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© 2010 USCTCA.com
back to: Home | Must Read Reports | 10 Biggest Mistakes Contractors Make . . .

10 Biggest Mistakes Contractors Make - 6 thru 10
Ron Roberts & Guy Gruenberg

Click Here To Read Mistakes 1 through 5

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(Mistake #6) Failing to Hold Field Leaders Accountable

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Who do you pay to:

Ensure your crews work safely?

Ensure your crews perform quality work?

Ensure your crews hit their production targets?

Your crew leaders, your foremen, and /or your superintendents. That's who.

What happens when your field leaders fail to perform their jobs correctly? 

They endanger employees, customer satisfaction, budgets, and schedules. That's a hefty price to pay for the poor performance of just a handful of people.

Let's be honest here, field leaders have a tough job. So hard in fact, they rarely do their job right. 

Contractors Tend To Be Excessively Tolerantof Poor Field Leadership

Most contractors are so afraid of losing the leaders they have, they are hesitant to hold them accountable for poor performance. That is a costly mistake to make.

Not everyone is wired to lead. Demote the incompetent. 

Your good crews and your good field leaders will thank you for taking action and weeding out the weak leaders.

Once you find a good to great field leader, don't risk losing him:

Pay him a little more than the competition.

Set up a bonus program. 

Make sure he has the tools and information he needs to succeed.

Remind him how much you appreciate his efforts and commitment.

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(Mistake #7) Not Knowing the Cost of Work

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It never ceases to amaze me how few contractors really know the speed at which their crews move.  The problem usually shows up the first time they bid on an out-of-the-ordinary scope of work.  As the contractor gets deep into the job, he suddenly realizes he is woefully short on man-hours. Has this happened to you?

A highly successful excavator/land developer once told me “you don't know what you don't know.”

This man was obsessed with tracking job costs and labor productivities. That obsession helped him generate well North of a 10% net on $20 million of sales. He knew how much work each of his 10 crews could and should get done daily.  Jobs rarely ran over budget. He was a rarity in the industry.

Let's face facts. A contractor must be able to predict how long his crews will take to complete their work. Otherwise, projects will consistently run over budget and year end results will be less than expected and desired.

Here are a few suggestions to save you a lot of headache with your job costing.

  • Find the middle ground. You can mess up your tracking by being too general, assigning all hours to the job without further breakdown, or too detailed, assigning every hour to the cost codes used by your estimator.
 
  • Have your crews assign their labor and equipment time to the four to six tasks that account for 80% of the work.  Have them throw the rest into an “other” category.
  • Do not lump equipment costs into overhead and spread them across all jobs based on job price. That approach typically leads to horrible job selection decisions. Know the average hourly cost of owning and operating each piece of equipment and charge it to the job based on hours used.

The People Problem

Few people in your company will happily embrace the data collection process. Data collection annoys field crews. It annoys field leaders. It annoys support staff. Some of your employees will never stop complaining about the job costing process. Tell them to buck up because the process isn't going away. Proper cost tracking is a non-negotiable part of their job. Stay committed to your data collection process. 

Storing & Analyzing Your Data

As if the data collection process wasn't enough of a headache, you've also got a data storage headache.  Did you know that financial accounting systems are the second biggest barrier to knowing your costs? Financial accounting and tax accounting procedures are in direct conflict with proper job costing techniques. Unless you are running one of the high-end accounting packages (Timberline, for example), you may need to run two separate accounting systems: one for financial accounting and one for job costing.  For contractors generating less than $5 million in sales, the easiest solution is to use spreadsheets for tracking and analyzing job costs.

Is Your CPA Up-To-Speed?

Unless your CPA has built his or her practice around construction accounting, it is unlikely he or she can guide you through the set-up of a usable job costing system.  I've met only a handful of CPAs who truly understood construction cost accounting.  Give yours a try but realize you may need to find an outside expert to get your job costing system working properly.Remember, not knowing how long it takes to put in work will lead to massive financial losses.  Make sure your job costing system is producing the information you need.




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