Building Boom and Builders going Bust

Here we go again. The head hunters have emerged, companies cannot retain and hire good staff, material prices are through the roof and subbies are ordering jet skis (well maybe a few).

The Australian construction sector is going gang busters and the inevitable will happen – good, established builders and subcontractors will and are going broke. Some blame ridiculous low profit margins, some blame “greedy” subcontractors, some blame Covid. The truth is we need to look at ourselves. We determine the submitted tender, we put pressure on shaky subcontractors, we convince ourselves we can deliver on time and on budget.

Bottom line is many builders simply cannot manage risk, we accept draconian contract terms, procure inefficiently and blame everyone else for out predetermined fate.

Just say no and go fishing

Zero Overheads

v-30-PreviewSimple premise – reduce overheads, become more competitive, then win more work. So what overheads does a construction company essentially need. Perhaps if the projects were set up with the right resources we would not be as reliant upon a head office. The project becomes, in effect a stand alone business and if it needs anything from head office it has to pay for it. Simple. But in reality , if the project runs this way it will incur costs never envisaged in the cost plan and instead of wearing head office overheads, it just bleeds dollars and drags the business down anyway. It is all down to how the budget is managed, reported and controlled.

So we need to be competitive in the tender process, run the project pretty lean and not rely on additional resources from head office. The answer is smart people, good communication and the best IT we can buy.

Let’s start with IT. We  love to blame it, cannot function without it, do not embrace it and do not use it to its full potential. The IT department is an overhead that needs to charge the project for providing services and hardware.  First thing we can do is to stop buying hardware. Bring your own phone, ipad, tablet, monitor and simply connect to the company’s access points. Companies don’t provide cars any more so why provide computer hardware. All IT provide is the core software and managing internal communication. Everyone has a mobile phone so why is it most staff have two, one for work and one for personal.

Site office space is always a problem as we never seem to have enough. We need to understand space should be determined by function not status. Give everyone access to an open plan area and meeting rooms for meetings, not for egos. Site offices are expensive. We do not need a dedicated office for a project director who visits once a month, whilst others are working on top of each other.

But this is just simple good housekeeping. We need to look at all the functions that the project could manage themselves and ensure those they cannot are paid for. We all think very seriously before calling in external legal advise, yet pick up the phone at the drop of a hat if we have in-house counsel. Internal lawyers (if the company has them) are our best friends and having access to them is a true luxury. But we need to be aware not only do they have a cost, the resource is limited and whilst we are tying them up they are not available to our colleagues on other projects.

It is interesting to consider say fifty years ago we employed all the major trades for us to construct buildings and did not have internal support such as legal, marketing, green advisers, real estate novelists etc. Now we have various none core support divisions and we subcontract the construction.

Of course our support teams are vital and we need to make full use of their expertise, we simply need to remember we have to pay for them.

picture courtesy of

Oh No, they have brought in a Quantity Surveyor

Budget Meeting

Builders hire external quantity surveyors only as a last resort. Usually after months of trying to convince themselves that the project bottom line will improve, they realize that they are in for a contractual fight with the client and any straw needs to be grasped.

Month after month of cost reports with ever diminishing margin, force them to consider the battle ahead. That means finding every conceivable error, ambiguity, inference in the contract documents or any slip by the client’s representative. Project managers think they are experts in construction law, directors look for blame, and the site based project team convince themselves they have a cas against the client. Delusion has set in.

Wonderful expressions are uttered, “global claims”, “unfair enrichment”, deceptive and misleading conduct” All are bandied about with as much abandon in the site office as in the boardroom. Sight is completely lost of the simplicity of contractual claims:

  • What did the client do or not do?
  • Did this cause us costs?
  • Is it recoverable under the contract?
  • What are those costs?

The client’s quantity surveyor has  either dismissed or taken a blow torch to variation claims and because builders are not in the quantity surveying club, they are forced to seek the services of an external professional – the QS.

by Gerry Keating

So we go through the very expensive exercise of our people talking to their people and if we are lucky end up with a compromise on the steps of the court.

The alternative is to start the process from the day the first variation is carved up by the client’s QS, not wait until the dire cost report forces the issue. Get in early, don’t get time barred, and do not put up with any nonsense from a QS who probably created the errors or ambiguities in the first place.

Consultants and their “Visions”

Sometimes trying to control consultants on a design and construct project is similar to catching a runaway horse. That is if you come to the project after the design process has begun. What is this “vision” that architects wax eloquently on about. Forget the vision for a moment; just consider how many dollars we have to deliver what is in the client brief. Why, all of a sudden, do embellishments appear on the drawings before they are at “for construction issue”?

We refer to this as “design creep”. Utter nonsense. It is lack of design control and has to be nipped in the bud. What happens is that the drawings through the design phase are issued to the project team and then they are pored over, red pen at the ready, to check that the consultants have not added anything which is either incorrect or not required. The more “prestigious” the consultant the more likely for this to occur. It could be argued that the cost of design creep is proportional to the size of the consultant’s (usually the architect’s) ego. If I hear the words vision, statement or landmark one more time at a design meeting, I may start taking a Taser to the meeting instead of the red pen.

