Business

Take Your Business to the Next Level

Is your business stuck in one place or, worse, sliding backwards?  Like humans, businesses have stages of development.  Each stage presents particular challenges and opportunities.  How you navigate these critical transition points will determine your business success and your personal satisfaction.

A company I worked with was eager to grow.  Management envisioned an ever-expanding business at the top of its field.  The company boosted the marketing with an active radio and print campaign.  It also advertised for and hired more staff to handle the workload.

After a few years, the expansion became a nightmare.  Client work backed up.   Many of the recent hires didn’t have the talent that the founding partners enjoyed.  It wasn’t satisfying for the partners to correct other people’s errors and fret about poor quality.

What happened?  The company tried to grow by simply doing more of what it was doing, adding more clients and adding more staff.  It didn’t develop the systems for recruitment and managing the work that it needed to support the next stage of growth.

The prescription for the company to break through the bottleneck is one that many firms can follow.

Hire the best for your core.

Identify the key roles in your business.  Use a recruitment process that will attract and select the best people to fill them.

In order to manage the company at a level of 25 people, the company needed four very highly qualified people.  Each needed an expert level of knowledge and the ability to motivate and supervise other team members.

The company had followed standard recruitment procedures.  The problem is that these average recruitment efforts yielded only average candidates.

For the critical hires, the company had to do better.  It refined its quality standards and upgraded the opportunities and rewards for the top positions.  Then, the partners networked with the best people in the field to find prospects who weren’t looking for jobs and used skill and style assessments to choose superior players.  Higher quality colleagues also rekindled the partners’ enjoyment of the business. Read more »

Value as a Motivator

Employees Are Motivated When They Feel Valuable and Important

Another method of motivation is to fill a basic human need – the need to feel valuable and important. Mary Kay Cosmetics has a reputation for motivating their sales force, and at the front of this effort are the many things they do to make their people feel special. Here are some ideas they use to make their employees feel special.

1. Listen to people. People feel important and perform better when they think their opinions are valued. Have a weekly production meeting including the project managers, estimators, owner and accounting staff. Progress on jobs, billings and a variety of issues should be discussed. Everyone has a report to give and everyone listens to each other. Each individual knows that their contribution really counts and so they are motivated to do their best.

You can see the importance of this concept and some ways to implement this in your business. There are also ways to extend this to the field. If each superintendent realizes the value of their performance to the success of the job and company they will be motivated to perform at a higher level. This can then extend to everyone working on the job. Having weekly tailgate meetings (which are often already required for safety discussions) gives workers an opportunity for input on how things could be done better.

2. Don’t give responsibility without authority. Giving employees responsibility will make them feel important, but only as long as long as they also have the authority to fulfill their responsibilities. This may be difficult, especially when your business is growing and you have to turn loose decisions you previously made. However, for the business to be successful this must happen, and if it is done right the employees will grow into the job.

3. Let people know you appreciate them. People are motivated when they know they are appreciated – plain and simple. There are a few little “tricks” you can use – such as noting the “hire date” of your employees and sending a card or some other action that is taken on the employee’s anniversary date with the company or on employee birthdays.

4. Put people on a first class basis. One way you can do this is to provide tools for your employees which will make their work easier and more efficient or which results in a more attractive finished product. Give office personnel the ability to enhance forms such as invoices and statements. Whenever they print these they will be reminded that this is a first class company; the type of company where they want to be. The same is true of tools in the field. If these are old or out-dated then employees will be frustrated. If you are on the lookout for new methods and tools, look objectively at their potential and then try out those which are promising then employees will feel that this is a progressive company, not one still working in the ‘Dark Ages.’ Employees do take pride in their work and if the client shows employees that their work is important enough to look “first-class” they will be motivated to perform.

Another way to make employees feel important is to tell the world they are important to you. You can show your client how to do this. You may publish a quarterly newsletter which is sent to clients and prospects as well as employees and vendors. One feature in the newsletter is an “employee of the month” type article with the employee’s picture and an article about that person.

Please contact us if you would like to learn more about instituting a comprehensive training process.  Thank you.

