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Tips & Advice Trends & Technology

Inefficiency Costs in Construction

It doesn’t matter which industry you work in, inefficiency is a profit killer. Doing things twice, taking too long to accomplish a goal, or paying too much to get something done are all sure ways to beat up a company’s wallet. For that reason, most companies aim to streamline their processes and improve efficiency. Unfortunately, that’s a tall order for the inefficiency costs in construction. 

What causes inefficiencies in construction?

Inefficiencies typically start with a lack of information, but they can take many forms. The following are some of the largest contributors to inefficiency costs in construction.

Poor Planning

There are many moving parts on a construction project: project owners, general contractors, subs, suppliers, designers, engineers, inspectors, financing lenders, and more. Getting all of those parties to play nicely and on time with each other is truly an art, especially when it comes to scheduling. 

One scheduling snafu can cause massive issues, especially if it involves a materials delivery or a specialty sub that can’t make it back to the site in the near future.

Poor Communication

One of the most significant issues causing inefficiencies in construction is poor communication. Job site confusion, questions about certain aspects of the project, unclear scopes of work, and even changes in designs aren’t always handled quickly and efficiently. Instead, questions compile and delays build, costing the contractor, subs, and project owners precious time and money.

Let’s look at a likely situation: A specified type of flooring isn’t available, and the flooring sub needs to know what to do. Instead of taking the efficient route and sending an RFI to the designer, he tells the GC he needs an answer before ordering. The GC is juggling 15 things at one time and gets distracted by something on the job. He never delivers the message. 

By the time the subcontractor needs to be on-site and laying floors, he’s already behind schedule because he was waiting on an answer and couldn’t order the floor. 

Lack of Skilled Labor and Training 

The construction industry’s need for skilled labor is well documented, but understanding how much this lack costs the industry isn’t so cut and dry. Without a crew of men and women that a company can rely on, projects take longer than necessary. Also, these crews’ inexperience means they might not recognize when they’re working inefficiently.

A lack of training can contribute to the issue. Whether it’s a new system or technique, or even just basic safety, not training staff in how to do a particular aspect of the job will cost a business. In the best case, they learn by trial and error. In the worst cases, injuries can occur. In either case, things are running inefficiently.

And, consider the amount of time and resources it takes to recruit the folks to help run the business as smoothly as possible. What could the company do with those resources, otherwise?

Aversion to Technology

One aspect that separates the construction industry from just about every other business is its unwillingness to adopt new technology. While most industries have moved toward automation and streamlined processes thanks to the latest technology, construction holds fast to its old ways. 

Take drawing management, for example. If a company is still using paper plans, they need to be sure they’re using the latest, most updated set of drawings. Someone needs to print the plans and get them to the job site, costing money in supplies (paper and ink) as well as travel time and vehicle cost (gas, wear and tear).

Instead, a drawing management system allows GCs and project managers to check for the latest plans via a mobile device from the job site. And, anyone else who needs to see those plans will also have instant access, allowing them to make decisions or change course whenever necessary. 

What Inefficiencies Can Cost a Construction Company

When you consider the wide range of inefficiencies that exist and what can cause them, it doesn’t take much to imagine they make a huge impact on the bottom line. 

While some situations are unavoidable, issues caused by poor communication are estimated to cost construction workers almost two full days of work each week. Multiply those two hours by everyone on the project, and it becomes painfully obvious that time is money. 

And, if you consider how much time call-backs cost, as well as time spent on fixing avoidable errors caused by miscommunication, the numbers get worse. It’s estimated that all of these inefficiencies are costing the construction industry around $177 billion each year. 

There is a Solution

Most of the issues that cause inefficiencies are the result of poor communication or missing information. The good news is there is a simple way to improve communication and collect data in one spot—utilizing and ERP-based construction management software.

Automation

ERP software can streamline a business’s day-to-day tasks. By automating some of the more mundane and error-prone manual tasks, the team can focus their attention on creative solutions to unique problems. Whether it be tracking revisions, ensuring everyone’s compliances are up to date or giving everyone on the job an easier way to pay or get paid, automation can be the answer.

Better Decisions

It’s tough to make a good decision without all the information available, and construction management software can help. By centralizing all the data collection with an ERP, decision-makers will have the latest data and information available. This allows them to make smarter, more informed decisions to limit inefficiencies and keep the company and project on track. 

Drawing Management

Drawing management is also critical to ensure everyone is literally on the same page. Revisions and changes are instantly available to everyone on the job. If there are any questions or an RFI is necessary, creating and managing those documents using the ERP software is easy. Automated workflows ensure everyone who needs to receive these documents does, improving communication.

