The Construction Contractor's Digest
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McGraw Hill's New Book, Managing a Construction Firm on Just 24 Hours a Day By Matt Stevens |
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Tue, 30 Sep 2008 09:49:00 -0700
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Mon, 29 Sep 2008 22:57:00 -0700
Thank you for visiting the Construction Contractor's Digest. We are pleased that you have joined us. This site is for the express purpose of being a resource for construction leaders. We work as management advisors with construction firms. We are Stevens Construction Institute.Management Advisors to Construction Contractors.
Presently, we have written over 190 articles ranging in subjects such as managing people & processes to financial management & computers. Enter your key word (use American English) and I am certain we will have some information for you. As you read these articles, please let us know your thoughts. This adds to the quality of our digest. I am the author of an "old world book" McGraw Hill's Managing A Construction Firm On Just 24 Hours A Day by Matt Stevens. It's 406 pages describe issues, trends and "work smart" processes / tactics for construction contracting. We include over 100 illustrations with 130 Best Practices.
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Sun, 28 Sep 2008 04:18:00 -0700
My child is in college. She is starting to ask about industries and careers. Olivia has made me think further about what construction contracting has to offer her. I have concluded it is the best career a young person could choose. You may not believe it, but the facts will show our business is unmatched. It offers participants long term tangible benefits. However, many people will argue that point. Let me show you the many virtues our industry has. You be the judge.
The Industry is Not Going Away - Construction is a basic necessity to human life (shelter, food, clothing, and water). Contrastingly, most manufacturing will be leaving this country over the next few years. Construction cannot be exported. It must be "insitu" or occurring where it produces the end product. This is unlike service center, computer programming or engineering where other countries provide it from afar and then send it back to the United States. Construction and its sister, demolition are captive to the site.
Merit Based - the construction industry rewards hard work. There is no substitute. We are all dissatisfied with the work ethic today. When we find it, we reward it. Let me give you an example - a person comes to you (male / female) doesn't speak English well, but has promised to work hard and keep their nose clean. You give them a chance and 1 year later, you are glad you did. They kept their promise. Now, what will you do? Ignore them? Cut their pay? Of course not! You will increase their wages and give them more responsibility. Construction contractors reward merit. We are an equal opportunity employer.
In a few years, that same person, having earned the technical understanding and crew following might start their own business. It is almost expected. After working in the field, interacting with clients and managing labor, it is normal and rational for this person to at least attempt it.
Additionally, the industry is also merit based. Question: What is the best advertising in the construction business? A completed project that is on-time and on-budget. It speaks volumes of a contractor's savvy and diligence. There are a minority of good contractors. Word of mouth will travel fast. Excellent contractors have more opportunities for work than their lesser competitors.
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Sun, 28 Sep 2008 02:57:00 -0700
Go to any national convention and you can't miss seeing dozens of software vendors. It is a big business and there is high value to construction firms. The product has made estimating a less clerical and more automated. Also, it has made estimating more efficient. Due to its power, counting and measuring is less of a task; taking hours instead of days. For those of us who don't looking forward to the job of estimating, computers and software has made it bearable.
We feel that most estimating software is very useful for contractors. However, I have personally witnessed software purchased one day and then never used. The salesman did his job. The rub is the time it takes to be proficient. The contractor's busy schedule doesn't allow for training. In several cases I know of, thousands of dollars has been invested and no payoff. The software sits in its shrink wrap still unopened.
I am raising a red flag. Take a look at all the risk in construction, some of it we choose. Buying estimating software (decreasing our cash) and never benefiting should not be one of our risk factors.
We recommend looking hard at Microsoft. (See our writing on "Computers".) If you use a computer, you can use the Microsoft Office Suite (90% of users do) and especially Excel. For any one just starting to use computers, the advent of the point and click system also known as Windows, makes it all the more easy.
As proof of our conclusion, The American Society of Professional Estimators released a survey in 2005. Here is the background and the results:
Respondents were asked if their satisfaction level with their current estimating software.
Satisfied 80%
Fairly Satisfied 14%
Dissatisfied/Plan to Change 3%
Other/n/a 2%
Respondents were asked if they anticipate change soon (one year or less)
No change planned 93%
Plan to change soon 7%
Respondents were asked the major factor in the purchase of their estimating software.