Security

Companies eager to tighten up their information security perimeters should focus not on technology but on teaching their employees how to say ‘no’ per ex-hacker gone good Kevin Mitnick.

Mitnick became a cyberspace legend after his success in penetrating networks at major telecommunications firms — including Pacific Bell and Motorola, Nokia, Fujitsu, Novell and NEC — led the FBI on a 15-year manhunt that ended when his 1995 capture put him behind bars for nearly four years. Older and seemingly wiser, he now uses his skills for good as a Los Angeles-based security consultant, stopping in Australia briefly to address the crowd at the annual Toshiba event.

Many companies invest heavily in security technologies to protect their networks, but Mitnick was quick to point out that even the tightest technological barriers never stopped him; rather, some carefully planned social engineering – or even a bit of Dumpster diving in one’s spare time — can often be far more effective at penetrating the weakest security link at most companies: their people.

“What you can find in the trash is simply amazing,” said Mitnick, holding up a “souvenir” from his earlier days: a printed directory listing the name, phone number, email address, direct reports and other information about every employee in the company. “People throw out notes, drafts of letters, printouts of project documentation they’re working on. In some cases they even write down passwords and access information, or calendars that list every person that person has talked to or met with”.

This information provides invaluable assistance to bad guys keen to worm their way into a company by, say, impersonating an employee and calling the internal help desk, or dropping into the site and pretending to be a business associate. Because people hate to say no even when they’re suspicious of a well-presented stranger, Mitnick says, smooth talking has gotten many a hacker far closer to a target company’s network than days of brute-force technological attacks.

Modern technology is an enabler for such attacks: if a hacker can worm his way into a conference room for just a few minutes, for example, an wireless access point can be plugged into an out-of-the way network access point, providing an open back door into the network even when the hacker is parked outside the building.

The solution to such security vulnerabilities is easy to understand, but often hard to implement: develop clear security policies for issues such as treatment of strangers, handling of information and access to physical facilities by visitors. In suspicious circumstances, teach employees to fall back on those policies rather than trying to ad-lib their response or give in to their natural reticence to accommodate the hacker’s requests.

Even a simple request for contact details, so that a company employee might call back the person requesting assistance, can be enough to make many hackers turn tail and run.

“We can’t expect our employees to be human lie detectors,” Mitnick said. “One of the most difficult challenges in corporate cultures is getting people to modify their politeness norms. Social psychology has found that people should generally pay attention to their own discomfort; if something doesn’t feel right, or it’s nagging at their gut, they’d better check it out. They’re not always going to remember a security policy, but what you want is to come up with some very simple protocols that will trigger employees to refer to security policy. The only people who are going to object to this are the bad guys”.

Please contact us if you would like to learn more about instituting a comprehensive training process.  Thank you.

Responsibility as a Motivator

Giving Employees Control And Responsibility For Their Production

It’s one thing to show someone the historical data on what happened – it is a giant step forward when you can give them the tools they need to effectively control the outcome. One of the most effective tools you can provide to employees is Scheduling.

First of all, scheduling gives everyone more control over the job. By having the ability to see what impacts changes will have on the schedule the project manager now has the tools to make decisions that are logical and likely to generate the desired results. The benefit of this in motivating employees goes beyond the monetary one, although a job that is managed properly to finish faster will usually be more profitable and this will provide even more motivation to someone whose compensation depends on profit.

Beyond that, however, scheduling can give employees the sense of control that will provide a motivation of its own. It is hard to be motivated to work harder or smarter if you are out of control. A good example of motivating employees by giving them more control is through communications with Subcontractors. If you have ever watched a fellow contractor spend half his time on the phone – being interrupted every few minutes so he can call a sub and let them know he needs them on the job (frantically) then you know what being out of control does. Watch for these people – they are the ones who call everyone on Sunday night. And compounding the problem is that they spend so much time, energy and concentration on these calls that they do not have enough left for more important tasks – these urgent (last minute) items have them permanently occupied.

But if you use Scheduling, you now have an easy-to-use method of projecting when those subs are needed and a communication tool that puts the project manager back in control of the project. Give them a project schedule at the beginning of the project. Then update them on a weekly or semi-monthly basis. Faxing reminders/notices to individual subcontractors a few days before they are needed on the project. You may then wish to follow up with a reminder call the day before the schedule shows them starting work on the job. This will ensure that they are ready and available when needed on the job.