Cloud-based Access

Finally, construction management software can ensure that all of the important data, reports, drawings, invoices, and other documents are available at the users’ fingertips. Cloud-based software allows access from anywhere and on any device with access to the internet. Coupled with real-time updates, cloud storage ensures everyone is working with the same data at all times. 

Better Reporting

Last but not least, ERP-based construction management software helps businesses look at their past practices and forecast their futures. With automatically updated reports like job costing and budgets, and key performance indicators, the company will have an easier time hunting down inefficiencies and improving its practices.

Check out Premier Construction Software to see if it fits your company’s strategies and goals.  Our construction management and accounting software provide teams with the tools they need to take advantage of these technologies. Schedule a demo by contacting us today.

We’re more than just construction financial software. We’re built to help your business. 

Author Biography:

Dawn Killough is a construction writer with over 20 years of experience with construction payments, from the perspectives of subcontractors and general contractors. Dawn has held roles such as a staff accountant, green building advisor, project assistant, and contract administrator.  Her work for general contractors, design firms, and subcontractors has even led to the publication of blogs on several construction tech websites and her book, Green Building Design 101

 

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Features Industry Insight Tips & Advice

Construction Forecasting: Developing and Maintaining a Project Budget

In 2015, KPMG reported that 31% of construction projects come within 10% of the budget. And it seems the bigger the project, the worse the financial uncertainty. In 2016, McKinsey reported that 80% of large projects go over budget. The research shows that contractors and owners are struggling to maintain their budgets throughout their projects. Forecasting costs has only become even more difficult in the last couple of years, due to the global pandemic and supply chain issues. 

Knowing how to build a project budget and manage it over the life of a project is a skill that can be learned.

Here are some tips we have gathered to help.  

Developing a project budget 

Developing a project budget begins with a clear and complete scope of work. You must have a clear picture of what needs to be done and when it needs to be done before you can price the work. Talk to the owner about their project and get as many details as possible about the work and their schedule. 

Using the description gathered from the project owner, develop a breakdown of the work that needs to be completed, also called a work breakdown structure or WBS. A WBS breaks the work down into small, manageable, quantifiable scopes of work. For example, installing drywall. A WBS helps in both budgeting and scheduling work because each task and can be quantified for cost and time. 

Based on your conversations with the project owner, you should be able to establish milestones in the schedule that have to be met. These may include equipment delivery dates or occupancy. Establish key performance indicators (KPIs) that let you know if you are meeting both the owner’s and your own milestones. For example, you may have profit goals or productivity targets that you must meet for the project to be successful. Defining these ahead of time will help you assess the project’s success as it progresses, not just at the end. 

When developing the project schedule and budget, provide an optimistic view, a pessimistic view, and a most likely scenario. Leave some room for changes and added work. By analyzing these three schedules and budgets, you can assess the probability that you will meet your goals ahead of time and start to plan for potential issues before they come up. 

Maintaining the project budget 

A project budget should be a living document that changes as the project progresses. Added work, scope changes, and schedule delays often affect the schedule as a project moves on. Project managers can use several methods to forecast costs to complete the work. They include using a work breakdown structure, using Excel formats, third-party templates, and construction software. 

Some contractors use the list or work breakdown structure method to estimate their projects and forecast future costs. This technique involves listing all the work that needs to be performed and breaking it down into manageable tasks, like WBS. Then each of these tasks is budgeted, scheduled, and tracked throughout the project. While this technique may work for smaller simpler projects, it can easily get unmanageable on larger construction projects. 

The next step up from a written list is using Excel templates to manage costs, schedules, and other information. Excel spreadsheets have been used to track costs, schedules, daily reports, budgets, and much more. If you have not developed your own forms, many are available on the internet. The problem with excel spreadsheets is that they are not connected, and not tailored to construction. 

Some companies rely on templates and use them to track all correspondence and data for their projects. These templates are created by third-party companies and not customized for a specific project or scope. Again, they are not connected, and the data is not centrally located. 

The most modern way to track and maintain a project budget is using construction software. Today’s software is available in ERP (Enterprise Resource Planning) and all-in-one solutions that combine project management, actual costs, commitments, unanticipated costs, budgets, and communication together, where everything is in one place. They tie together estimating, job costing, timekeeping, communication, and financials. Using this information, project managers can more effectively forecast productivity and costs, providing a more accurate picture of where they will finish on the job and ensuring they are not caught with any surprises. They can review historical information and easily dive into the month-to-month variances to better understand the current budget and estimate at completion. 

