How to Avoid Losing Money in Construction Projects - Not your Usual Planning and Management Guide

Updated: Aug 24


How well the field performs directly affects your profit.


For any construction company, a successful project is more than just a good end product - it’s meeting profit goals as well. And for many projects, the latter challenge is often much more difficult to achieve than the former.


According to KPMG, only 31% of all projects came within 10% of the budget in the past three years.


Yes, there are always estimates and budgets as a project begins that are based on a variety of factors, but there can be problems with these from the start.


For one, teams tend to think best-case-scenarios with initial budgets, and then begin to grow more worried about staying on budget as the project progresses and various targets become more difficult to hit.

For many companies, just making any profit at all can be considered a success, let alone the profits they were hoping for.


The good news is that even what might seem like a marginal increase in profit could make a big difference - especially on a multi-million dollar commercial project where the money is rolling.


But you might have to work for it!


Improving productivity, workflows, communication, and more in the field where construction is being executed could save teams from rework and significant cost overruns. Even the smallest of changes could make or break the finances of a project.


Here’s a look at some of the in-the-field factors that might impact construction profits the most:



Field Productivity


- How to Avoid Losing Money?


What’s the largest non-material cost on any project?


Labor.


Yes, it’s costly to staff a worksite, but it might be even more expensive if there’s a lack of efficiency and effectiveness.


One way companies lose money on projects is not being able to staff a project adequately. As you may have heard, there’s a current skilled trades labor shortage, so staffing is often easy said than done!


As a result, it’s common for some companies to revert to paying overtime to the workers they do have on a project, which isn’t always a good long-term option.

Studies have demonstrated up to a 10% decrease in productivity for every 10 hours per week added to a worker’s time-sheet.

Aside from this drop in productivity, there’s also obviously the cost of paying overtime wages to consider. The combination, to put it mildly, isn’t always ideal if you want to hit your profit goals on a project.


Another big productivity stopper is wasted time. This can happen in a few different ways, whether it’s workers being overwhelmed by administrative work, workers unable to find the right tools when they need them, or poor coordination around material delivery.


It’s been estimated that construction workers waste about 35% of their time on non-productive activities each week, which may add up to cost the construction industry a combined $177 billion in lost profits a year!

Even for workers that concern themselves with efficiency and time management, the lack of a streamlined job site is a productivity and profit killer.


- How to Earn Money


Even the most minor increase in field productivity can be significant for construction profits.


Making just 0.25% extra profit on a multi-million dollar project through increasing productivity may become a substantial amount for money - may the only profit in the project!


So how is can we look to ensure an efficient job site and avoid losing money?


One of the easiest ways to do this is to ensure that construction workers are building and not pencil-pushing.

For instance, clearly delegate administrative work to others back in the office or appoint a go-to person on-site to handle this.


Better yet, the right software platform can help keep all the plans, documents, and templates in one central place, so less time is spent looking for materials, and more time is spent building.


Even just consolidating something like pulling a permit or plan from minutes to seconds can add up over a day, week, and month.


In terms of managing the labor shortage, start hiring earlier so you might scoop up the experienced, more credible workers while they’re still on the market.




Communication


- How to Avoid Losing Money


When you’re losing money on a construction project, usually the issues can all be traced back to lapses in communication.


There are a lot of stakeholders involved in every project, and everyone needs to be kept up to speed on things for a successful outcome.

Yet, you’d be surprised how many project teams still rely heavily on paper and other outdated communication processes, including email and non-collaborative tools like Excel.


At best, a miscommunication might lead to wasted time. At worst, it can lead to work that’s incorrect, which wastes both time and money - and on top of this could leave you with an unhappy owner.


- How to Earn Money


To keep communication streamlined on a project site, make sure everything is performed in one central system where updates can be made in real-time.

When this occurs, teams may improve their efficiency, build better and, ultimately, avoid losing money.


However, communicating via one central system isn’t always enough—there needs to be uptake from the workers, management, and stakeholders too for this to be a success.


Finally, the quality of communication is also essential, as it’s crucial to building

trust and transparency on a project.



Workflows


- How to Avoid Losing Money


How does your information and data flow in the field? This is a significant factor to address, especially right after we talked about the importance of communication—as usual, these two go hand-in-hand.


One big warning sign of a poor workflow is not having any standard practice to begin with. When there’s a lack of standard practice, processes are often implemented on either a team or individual basis, which essentially silos information and causes disconnect throughout the project.


Combine this with the fact that many construction companies still rely on manual processes, and it’s often a recipe for disaster.

If information is manually processed, there’s a higher risk of it being incorrect or missing - and even the smallest bit of information can lead to project errors, which can be laborious and intensive to repair.


- How Money is Earned


So how do you ensure that workflows are optimized and you’re avoiding losing money on a project?

Streamline them.


Invest in automated processes to streamline workflows across the board. Automation has made significant leaps in recent years for construction and its future might be enormous when it comes to time-heavy processes, such as submittals and requests for information (RFIs).


The right software program should be able to streamline most, if not all, tedious workflows. It may also make it easy to track work throughout the construction lifecycle and provide a clear chain of command incorporating all relevant details

necessary on the project.

Workflows should also be standardized to help teams move at a faster pace with greater ease.




Information Accuracy


- How to Avoid Losing Money


We want to cap this list of profit killers with an important factor: inaccurate information. When there is wrong project information, don't be surprised if it trickles down to the project level and results in poorly run projects and mistakes.


How is inaccurate information spread?

It often comes from a non-credible source or via a weak system of communication that isn’t keeping data updated and accurate in real-time.


In other cases, it may be a situation where the communication platform is not fully integrated within the project team, or there’s confusion among members about where to access the right information.


- How Money is Earned


So how can we change things so that the information coming to a team is accurate?


Remember in the communication portion where we discussed the importance of a centralized station in a cloud-based system?

This applies here too.


For a successful construction project, make the only single source of truth with information is the cloud-based one that shows up-to-the-second changes.


How significant could this be to your operations?


Reflect: Productivity might increase by as much as 50% by merely implementing a cloud-based platform to control and facilitate information in real-time.


While many might flinch at the upfront investment for this, you can’t argue with the productivity increase.

When you combine this with accurate, streamlined information, you’re primed to be working on a successful project that builds faster.




Avoiding Losing Money on Construction Projects Starts in the Field


Like we said at the beginning, one of the main goals for any construction company should be to deliver a quality end product.

This might not only open the door to future building projects with the owner, but it’s great for a company’s building resume.


But ultimately, construction companies are in business to earn money - not lose it!

And hitting - or exceeding - profit goals on projects is vital to sustaining a business.


Is your company addressing the four above factors to avoid losing money?


Don't be the last person to correct these shortcomings in their businesses!


For a look at some other ways to optimize your business for maximum profit, make sure you read the Related Articles below!


Thanks a lot for reading and take care,


Niall

The Project Cracker Team

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