Ease of use 30%
Customization 30%
Features 25%
Price 4%
Other/n/a 11%
Average time in use
1-5 years 32%
5-10 years 47%
10+ years 21%
For the rest of the article, email us at mstevens@stevensci.com. with the title of the article. Limit 1 article per month
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Sat, 27 Sep 2008 14:08:00 -0700
What is the appropriate compensation for an owner of a contracting firm? How much is the right number? Isn't just a salary with expenses enough?
These are good questions for all construction contractors. People have different answers. Thus, it is reflected in the bid results on any given day. Some contractors want to make a living while others are trying to build wealth for themselves. To be sure, if you compete with those who just want to make a living, you will have to be satisfied with just that. There is no profit margin in their bids therefore; there can't be any margin in yours.
If you want to build wealth, compete against those contractors who want to do the same. Their prices are higher and so, your bids can be higher. Great news for anybody in business.
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Mon, 22 Sep 2008 10:08:00 -0700
Question:
Hello Matt;
After reading your book, I have a question regarding dual overhead percentage and Total Mark-up percentages. My mark-up percentage calculates to 35%. For my dual overhead calculations I am using a 8% profit, 7% material/sub-contractor & 20% Labor and equipment. This totals to 35%. The thing that I have noticed is that if I take my raw labor/equipment, materials/sub-contract costs, & take them x 1.35 this total number is higher than if I accumulate the percentages separately on my spreadsheet. Is my process correct? Is this the benefit of the dual overhead and still covering my required overhead?
I continue to enjoy the Digest.
Hope this finds you & your family with things going well.
Answer:
Good morning.
Certainly. Your math is correct. As you know, you are placing parts of the total percentage number on smaller numbers. Therefore, the result is less than taking the total percentage and multiplying it by total (larger) number.
The dual rate is the only way to arrive at a true cost or breakeven for the job. From breakeven, we add the profit margin we believe we can get or at least gain entry into a negotiation.
Many contractors have fat or contingency on each part of the total number. This is good in a steady economy but, can be a business mistake in a poor economy. Said another way, if a negotiator knows his breakeven or "walk away number" he can play the poker game with confidence whatever the economic conditions.
Further discussion and examples in the book (as you know).
Hope all continues to go very well.
Sincerely,
Matt
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Thu, 18 Sep 2008 09:13:00 -0700
A cash flow problem is a drag on the performance of a construction firm. Just as a foot of water in the bottom of a ship would cause it to ride lower, move slower and be a foot closer to sinking, it is problematic. Cash flow is a primary economic factor whether a contractor does well or not. Understanding this issue can keep your company profitable and thus, make your management easier.
How important is understanding cash flow? It is a top five issue. Why? Negative cash flow is the leading predictor of construction contractor bankruptcy.
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Tue, 09 Sep 2008 03:48:00 -0700
The field is where a construction contractor makes a profit. The quality of the foreman is directly linked to the level of gross profit a contractor enjoys. The field supervisor is a resource manager, taking the demands of the job and matching them with limited resources. At the end of a project, the foreman who thinks more as a manager will win. To win more often, this supervisor must psychologically take off his tool belt and assume the role of business owner. The business is the construction project. The average construction project in the United States is about the same as the revenue of a small business. The foremen is responsible for it as small business owner is.
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Fri, 05 Sep 2008 21:11:00 -0700
Retainage costs everyone in the construction industry from the owner to the contractors and to the suppliers on any project. The "holdback" of 10% in most cases is a drag on cashflow and thus, keeps cost higher for the job than it should be.
The question is "what is a smarter way for a contractor to approach retention?". Here is our answer: Approach it like a creditor. If you do, then you realize may be a bargainin chip with the client.
First, let's ascertain the cost of retention -
1) Cost of money
2) Opportunty Cost
3) Risk of not getting paid
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Thu, 04 Sep 2008 10:33:00 -0700
For a complete chart of accounts for construction contractors, buy our book, Managing a Construction Firm on Just 24 Hours a Day (McGraw Hill, 2007, 406 pages). It is available in all major bookstores including ours. To order the book, go to Stevensci.com, Amazon, Borders, Barnes and Noble, Browns Stationer's (UK), Reiters, Walden Books and other fine book retailers. You will find a section in the book outlining "Contractor Chart of Accounts" . Remember, Stevensci.com bundles the book with 60 Excel Templates and an On-Line Course, a solid value.
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