And something else has happened – we have raised the “level” of that person’s job. By removing the busywork of all of those calls we have freed up some time that can be spent on the more important tasks in the day – the proper analysis of what is happening on the job. Instead of a day filled with frantic and basically uninteresting calls, this person now has a job that requires a little more thought and is certainly a much better job.

Please contact us if you would like to learn more about instituting a comprehensive training process.  Thank you.

Liquidity Indicator

Key Performance Indicators

Over the years, several key performance indicators (KPIs) for decision-making have evolved.  KPIs are meaningful yardsticks that contractors can see and use to effectively communicate the day-to-day operations of the business, supported by the best practices of construction.  The most profitable and successful construction companies have improved their businesses by aligning people, processes, and technology to produce results that are better than the industry average.

The construction industry has generally accepted KPIs that indicate the overall health of a firm. However, the definition and understanding of each of these KPIs varies widely since a typical construction company has a complex combination of requirements.

Here are the important indicators which many successful companies follow:

1. Liquidity indicator

2. Schedule variance indicator

3. Work-in-process (WIP) reporting

4. Margin variance indicator

5. Project cash flow indicator

6. Unapproved change-order indicator

7. Committed cost indicator

8. Backlog indicator

9. Scorecard indicator.

This article describes the Liquidity Indicator.  For more information on the other indicators, please contact me.

Liquidity Indicator:

Cash is the single most important asset that keeps a construction business operational; all sins are forgivable except one: running out of cash. The complexity of contracting makes forecasting cash flow difficult at best. Late client payments, schedule delays, invoice processing, change order approval, vendor/subcontractor payments, labor costs, and numerous other factors affect the timing and ultimate receipt and disbursement of cash.

Understanding cash flow is critically important and is examined in detail when working with the WIP indicator.  One key aspect of cash flow is cash demand or liquidity which is discussed here. A manager should have the ability to evaluate organizational liquidity (availability of cash) and then should be able to drill down and see which projects are providing liquidity and which are using liquidity.  Once the amount of liquidity at the project level is known, an organization can work to improve it.

The next step toward liquidity improvement is to identify actions that will improve the cash generation process.  A project that is losing money may still be generating positive cash flow.  Conversely, a project that is making money may produce negative cash flow.  For example, a positive cash flow can be achieved inappropriately by not paying subcontractors and vendors. Therefore, causes of both negative and positive cash flow should be investigated and analyzed.

Looking at cash flow from a contractor’s perspective reveals four key balance sheet accounts that are largely controlled by project managers. A contractor is funding his WIP with his own cash if accounts receivable (including retention), and underbillings (costs and earnings in excess of billings) exceed accounts payable (including retention) and overbillings (billings in excess of cost and earnings on contracts).  The funding can be in the form of equity or borrowed money. Read more »

Profitability – Strategies

Five Strategies to Improve Profits

Companies can enhance financial performance by implementing planning and minimizing risk with some often-overlooked practices
Contractors have always had to deal with risk, but in these uncertain times, their exposure is greater than ever. However, many companies simply react to their growing risks rather than anticipating them through sound analysis and management.

Here are five strategies that contractors can use to improve financial performance.

Develop a Risk Strategy

Effective risk management is about playing both defense and offense. The process begins by assessing risks, including:

> Competitive risks. Competition has intensified among contractors and with full-service, mega real estate firms competing against traditional contractors.

> Pricing pressures. Clients are pressuring contractors to cut prices using reverse bid auctions that drive down prices and squeeze profits.

> Rising materials and fuel costs. Materials shortages and increased costs for fuel and construction materials will continue.

> Litigation costs. They never go down.

> Fast-changing markets. Contractors are having to adapt to rapid changes in the public and private sector markets, including power, telecom, commercial and others.

> Geopolitical risks. War, terrorism and other global events have increased risks to contractors and their clients.

> Labor shortages. Contractors face looming shortages of qualified people.

> Sarbanes-Oxley. The tightening of accounting and auditing standards has put public contractors, like public companies in general, under a microscope, requiring them to disclose deficiencies in their internal controls.