Keys to better forecasting

  1. Get real-time data

When project managers try to forecast monthly, they often make mistakes if the accounting and job costing is not integrated into one software solution. Working with multiple software applications makes it difficult to compile the data taking several days or even weeks, leaving the Project Manager no choice but to base their forecasts on lagging information. Worst of all, they cannot trust the data to make accurate and informed decisions.  

Today’s financial construction software offers real-time data that automatically calculates the estimate at completion. This way you can easily compare your original estimate, current estimate, and estimate at completion. Software solutions offer great lock features allowing you to freeze the original estimate and forecasting period, forcing your team to properly enter any change orders in the correct period to record any movement on the job. This way, each month you can easily review the variances and see why the budget has moved.  

  1. Communicate

There is no substitute for continuous communication between contractors, owners, and design team members. When everyone is on the same page there are fewer hidden costs. Software solutions offer simple, integrated ways for team members to communicate in real-time about issues, change orders, and any concerns. With software introducing new and faster ways to approve and electronically sign off on commitments, ap invoices, and change orders, it ensures the estimate at completion is up to date and accurate. Members can easily approve, mark-up, decline, or reject key documents instantly. The ability to see what is outstanding and ensure you have your internal processes optimized to provide open, instant feedback, makes forecasting much simpler and more accurate. 

  1. Integrate systems

It’s time to say goodbye to disconnected excel spreadsheets. With real-time data, it makes it easy for a project manager to easily adjust the EAC using anticipated costs and make more informed decisions as to where the budget will end up. 

When systems are separated from each other due to the lack of software integration, time can be lost spent pulling information from multiple sources and compiling it into comprehensive reports. Teams need integrated data at their fingertips so they can act proactively view actual costs, commitments, change orders, pending items, etc. Using an ERP or all-in-one software financial construction solution provides project managers a macro and micro-overview of the budget as they can easily drill down into all the details waiting for other departments to provide information or for spreadsheets to be updated. 

  1. Automate

Saving time saves money. The more teams can automate daily data-entry tasks, the more time they can spend actively managing the work and proactively reviewing the high-risk itemsSo much time is being wasted on chasing down subcontractors, manually approving AP invoices, trying to collect signatures, and rekeying data from emails. An inefficient system makes it difficult for PMs to find the time to properly forecast. With proper construction financial software, the most time-consuming and complex tasks can be automated to save you valuable time and ensure you can scale the business without having to add more overhead. Best of all, you can start trusting your data and gain better financial control of your jobs and business.  

If you are ready to step up your forecasting game, look no further than Premier Construction Software. We have an easy-to-use financial construction software solution that will help manage your project from beginning to completion.  Get in touch with our team to schedule a demo today!Author Biography:

Dawn Killough is a construction writer with over 20 years of experience with construction payments, from the perspectives of subcontractors and general contractors. Dawn has held roles such as a staff accountant, green building advisor, project assistant, and contract administrator.  Her work for general contractors, design firms, and subcontractors has even led to the publication of blogs on several construction tech websites and her book, Green Building Design 101.

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Tips & Advice

KPIs Project Managers Should Be Tracking

Everyone wants to be successful, but how do you know what success looks like to your company? Many companies use KPIs—that is, Key Performance Indicators—to outline expectations and define what they consider measures of success.

So, what exactly is a KPI? According to Construction Financial Management Association (CFMA), KPIs are “vital signals that help indicate if your business is functioning according to plan” and can be further understood by breaking down each word in the acronym:

  • Key: An important or vital aspect. It means you have to prioritize. However, it doesn’t mean you can leave everything on the list and just shift the order of priorities. Everything you measure can’t be considered a key metric. Start with a manageable number. We typically see organizations effectively use 3-7 KPIs. (CFMA)
  • Performance: The manner in which something operates, functions, or behaves. Just like an engine’s performance can be measured by more than its miles per gallon, a company’s performance needs to look beyond profit metrics. (CFMA)
  • Indicator: A sign that gives information about and draws attention to a condition. This is usually a number, percent, or color code that quickly conveys favorable or non-favorable status. (CFMA)

From a construction standpoint, KPIs help gauge the success of a project and to assess performance against strategic and operational goals. KPIs are typically established and agreed upon at the beginning of a project in order to solidify responsibilities and to ensure everyone understands what’s expected of them. Factual data is essential in order to build value and achieve sustainable growth.

To effectively analyze project performance, it’s necessary to prioritize which KPIs will be weighted most heavily, as well as which will most accurately reflect the status and health of a project. While many of us are quick to rely on financials as the leading indicators of success, it’s important to understand that success can’t always be measured strictly within a quantitative framework and there are other essential construction KPIs that need to be considered as well.