Of course they consider me a philistine or a dumb builder, but we have deliver projects that satisfy various parameters including the client’s brief, various approvals and my budget. Some consultants, people who we hire to provide a service, just don’t get it.

So how do we deal with this problem? It is easy if you are there from the initial discussions. It is called control. However, the onsite construction team do not get involved until the design train is hurtling down the track heading for derailment. Then you give our consultant friends a reality check and guess what they don’t like it. No more latte style nebulous meetings, we are now down to brass tacks. If we are trying to design down to a budget and the consultant team have been previously chasing visions, it is going to end in tears before bedtime. You become the hardnosed school teacher with a class full of recalcitrant children. I usually revert to the simplest method of reining in the runaway horse. Dollars. When it is pointed out that these embellishments, visions etc. are going to hurt the budget, simply deduct monies from the consultancy agreement for wasted time. That is the time the project team spends with the red pen and the abortive time the consultants have spent producing spurious design.

If the bricklayer uses the wrong bricks do we pay him because he thought they would look better? We do not but yet we are prepared to pay for consultants to fix up what they should not have done in the first place.

Consultants need clear direction, strong management and as soon as they veer away from the brief jump on them from a great height. They won’t like it – but it is not their budget.

Down with spreadsheets

Illustration of subroutine in Microsoft Excel ...

When the automobile was invented, people put their horse carriage in the barn. When the personal computer came along, people put their typewriters in the closet. When the video recorder was invented, people put their Super 8 cameras away for good. Throughout history, the better tool replaces the more cumbersome one.

The same is true when it comes to budgeting. In today’s business world, companies can no longer afford to spend four or five months or more creating their budget with an obsolete tool, that is, through the cumbersome process of pulling together dozens and dozens of spreadsheets.

The reasons are clear:

1. Spreadsheets were never designed to process reams and reams of   information quickly and easily.

2.  Spreadsheets are cumbersome to change whenever there’s a budgeting revision, prolonging a protracted process even more.

3. Spreadsheets offer poor security, which compromises the integrity of the budgeting documents, enabling changes to the budget to be made surreptitiously and risking exposure of confidential information to outside parties.

4.  Spreadsheets are error-prone, so their accuracy is constantly in question.

Forward-thinking companies give their front line managers the tools they need to create their own budgets. The result: budgeting accuracy improves.

G A I N I N G   C O N T R O L

Ultimately, it all adds up to one thing: lack of control. Companies are seeking more control over the amount of time it takes to put the budget together, more control over how long it takes to make a change in the budget whenever it’s needed, more control over the accuracy of the data, and more control over who can access that data.

Fortunately, there’s a solution to these problems: budgeting and planning software applications. They enable you to:

1. Accelerate the budgeting cycle so you can complete it fast.

2. Increase confidence in the accuracy of the numbers.

3.  Change budgeted numbers without undue delay or tedium.

4.  Engage more users in the planning process.

5.  Help users become more efficient and productive.

6.  Gain dynamic control over business results.

7.  See immediate ‘snapshots’ of where the company stands in relation to the budget.

8.  Achieve implementation quickly and cost effectively.

Anyone who’s ever been saddled with the spreadsheet budgeting chore knows that it means long days and countless weeks of collecting information from different departments and business units, then checking the accuracy of each spreadsheet. Even simple changes to a spreadsheet result in a major undertaking.

Finance managers and budget analysts tend to spend as much time verifying that all of the spreadsheets are actually linked together properly or that formulas are pristine, as they do anything else in the budgeting process. That leaves little time for more value-added activities like analysing discrepancies, conducting what-if scenarios, and planning. With a budgeting application, finance managers are no longer bogged down with a morass of information that must be linked together. Those tasks are handled automatically. In addition, the amount of time spent checking and verifying the numbers is reduced substantially. That gives finance managers more time to assess what the numbers mean, gain greater visibility into the future health of the company, treat sore spots before they become major infections, and make strategic course corrections that keep the company focused on its goals.

D YN A M I C   B U D G E T I N G

Forward-thinking companies give their front line managers the tools they need to create their own budgets. The result: budgeting accuracy improves. It becomes a flexible, dynamic process that can be adjusted when external conditions warrant a change in direction or emphasis. Instead of a once-a-year event, budgeting becomes an ongoing, dynamic process that establishes a tighter connection between corporate strategy and operational activity. Spreadsheets, on the other hand, are inherently inflexible, making them incapable of serving as a living document that moves in tune with the business.

Anyone who’s ever been saddled with the spreadsheet budgeting chore knows that it means long days and countless weeks of collecting information. Suppose you needed to overhaul your budget because your company was adding a new sales division, requiring the infusion of investment to support the effort.

Or, perhaps your company decided to open a series of non-budgeted new branch offices over the next several months? What if you faced an unplanned expenditure that required financial impact analysis? How would you fund those unforeseen projects using a static, calendar-based budget that’s already earmarked where all the money will go over the next 12 months?

