How does your company make money?
It depends. Not a good answer, I know. In construction, a general answer would include on time and on budget. Depending on what 'type' of company you work for, that general answer has differing types and levels of detail. For example, a Developer has a different risk profile and drivers than a Construction Manager who in turn has a different risk profile and drivers than a Trade Contractor. Everyone is building the same building, that should be 'the goal,' but each organization has different risks and different ways they make money.
Below is a simplification of the basics to give some context and provide the foundation for this and other articles I'll write.
Owners / Developers primarily make money by purchasing land, developing a property on it, and then either selling or leasing that property.
Construction Management companies make money by overseeing the construction of a property (project) including hiring and managing trade contractors on site, ensuring compliance with applicable regulations and other industry standards. Construction Managers (CMs) charge a fee which typically includes markup on their contracts with trade contractors and others.
General Contractors are often involved in the actual purchase of materials and may have their own labor and equipment to help build and manage the project. Similar to a CM they make money by adding markup to contracts including those for work, materials, equipment and fixed assets that become part of the delivered project. If General Contractors (GCs) have their own labor and equipment, they also make money based on production of work, the same as a Trade Contractor.
Trade Contractors, historically referred to as Subcontractors (a result of the contractual relationship) make money by performing work with their own crews and equipment. There may be a few lower tier contractors on which they can apply a markup but primarily their money is made by putting work in place based on their area of expertise. IE: Electrical, Mechanical, Plumbing, etc.
How do you know how you're doing?
Regardless of your business segment, if we were talking over coffee, I'm sure many of you would answer with something that included reporting or maybe even forecasting. But what goes into those reports and forecasts is very different depending on what type of company you work for. IE: Owner, CM, GC or Trade.
As an example, if you're a Developer, you're concerned about schedule and budget from the standpoint of potential unforeseen issues or delays to schedule. Delays to schedule will have domino effects on the budget and while much of the risk can be transferred to CM & GC's there will be impacts. Your reporting is likely on a monthly basis and comes through communications with the CM or GC.
If you are a Trade Contractor, your connection to the schedule and budget is much more granular and related to your performance on site. Your risk involves not only material purchases and your own subcontractors but also, your direct labor, equipment and production on site. There are daily activities, lots of them, that impact your outcome.
Is Technology Working for Your Business?
Reports and forecasting are good answers but what do they mean? One thing they mean is the application of technology. But what technology and why isn't reporting and forecasting already easy? It depends on your type of company, but a large part of the challenge lies in process. You cannot SUCCESSFULLY apply technology to unmapped processes.
The more complex your processes, the more challenging the mapping will be. You can imagine that a Developer has a more simplified set of processes to map than a CM, and a CM than a Trade contractor. However, most organizations are using a similar model (tech stack) today.
The common tech stack consists of an accounting system (ERP) along with other connected systems and tools. Remembering that process precedes technology, it makes sense that this has been the evolution of the construction tech stack. GAAP reporting has been regulated for years and other office functions like HR and Payroll have clear steps that can be documented. So, office processes were mapped, and technology was implemented.
But, if you make money by performing work, your business is in the field, not the office. By selecting office systems first, the tech stack is inherently 'upside down' for your organization and not serving how you make money. You need to map the processes in the field first. An Accounting system will still be key but may no longer be the hub.
Closing Thought
In the past decade the construction industry has seen, not a wave but a tsunami of technology solutions hit the market. Before reaching for the new solution, do you know how your company makes money? If so, have you mapped that for and communicated it to your organization? Sorting through the various technology providers is often very easy if you have.
Disclaimer: Unlike working with engineering, product or business (left brain stuff), when I am writing (right brain stuff), I try not to start with the end in mind but instead work from a target idea. Along the way, there are often many connected tangential and parallel threads on which to pull. To compose a concise article is a challenge. Each finished article leaves countless others unexplored. Your time is valuable, I hope I've inspired you with threads of your own to pull.
