you can begin reducing the risk and taking control. You’ll gain better insight into where the money is in your estimate, and you’ll know where you stand with respect to bid pricing, forecasted revenue, profit margins, what your competition is doing and much more.
This is not to say you should give up your spreadsheets; rather, complement them with the right software solutions. With a strong estimating solution, you can retain the business logic that you’ve built into your spreadsheets, while enforcing the consistency that’s needed in the business process of preparing an estimate.
Your business needs to be cost competitive to win jobs, but just as important, you need to win the right jobs—two factors that are in competition with each other. Welcome to the balancing act of estimating.
To do both, you need valuable insights that only strong project cost management solutions can offer. You need to know the job better than anybody and have the estimate be based on that tremendous amount of detail and understanding of the work. With the right technology in place, you know what your costs are going to be. An estimating solution can help you manage, track and ensure you’re winning work at the best price. Then the onus on the firm is to deliver the work at the lowest cost.
Reduce Risk with Benchmarking
Does the thought of growing your business without knowledgeable and experienced people scare you? Does the idea of taking on more work than you are comfortable handling yourself keep you up at night? It doesn’t have to be this way when you have tools that can analyze your data and predict trends and issues before they become a reality, impacting your bottom line.
The best project cost management solutions include features like benchmarking, which reduces risk by validating your estimating assumptions against past estimates and actual results. With benchmarking, you’re able to spot discrepancies and omissions more quickly and easily and eliminate errors before they become part of your bid price.
Our buddy, Joe the Paver, knows that his company can typically pave, on a good day, 200 tons. But what if he finds that Junior projected they could pave 300 tons a day on the estimate? Joe knows that doesn’t make sense because they’re not trucked up for it. He doesn’t typically pave that much, and the traffic control is not going to be extended out far enough to accomplish that type of productivity without incurring additional costs.
Because material prices for asphalt can be so volatile, looking at the cost-per-ton of paving would not likely surface this issue. Without having some sort of metric to look at, that 300 tons-per-day assumption could have easily been lost in the details of the estimate and become an issue with the company being able to deliver this job within budget before the work even started.
Scatter plots can indicate some red flags like the ones mentioned here. By looking at a scatter plot like the one shown inside the estimating tool in Figure 1, you can understand if there is a little variation in an operation, or a lot. With a small amount of variation and an estimated cost within that range, you’ve probably got yourself a decent estimate. If there’s a lot of variation, there are probably a lot more variables that influence the work of which you may not be aware. That could indicate the scope of work is risky and warrants more attention by the estimator to ensure the estimate is as accurate as it can be, and the company is comfortable bearing the risk within the margin they bid.
If you’re considering taking on more work, you’ll need to more closely manage your margins. This makes it even more critical that you see how you’re trending against the work plan. That’s something that a connected analytics solution can address. With this type of solution, you can more easily detect if and where margins are fading on work. This gets us back to winning the right jobs at the right price AND delivering them at the lowest cost. The lowest cost is achieved by actively managing the losses, by having visibility early enough to change the outcome.
Standardization Is Key
Finally, I’d like to stress the importance of standardization when it comes to growing your business. For so long, you’ve done the work by yourself. But now that your business has expanded, you’ve got more people doing more of the work for you. First, you must trust the people who are doing the job you’re requesting. With standardization, you can set ground rules. You can ensure that everyone is estimating in a consistent manner, which means managers can now review those estimates more efficiently. And, the more estimates you can get the boss’ stamp of approval on, the more jobs you can bid on.
With estimating technology, you have a database that can enforce certain rules on the various elements that make up an estimate, such as cost items, resources, bid items, quotes and quantities, and how all those things are interrelated.
For example, when Joe gets a call from his asphalt supplier telling him he can cut his price by 10%, he updates the supplier’s quote in the system, which triggers a reduction in the price of the resource. This, then, lowers the cost of the 12 cost items using asphalt, which influences the price of the five asphalt placement bid items that are part of the job’s bid price. Joe now has a more accurate bid price and a better chance of winning the work.
Estimating: It’s all about bidding your work and getting it at the right price. To grow your business in this economy, you’ll need to use technology in new and innovative ways to overcome the challenges you’ll face when trying to bring on more staff. With the right tools, you may not have to expand headcount as much you originally anticipated because technology can help you do more with less.
The right software will allow you to grow your business, whether you increase headcount or not. Should you bring on more staff, the right solutions will get those new hires up to speed faster and help them succeed by helping them do the work the right way. And when it comes to estimating, having the right technology in place will help you build estimates with confidence and ultimately give you confidence that you can grow your labor-based business, even if you’re only catching drips from that qualified staff pipeline.
Want to see what your future projects could look like? Contact InEight to schedule a free demo and see how it’s helping companies transform their estimating, document management and project planning processes.