Rule of thumb – construction estimators and project managers want to ensure that enough funding is allocated to cover a project’s general requirements. When the control lies internally for this spend pool (as opposed to specialty trades set externally), there is an inevitable temptation to go as low as possible with general requirements to ensure a project award. An article from the Balance offers a few pointers on how to reduce overhead substantially and give profitability a healthy boost (without putting your firm in a bad place). I’ve cherry picked some of the ideas mentioned and expanded a bit as each area relates to the JH Greene’s construction project management experience.
- Job Equipment and Vehicle Requirements
Once it’s been determined what the number of essential vehicles and equipment are to daily construction activity, project managers should be cautious not to exceed this usage. Contractually, escalation clauses can be helpful to cover changes in any commodity’s prices that could cause an initial proposal’s total to shift. To keep these levels competitive, price escalations should only be involved over an extremely long-term project where there is likely to be a price variation.
It’s a good practice to take a look at any assets that are underutilized and consider the benefit from selling or replacing items with a more efficient, cost-effective version where applicable. Whether you are equipment-centric or an occasional rental proponent, it’s important to weigh alternatives for the sake of pursuing the best overall construction project value. If you aren’t being awarded work and bidding frequently, these choices can be a turning point.
- Incentivize Staff
When employees are able to meet timelines and provide drastic measures toward cost savings/profitability, this should be rewarded. As a whole, an empowered staff is a massive reducer of overhead expenses. Happy employees are more productive employees, and more productive employees are more inclined to pursue enhanced paths towards profitability/organizational success.
- Appropriate Notice for Change Orders
Change orders have a bad name, that’s no secret. Although they typically take on a negative connotation, they are a necessary evil that can be handled in a way that makes a client’s life substantially easier than if a last-minute rush. If there is as much notice as possible given, clients are likely to be more appreciative of a smooth procedure.
- Contract Negotiation: Seek a Collaborative Angle Over an “Upper Hand”
Contractor/client collaboration is a huge asset to business partnership. I once covered this concept for a procurement blog, and the same concepts hold true. In the piece, I outlined:
Aside from smooth communication between two parties, true collaboration can open a door for both organizations to leverage the other team’s competencies and skills and have the best information available for the most efficient supply chain operation. Organizations that see the value of strategic involvement are often the companies that then choose to implement relationship management programs that nurture these relations.
From this attention toward relationships comes several other benefits resulting from the visibility into contractor/supplier activity. For instance, there is a high likelihood of cost savings from reduction of quality issues with the increased vision into operations. Also, collaboration via a relationship management program allows a procedure for risk and control that prevents business disruption, especially if the ties directly affect core practices.
Even without a formal program in place, many businesses recognize the advantages of not “being a bully” to suppliers while negotiating contract terms. With the mutual benefit collaborative groups have seen from positive relations, the topic of relationship management is becoming increasingly popular.
Whichever area your overhead is in need of some cutting, these reductions are a brief glimpse at ways to easily take control of your expenses. It’s no secret that in construction proposals, every penny counts. With these pointers, even the most well-versed construction expert can refine their spend pools and potentially rise above other competitive bidders.