Ever think about how successful your business really is? Or how successful it could become? If so, how do you measure it?
I know of many contractors/builders who just go about their merry way from project to project, basing their successfulness or unsuccessfulness merely on whether or not they turn a profit. There should be much more to it than that.
Sure, the goal is to make money on every contract, but the big picture should be in focus here. We must strive for increased and sustainable profitability. In order to foster an environment in which this is possible, we must track the following:
1. Quality in terms of closely following specifications and drawings
Before you begin to execute a contract, everything must be on paper. The client has to know what he is getting and the contractor has to know what he is delivering. In an ideal world, the two views would match. In the real world, however, they rarely do because, with specifications and drawings, there is always room for interpretation.
The first key to success for the contractor is to be able to build what is on the drawings and in the specs... to the letter! When this is achieved, any differences in expectations between the client and the contractor at this point, typically can be readily resolved. The real problems occur when the contractor deviates from plans and specs.
Build what is stipulated in the contract and you have taken the first step on the path to success!
2. Client satisfaction throughout the entire project
The emphasis here is on the word "throughout". Contractors are, in general, good salespeople so the clients are usually happy at the point of signing the contract. The problems arise during the project, when the contractor has to cater to the client. To which degree depends on the client's personality. Some clients need to be coddled and pampered, while others do not want to be bothered through the process: Just call them when it is all over! Some clients do not trust anyone and have to be involved during the entire process, while others have the utmost trust in the contractor's expertise.
To recapitulate, a happy client is one who enjoys the entire experience, not just the initial encounter or the end product. This turns into referrals and repeat business. A happy client is the second step to success.
3. How changes are handled and implemented
No matter how well you plan, changes always happen. Some stem from poor planning or discrepancies in expectations, while others come from client requests and needs. The former require damage control so that they do not cost money, while the latter is where the contractor tends to make money. The problem with changes is that they impact schedule. Therefore, any change has to offset delays with remuneration. Since you probably have more than one project lined up, this can create a domino effect, which requires more coordination with more costs incurred. It is best to have a change implementation system so that when changes do arise, they can be addressed immediately and efficiently.
Not all change orders make money-only those that are carried out promptly and efficiently while taking in consideration all of the impact that they have. Proper change management is the third step to success.
4. Return on Investment (ROI)
This is otherwise known as the "bottom line" and this is why you went into business in the first place! However, it involves more than just being in the "black" rather than in the "red". It is about setting profit goals, improving on them and sustaining them. First, you must set a goal: What is your target profit margin? Five per cent, 10, 15? Whatever it is, it must be realistic and backed with reliable estimation data. Based on previous contracts and overhead costs, you should be able to determine your anticipated profit margin on any project. There will always be some manoeuvring due to inflation, fluctuating costs of materials/labour, and market competitiveness conditions.
Next, when the project is terminated, consolidate all of your costing data. This is when you will know whether you hit the profit target or not. From here, you will then look for areas where costs were too high or if schedule delays and scope changes added to unexpected expenses. As well, you will see how you entertained savings, if you made higher than anticipated profits.
Finally, take this analysis and convert it into a resource for projects in the future. The goal is efficiency. How can we cut costs without sacrificing quality? How can we compress schedule without skimping on scope? Going forward with this plan in hand, profits should rise, as long as external economic factors beyond your control don't play havoc! I never said that it would be easy, but it you chose easy, you'd be working for someone else and not yourself! The ROI is the final step down the path of project success.
Good luck as you keep your eye on the bottom line!
Steve Gravel is a Certified Project Manager located west of Montreal. For information on seminars and consulting, he can be reached at 514- 703-2551 or at gravelsteve@hotmail.com.
