Gregg M. Schoppman is a consultant with FMI Corporation, management consultants and investment bankers for the construction industry. Schoppman specializes in the areas of productivity and project management. He also leads FMI’s project management consulting practice. Prior to joining FMI, Schoppman served as a senior project manager for a general contracting firm in central Florida. He has completed complex construction projects in the medical, pharmaceutical, office, heavy civil, industrial, manufacturing and multifamily markets. He holds a bachelor’s degree and master’s degree in civil engineering, as well as a Master’s of Business Administration. Schoppman has expertise in numerous contract delivery methods, as well as knowledge of many geographical markets. Visit fminet.com or contact Schoppman by email at firstname.lastname@example.org.
Leaders are usually quick to act. However, without careful examination of a problem, leaders often make decisions that simply treat a symptom, rather than address the true cause of an issue. Great leaders don’t make decisions based on superficial information; instead, they dig deep enough to provide real, problem-solving solutions.
Shop & Yard Support
The situation: “Our yard manager is weak. He never gets us the materials and equipment when we need it.” When faced with this information, the quick decision would be to find a new equipment manager—problem solved. Or is it? Digging deeper on one of the most common issues within construction companies will expose a more insidious root cause. Consider your supervision—how many calls to the equipment manager occur daily? Better yet, how many calls would be constituted as emergency calls? Table 1 depicts an alarming phenomenon. During a 7-week span, the ratio of calls reflected was, at worst, 22 to 1 of emergencies to planned calls and, at best, 4 to 1. Emergencies in the construction industry are commonplace, and that likely won’t change. However, they often become the rule rather than the exception. Too often, reactionary behaviors take priority over proactive planning. Costs associated with emergency deliveries, quick shipments, last-minute rentals and lost productivity can quickly erode margins. The knee-jerk reaction is to cast blame on the equipment manager, when the real culpability lies in the reactive behavior of the field leaders.
The situation: “Our controller/CFO isn’t doing a great job. Our collections are out of whack.” This is a classic case of shooting the messenger. For many organizations, the finance department is the last bastion of money management. The reality is that many of the issues concerning timely collection fall on the operations team. Who is closest to the project? Who influences the invoicing process? Who handles those pesky change orders that often snarl collections? Accounting may have a stake in the process, but if the managers are hands off, no one is truly managing the money.
Cost Overruns: Part 1
The situation: “Our estimating is horrible. We always bust the budget.” The fault here lies with more than just the estimator. For instance, if estimating does not receive adequate feedback on projects through some sort of post-job review, how can they be expected to learn from any mistakes? Do project teams close the loop on all project costs, including items that may have impacted costs (items they beat the budget on, but estimating never hears about)? Do estimators have a true understanding of the issues related to cost-to-complete exercises? These sometimes look like works of fiction, as they are often the result of project managers manipulating cost codes. Ultimately, complications in the estimating process stem from a lack of job-cost integrity across the company.
Cost Overruns: Part 2
The situation: “We cannot make money on [insert phase code here]. Maybe we should get out of that business.” This is a profound business decision—where to play and when to exit. However, consider this scenario: A drywall company has three labor cost codes—framing, drywall and finishing. A superintendent charges time to the framing code, only to realize they are over budget in that category.
So, the superintendent moves the time to the drywall code but overruns that budget as well.
Finally, after entering the finishing stage and subsequently exceeding that budget, the company deduces that it is a poor finishing company. The firm may actually be strong at finishing, but the cost reports show otherwise. First, ask why a superintendent would charge time inappropriately. Is it ego? Is it to avoid an awkward conversation or a write-up? Examine the root cause first. Once determined, leaders can then make more informed decisions on what trades, niches or markets in which they truly have a competitive advantage.
The situation: “We must not be paying our people enough because they keep leaving.” Compensation is a tricky game that seemingly never has a strong solution. However, don’t assume that compensation is the real reason behind employee flight. Most often, people leave companies because their relationships with their immediate supervisor and the office culture are lacking. Many employees will work for less when they are surrounded by a strong team that has a positive culture. There is no question that some individuals are monetarily motivated, but it would be faulty to view everyone through this same lens. An organization can spend a great deal of money on this problem, only to find that the problem is toxic company culture.
The Best Customer
The situation: “They are our best customer. We’ve worked for them for years, and they give us all of their work. Yet, we never make any money.” Rather than looking at the share of the customer’s wallet, look at why they are selecting your business. If the answer is because you offer the lowest bids, you might have correctly correlated your success rate to your declining margins. Many customers will accept mediocrity, especially if they have budgetary considerations. If they see no additional value, the only equalizer is cost. A company not routinely examining their estimating versus actual costs on a client, niche and market basis could essentially be providing free work. Ensure that you are being selected for the right reasons.
Decision making is not easy, and in a sea of data, it is tough to stay informed when business is moving quickly. Senior leaders must take stock in their strategies and avoid these status quo responses. Without discernment, it is easy to operate under clouded judgment.