Hard numbers and facts are often what precipitate and drive change. Without relevant and timely data, it is difficult to gauge how companies are faring.

So which KPIs should project managers be tracking? Below are five critical categories to consider when developing your construction project KPIs:

1. Safety

People working in construction site. Young men at work in new house inside apartment building. Latino manual worker helping injured co-worker after accident on duty

Arguably now more than ever, worker safety needs to be a top priority for construction companies. Safety incidents can lead to costly project delays, increased insurance premiums, or other unexpected costs—and, therefore, investing in worker safety will save you money in both the short- and long-term.

Safety KPIs may include:

  • Safety/incident rate
  • Number of safety meetings/communications
  • Number of accidents per supplier
  • Number of time-loss claims
  • Number of serious injury claims

2. Quality, Reliability & Environment

Keeping a pulse on these is critical to ensuring a project stays on-track and within budget as it reduces the likelihood for changes, rework and holds businesses accountable to the environment. Quality KPIs will also help you evaluate how the project has progressed if it’s passing required inspections, if the work is being done to satisfaction and if you can rely on this performance for the long-term.

Quality KPIs may include:

  • Number of errors/defects & callbacks
  • Time to rectify defects
  • Incident reports
  • Total cost of rework
  • Number of total site inspections
  • Number of passed site inspections
  • Community complaints
  • Corporate social responsibility policy
  • Consultant-contractor construction coordination
  • The quality and performance of the building at substantial completion
  • The quality and performance of the building at the end of the 1- year warranty
  • Reliability – Percentage of projects (by number and value) that are “on budget” and “on schedule” at substantial completion.
  • Building energy use
  • Construction waste diverted

3. Performance

Performance metrics help measure worker, equipment and economic productivity and how the project and business are developing. By paying attention to how much time and effort is required to complete each portion of the project, teams can reallocate resources to the areas that need them most to keep the project on time and within scope.

Performance KPIs may include:

  • Average revenue per hour worked
  • Percent of wasted time (equipment and labor)
  • Amount of waste/recycling per job
  • Economic performance
  • Characteristics of businesses
  • Productivity measured in terms of GDP contributed per worker
  • Business Size & Formation

4. People/Employees

Two male engineer looking commercial building structure, blur image

In addition to tracking employee performance, it’s important to also measure their development and satisfaction. Happy workers are more likely to perform better, and to stay with the company longer. Not only does employee satisfaction lead to improved quality of work, it reduces the likelihood of churn and therefore also saves on hiring and training costs.

Employee KPIs may include:

  • Turnover rate
  • Worker satisfaction
  • Training completion rate
  • Workforce
  • Education
  • Youth/Gender/Diversity
  • Wages
  • Unionization
  • Qualification

5. Budget & Forecast

Knowing how and where a project’s budget is being spent is one of the most important roles of a project manager. It’s also crucial for them to be able to identify and understand any deviation from the budget in order to improve future planning and job costing, in addition to limiting waste and reducing inefficiencies.

Budget KPIs may include:

  • Budget variance
  • Cost Performance Index
  • Line items in budget
  • Project Pipeline – Total value of proposed projects
  • Total Number of Building Permits Available
  • Capital expenditures
  • Cost to build
  • Interest rates
  • Product price
  • R&D spending
  • Total NUMBER of projects within +/- 5% of the tender price: • Total VALUE of projects within +/- 5% of the tender price
  • Total NUMBER & VALUE of projects that were completed on or before the predicted date:

How to Choose the Right KPIs for Your Project

Measuring, reporting and tracking KPIs can be a complex endeavor. KPIs need to be introduced deliberately and in small steps. Ensure the set of KPIs provide tangible data that can help construction businesses understand their company, industry and the market better. While action not data drives improvement, KPIs cannot tell businesses what the “right” thing to do might be but they can help illuminate and uncover new or poorly understood factors that can help inform decisions.

Because every project and business is different, KPIs should be developed on a project-by-project basis. When developing future KPIs, a good place to start is by examining past projects to reflect upon successes and failures. As the saying goes, “hindsight is 20/20” and evaluating past mistakes gives you the opportunity to plan better for the future.

Manage construction projects with the job dashboard in Premier

Remember that while financial KPIs are most commonly used to measure success, there are other critical KPI categories that also need to be considered to fully understand your project and to provide you with the information needed to improve operational efficiency.

Conclusion

Every construction project has a number of moving parts and KPIs that need to be monitored closely, and we’re here to help you keep track of the information that matters. Today, technology and the practices that exploit them are becoming a greater factor in competitiveness and profitability. The degree to which businesses invest in R&D is an indicator of how ready they are to adopt new technologies and how resilient thy might be to unforeseen events.