A budgeting and planning application can accommodate such major adjustments to the budget within a matter of minutes. A spreadsheet approach might take weeks, leaving funding for these new projects in limbo and opportunities at risk. In addition, there’s the ever-present concern that spreadsheet-generated data may be wrong, whereas applications for budgeting and planning have built-in controls that insure accurate, reliable results. They also help identify anyone who attempts to “sandbag” budget numbers with misleading information, since the data is now so much more transparent. Managers gain the ability to control the bottom line as never before.

With real-time information at your fingertips, you gain access to that longer window of opportunity in which to act. That gives you more control over correcting variances.

B E T T E R ,   M O R E   U P  – T O – D A T E   I N F O R M A T  I O N

Budgeting applications provide the controls that produce more accurate and reliable information. For example, let’s say sales of $30 million were budgeted for the upcoming year, but external conditions such as the economy, shifts in customer behaviour, or unusually poor weather conspires against your company, causing you to fall short of that goal. How valuable would it be to have that information a month earlier rather than a month later? If you had one extra month to work on correcting the shortfall, it would give you a longer window in which to solve the problem, perhaps by hiring more salespeople or opening up a customer hot line. With real-time information at your fingertips, you gain access to that longer window of opportunity in which to act. That gives you more control over correcting variances.

Gaining a higher degree of certainty about activities like future sales can send a positive ripple throughout the company. The marketing department, for instance, might react to a decline in sales performance by initiating a more robust promotional program that focuses on the company’s most promising new products. Or, let’s consider the reverse scenario: sales that are expected to be higher than originally anticipated. Operations might respond by considering outsourcing more activities to handle the additional workload. The accounting department might respond by making preparations to handle a larger number of invoices. The advantage: you can respond with the right amount of resources at the right time in the right place.

OV E R C O M I N G   I M P L E M E N TA T I O N   I S S U E S

Anything as comprehensive as a budgeting application may cause you to wonder about the complexity and time required to implement such a tool. However, implementation frequently does not require an undue amount of time or effort. One reason is that some budgeting applications provide access to your existing chart of accounts, making it easier to create a structure for your budgeting system.

In addition, easier access to historical data can reduce the need for IT resources and involvement and get you going more quickly. Easier access to historical data can reduce the need for IT resources and involvement and get you going more quickly.

OT H E R   W AY S   T O   S P E E D   U P   I M P L E M E N TA T  I O N   I N C L U D E :

• Hiring a consultant and conducting a planning session before starting   the implementation. During this planning session, consultants can walk through the current process and determine what changes or improvements the company would like to implement, as well as the requirements of the application from an IT perspective, so IT has the information they need to ensure the environment is set up properly.

• Determining what works well in your existing budgeting process and changing what doesn’t work well.

• Implementing the budgeting application in phases. As an example, you might start with your operational budget, then add more budgeting capabilities within other parts of the organization, such as human resources, over time. In addition, software installation can be completed ia the Web, which reduces implementation costs and time.

• Appointing an internal champion. The champion typically has a comprehensive understanding of the internal process and who does what.  Committees have the potential to slow implementation down.

• Training, available via traditional or virtual (Web) classroom. Quite often, managers can begin budgeting after a one-hour orientation.

R E C O U P I N G   T H E   C O S T   O F   Y O U R   I N V E S T M E N T

Using a budgeting application doesn’t automatically mean abandoning the investment you may have made in spread sheets. Some budgeting applications are designed to work with Excel, giving you the best of both worlds: the control of an application to simplify and streamline budgeting, along with the freedom of Excel for input, manipulation and presentation. Perhaps most importantly, the budgeting application is a solution that has the ability to pay for itself over time.

H O W ?

•  By automating many of the manual tasks, such as managing all the  spreadsheets (creating, populating, distributing, gathering), consolidating  the information, verifying formulas, formatting, adding accounts, and verifying and validating the data-the most time consuming chore of all.

• Eliminating human error. If managers forget to change one number in  the spreadsheet, they have to communicate that error with the budget  administrator and hope that the number gets changed. In a budgeting application, managers make their own changes.

• Reducing the amount of time spent in meetings by providing collaboration via e-mail memos, notes and attachments, so managers can understand  he rationale behind important numbers and assumptions.

• Letting people do their own jobs, instead of letting budget chores pull  them away from their jobs.

• Justifying use of the application throughout the year to facilitate better business execution, monitor business conditions and adjust plans, giving the organization the potential to take advantage of new business opportunities-opportunities that might have been missed using the old, traditional spreadsheet budgeting process.

• Increasing management’s ability to recognize inflated numbers and unrealistic assumptions.

• Giving users a simpler way to keep score of how they’re performing in relation to the budget, making the budgeting process more meaningful and relevant for them.

• Making it easier for more people to be involved in creating their own budgets and to understand the impact of other budgets on their own.

In short, what value do you put on a tool that gives your company the power to capitalize on more business opportunities than ever before?

Saving time and money, in many cases as much as 40% of the time it takes to do budgeting in a spreadsheet.