Better Roads Digital Magazine
Issue link: https://read.dmtmag.com/i/142598
with are those who understand the relation between project management, estimating and accounting. They integrate and communicate between these functions. This means the accounting department is involved in job meetings, and is regularly giving the estimators labor rates and overhead percentages and direct general condition costs, making sure they have accurate information. It becomes part of your culture that there is regular communication between all those departments." Equipment is one job cost that needs a thorough evaluation, according to Hedley. "I encourage contractors to think like an investor. I know a $20 million civil contractor who owns no equipment. He's leasing everything. He pays more in leasing, but saves on maintenance costs, insurance and bonding." Grundvig, who is also owner of accounting software firm ASystems, is a natural proponent of job costing software, which accumulates actual costs into categories, allowing continuous comparison of actual versus estimated costs. "You can tell immediately where things are wrong," he says. 5 Enable your accounting team to be fully integrated with your project estimating and management teams. Involve your accountant in job meetings, and make sure accounting is giving accurate costs to everyone. 6 "Have a tracking system in place to determine exactly how many man hours and equipment hours – by task – you have in a project," Hedley agrees. While software programs sometimes have average rates built in, if you don't track your own rates you won't know if you're making money. "You need a cost history library to refer back to for future bids. Once you've completed a job, review it to determine the actual rate per task," he says. "I believe that construction is one of the highest risk businesses in the United States, because so few builders do job costing," Grundvig says. Realize the impact of cost cutting Grundvig uses this example: If you generate $1 in revenue by increasing sales, how much of it do you get to keep? Generating that dollar involved a lot of costs, including payroll, cost of goods sold and overhead allocations. Now generate that same dollar by reducing expenses. How much goes to the bottom line? All of it. Of course, it's not just a simple matter of cost cutting. There Generate a culture of watching costs. For example, how do you deal with surplus materials at the end of the job? Extra sheets of plywood, door frames, fixtures, etc., add up. 7 Take advantage of early-pay vendor discounts. They could total significant amounts at year's end. are legitimate costs that lead to increased revenue. It's knowing what's important, and what can be cut that's key. "Growing revenues is necessary but not sufficient," Grundvig says. Cost control is a matter of informed decision making, Biehl stresses. "You need to know how a cost affects your business and what the impact will be if you cut, maintain or increase. For example, marketing is always easy to cut but it might be the thing that gets you the next job." Finally, realize getting a firm grip on your costs might require outside assistance. "Think of it like your first GPS system," Hedley says. "You had to be trained. This is the same thing." Want to know more about how to keep your business healthy? Visit theconstructionuniversity.com for tips, articles and infographics on a wide range of business topics. And while you're there, read last month's: Are you poised to fail? Construction University is produced by Better Roads and presented by Case Construction Equipment Better Roads July 2013 29 ConstructionU_BR0713.indd 29 6/26/13 3:03 PM