To learn how our all-in-one, cloud-based construction management software can ensure your project’s processes are clearly defined and optimized through automation, click here.

 

Author Biography:

Kathryn Dressler is a content strategist with more than 10 years of experience across the spectrum of marketing services, including blogging, social media, public relations, copywriting and editorial services.

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Tips & Advice

4 Ways to Improve your Budget Forecasting Process

Budget forecasting is a strategic and integral task within project management and control. At a high level, forecasting can be used to answer key questions like, “When will this project be complete, and how much will it cost?” This type of information is critical because without a well-calculated estimate of costs, a business may find itself without the cash necessary to complete a project or to pay workers.

 

Forecasting is also important for determining anticipated revenue because companies will want to know how much they stand to make before taking on a project. Additionally, an accurate forecast will provide insight into future cash flow, which is especially important in an industry where the funding for a new project may likely come from the revenue of a previous one. 

 

Creating a budget and financial forecast is no easy feat when there are always a number of variables that may impact a project—for example, weather conditions, change orders, or even a global pandemic causing shutdowns like we experienced this year.

 

So, what can you do to improve your budget forecasting? Consider these four tips:

1. Review Regularly & Update Accordingly

Anyone in the construction business will likely agree with the saying “the best laid plans often go awry” because no matter how carefully a project is planned, things can change and challenges may arise. It’s important to keep a pulse on a project’s status by revisiting forecasts regularly to determine whether or not the project is on-track. 

 

It’s also important to keep track of the initial forecasts and use them as a baseline for comparison, otherwise you won’t be able to effectively gauge project success and make the necessary updates to mitigate future losses.

 

When you create a budget forecast, it’s wise to set dates and calendar reminders to review the forecast and adjust the resource and budget allocations as necessary. Not only will this help gauge current status, it will help you create more precise future forecasts and reduce the likelihood of under- or overstating rates for future projects.

2. Factor in Direct & Indirect Costs

Project managers reviewing construction project plans

When you’re creating your budget forecast, it’s imperative to include both direct and indirect costs. Investopedia defines direct costs as “costs related to producing a good or service. A direct cost includes raw materials, labor, and expense or distribution costs associated with producing a product. The cost can easily be traced to a product, department, or project”, whereas indirect costs “are expenses unrelated to producing a good or service. An indirect cost cannot be easily traced to a product, department, activity, or project.”

 

Three common types of indirect costs are overhead costs (e.g., office equipment and supplies, insurance, salaries), equipment costs (e.g., depreciation, repairs and maintenance) and labor burdens (e.g., FICA taxes, Workers Compensation). Indirect costs can be difficult to calculate, but they need to be accounted for in a budget otherwise your forecasts will be inaccurate.

3. Use Hindsight of Historical Data 

As the saying goes, “hindsight is 20/20.” Use your company’s historical data to your advantage and to feed the precision of foresight. Reviewing historical data will help you identify previous pitfalls and to predict trends that are likely to happen again, all of which will help you plan better for the future to create more accurate budgets and forecasts. 

4.Utilize an All-in-One Software Solution

With so many factors and moving parts dependent on one another, it can be easy for project details to slip through the cracks. Adding to this, many construction companies are using multiple disjointed systems for their project management and accounting needs. Not only does this create bottlenecks in processes and waste valuable time, a disconnect between accounting and job costing means the data is unreliable and can’t be used to accurately gauge success or view up-to-date financial information. 

 

One of the easiest and most successful ways to improve your forecasting is to utilize an all-in-one cloud-based solution that allows you to access the information you need, wherever and whenever you need it. Premier Construction Software offers the most powerful construction software solution on the market to ensure you can effectively monitor and manage two of the most important functions—job costing and accounting. 

 

Our software brings the key business data together into a single platform, with seamless integration between all modules, and a single source of truth for reporting. Up-to-date financial reports are ready to go at any time, and can be tailored to your requirements. Premier also offers the ability to lock-in forecasts to ensure project managers are held accountable for their monthly forecasting. 

Final Thoughts

The power and usefulness of a forecast hinges on its accuracy—forecasting in and of itself isn’t enough to guide critical business decisions. Investing the time and resources required to improve your forecasting will contribute to more exact budgets which, in turn, will optimize cash flow and boost revenue. 

 

To learn more about Premier Construction Software’s forecasting capabilities, click here to schedule a personalized product tour.

 

 

Author Biography:

Kathryn Dressler is a content strategist with more than 10 years of experience across the spectrum of marketing services, including blogging, social media, public relations, copywriting and editorial services.