Some people confuse increased company activity with increased profits. When in fact they are just going broke quicker. Now before we start I am not rambling about Keynesian economics, the Galbraith hypothesis or even Robert Reich‘s analysis of the Global Financial Crisis (the most recent not the one that will hit before Christmas). This missive is about the nuts and bolts of how we manage our dollars in straightforward construction and engineering contracting.
If you are not in construction/resources/engineering in Australia you assume that those of us who are get paid in gold bars and all the companies for whom we work are making gazillions. As I find it hard to be objective from within all I will say is we work hard and booms don’t last forever. But what is a given is that we do not maximize our profits because our thinking is out dated. So what has Robert Reich got to do with construction/engineering in Queensland Australia in 2011? The answer is simple: his analysis of complex US/global economic problems is rational and succinct; and we don’t analyse our projects well enough. He understands: the complexities and his precis is in lay mans’ language; we don’t appreciate the complexities and summarize without fact or maybe with linked spreadsheets or proprietary software which is not fully understood by not only the people using it, but less so by the people relying on it.
Most organisations know where they stand financially as an overall business but have difficulty in being up to speed at a project level. They rely too much on the verbal reassurances from Project Managers, and glossy monthly reports full of nice pictures, colourful graphs and the ubiquitous spreadsheets. All of which the site cadet has spent a week preparing and the project manager’s cursory glance.
The simple fact is the senior management want to know two things: what are the risks; and what are the opportunities. And they need t have confidence in the person giving them that information. That is why the financial status of the project MUST come from the finance department, and the project team provide the forecast of what will it cost to get the job to the finishing post and how much above/below the contract sum will we be paid. That does not sound difficult because it isn’t.
Next time when the blog is on this subject I will look at making sure it is not difficult whilst ensuring accuracy and confidence.