Construction companies work with thin margins on the best of days, and the post-pandemic challenges of the industry have many businesses scrambling to revamp processes and do more with less to protect their bottom line while still delivering their best work.
Sometimes the reasons for shrinking profits are obvious, like poor budgeting or project scope creep, but others can become obscured, particularly during an economic downturn, when evaporating profits can simply be chalked up to an overall business slowdown.
To dig into challenges the construction industry is facing around profit fade, what’s causing it, and how to spot it, Procore recently held a customer roundtable at the Procore Innovation Summit: Product & Customer Showcase held on June 10. Participants talked about their most common profit fade culprits, the challenges they present and how they’re tackling them.
Strong Relationships and Trust Led the Discussion
Construction is a relationship business, between owners, architects, engineers, general contractors, and specialty contractors. The more solid those relationships are, the smoother a project will generally be. Like any good partnership, the cornerstone to building those bonds is communication and trust.
“We start with trust with our trade partners. Once we build this trust between designers and trades and we can understand the clients objectives, we can move forward together. If we can do that, nobody’s losing money, everybody can make money at the same time. I think it’s hugely important that you start with trust,” explained Bob Gardner, CEO of Gardner Builders.
Commodities shortages, supply chain disruptions, and the skyrocketing prices of building materials have all made national news in recent months. These shortfalls have only sought to highlight the importance of relationships in construction, and its direct impact on profits.
“Everybody understands what’s going on or has met with some of the recent supply chain challenges out there today. Those business relationships become key to having the conversations you need to have about what to do with the situation. As an owner, it comes down to what might happen financially if you put a project on hold, waiting until the price of lumber or something else turns, versus paying the price and moving forward with it. It depends on the financial setup of the job, but we are all in this together, and the trusted relationships you have are key to it,” said Jim Cimbalista, RA, Vice President of Construction for Ingerman Construction Management.
Maria Russo, Customer Experience Manager for BW: Workplace Experts pointed out the importance of relationships on-site, and how building close contacts creates a virtuous cycle.
“Relationships are very important, especially those created on-site between contractors, subcontractors, project managers, commercial managers, and the client team. I believe if we all work together collaboratively with one goal in mind we can deliver quality projects, quality projects lead to better relationships and repeat business,” she said.
More Collaboration During Preconstruction
The earlier project teams are able to collaborate on a project, the less likely it is that unforeseen issues will come up later and derail progress at a critical moment. Procore’s unlimited user model ensures the entire project team can collaborate throughout every phase of the project.
A contractor being involved in the construction process at a very early stage can help reduce any confusion that could result in depleted profits.
“Being part of the process early on, prior to normal preconstruction, helps eliminate a lot of ambiguity in scope and requirements from the client. Profit fade usually comes when there’s ambiguity in schedule, scope, or material selection. If those decisions aren’t made quickly, we slow down. That’s where you see profit fade,” said Gardner.
Communication and coordination helps ensure projects are completed successfully with minimal profit fade. The communication aspect is key, giving contractors the opportunity to iron out issues that could become problems down the line.
“We use Procore’s markup tool. Our estimators are marking up the drawings for the design professionals and guiding them through the process so we have those conversations early about what’s happening with the project. It’s an opportunity for value engineering,” Cimbalista said.
“It’s all about communication. Certainly Procore is all about great communication and the ability for everybody to see the information. To me, that pays dividends for being cost-effective on the job.”
A Single Technology Platform is Key to Making Decisions that Reduce Profit Fade
The pandemic forced companies to get creative when it comes to collaborating, and technology was a big enabler for teams to work remotely without sacrificing productivity.
“Being in a teams’ meeting and being able to bring up Procore on a shared screen, look through stuff, and just spend the time doing that on a virtual meeting and not in your car driving to a meeting is a more effective use of time,” Cimbalista said.
Business intelligence has taken off in recent years, underpinned by in-depth insights taken from a company’s data. The technology gives companies a holistic look at their operation and identifies potential areas for improvement.
“We’re collecting data on punch items and throughout inspections and are able to show real reporting. It’s one thing to say we think we have a problem with XYZ contractor when we don’t have anything to back it up, versus saying, look how many times these punch items have come up with this sub, or on this framing inspection. If we can go talk to these subcontractors and show them where they need to improve to do good business with us, it benefits our superintendents,” explained Cimbalista.
To help identify potential budgetary issues early, BW uses a strategy they call Defect-Free, which they have built directly into their processes. It gives the company insights around things like the number of punch list items towards the end of a project, or how many technical submittals are outstanding at different project phases.
“We use Procore Analytics to generate those reports, and if we see a trend we’ve identified as risky for our budgets, either too high or too low, it’s an instant red flag for us. Throughout all of our projects we have only one source of truth, and that’s Procore,” said Russo.
Russo says BW relies heavily on Procore for its projects, but advises against using technology just for the sake of it.
“Throughout our projects we’re able to collect all of that information on technical submittals or drawings, those trends help you understand where you might have to improve but also things you’re doing very well and should continue. The technology a company uses needs to be connected to your overall strategy. Don’t measure something for the sake of measuring, because it won’t be beneficial.”
Profit fade can happen for many reasons, but contractors can reduce or even eliminate it by having the right tools and processes in place.
Cultivating strong relationships with all stakeholders, from materials suppliers to specialty contractors to owners and everyone in between, is a great way to hedge against supply chain disruption. An important part of relationship building involves increasing collaboration with the entire stakeholder group, which ideally starts well before the preconstruction phase.
Last, but certainly not least, is having the right technology. This includes tools that allow you to collect data in the field on mobile, to analytics that enable you to examine that project data and identify trends to define best practices and reduce inefficiencies. And most importantly, ensuring the entire stakeholder team can collaborate in a single solution at all times, improving communication and removing data silos.
Knowing what causes profit fade, how to identify it, and how to stop it are great first steps towards holding onto as much of your profits as possible. In the end, improving communication and collaboration while reducing guesswork is a construction company’s best shot at ensuring profits aren’t unknowingly slipping away.