> Insurance/surety. These areas continue to tighten, with costs rising, deductibles increasing and coverage shrinking or disappearing. Sureties are pressuring private contractors to improve internal control standards and systems.
Once risks are identified, they can be quantified, prioritized and strategies can be developed to mitigate their impact.

Develop a Growth Strategy

Companies must decide whether they want to grow and how much. They need to analyze current markets to determine if they are still attractive. If existing markets are declining, companies may need to diversify, expand geographically, acquire other firms or recruit new talent.
A growth strategy also requires the resources to get more projects done. These include sound internal processes, experienced managers and a strong “bench” of new managers who can free senior managers from day-to-day operations to pursue new business.
Alternatively, a company can choose a no-growth, negative growth or selective growth strategy to reduce risk. It can focus instead on reducing costs, increasing profits and capturing market share in existing markets or making selective acquisitions in related business areas.
While a moderate or no-growth strategy may work for large companies, smaller companies that follow the same strategy must consider the risk of losing business to bigger competitors that can work on larger, more complex projects or provide a broader range of services.

Develop a Profit Strategy

How can a company meet its profit goals? Reducing costs can boost profits, but once excessive costs are eliminated the payback from cost cutting diminishes. If a company is not generating enough profits, it may have to grow or diversify to reinvest in the company, create a reserve for future opportunities or pass profits through to shareholders and investors.
If a company chooses growth as a way to increase profits, it should employ the least risky growth strategies, like generating new business from existing customers rather than trying to win new ones. Keeping current customers happy also keeps competitors at a distance.

Develop a Competitive Strategy Read more »

Profitability

Profitability is affected by almost every aspect of a business in one way or the other from the negotiation of a contract to the number of paper clips used in the office. Almost every business decision will affect profits either in the long or short term and it is management’s job to evaluate every decision based on its impact on both long and short term profits.

Managers are often too concerned with short term gains to carry out long term strategies that will allow for greater profitability. In the following discussion, we will show that short term decisions to increase profit can cause long term losses.

Sales and marketing: There is an old adage that something is worth whatever you can sell it for, no more and no less. The price we set on our contracting services is affected by a number of factors:

a) Market conditions: if there are other contractors who will perform the same services, prices may be dictated by the market. On the other hand, if you are one of the only people who can perform a task, it is much easier to set your own price.

b) Reputation/Name Recognition: if we have a reputation for integrity, quality and service, we may be able to command a premium for our services. The building of a reputation is a long term job that can be accomplished only with consistent effort.

c) Risk: if we are willing to take on risky jobs for a fixed price, we deserve and can often command a higher profit.

d) Quality/Service: if we provide better product or service, we may be able to command a higher price. What is important here is the perceptions of the buyer. If the buyer does not perceive the value of additional quality or service, they are of no value to the sales conversation.

e) Repeat Sales: it is often said that it is much easier to sell to a previous client than to a stranger. It is also true that a former client can have a greater appreciation for the extra service and quality that you provide. Selling additional work within a contract can often be more profitable than selling additional work to a new client.

f) Marketing planning: Too few companies take the time to develop a regular marketing practice that they can carry out every day. They are usually reactive marketers, putting a lot of energy into selling when work is slow and stopping entirely when they are busy. The establishment of a long term plan that can be acted on every day is the only way to even out work demand and be able to anticipate slow periods.

g) Professional Alliances: Developing long term professional relationships with the people who can refer business or assist your reputation should be a part of the marketing practice of every company.

Please contact us if you would like to learn more about instituting a comprehensive training process.  Thank you.

Teamwork as a Motivator

Employees Are Motivated By Being Part of a Team

Motivation is more likely when employees believe that the company is a good place to work and that they are a fundamental part of a team.

Something people notice when visiting your company whether in the office or on a job is whether or not the employees seem to function as a team. You can become much more successful if you encourage the various departments within the company to work together. If each member of the team believes that his contribution is important to the others he will be motivated to increase his performance. This concept satisfies a basic human need – the need to feel important and needed and to be part of something larger than just one’s self.

How can you help foster this teamwork?

One of the most common team breakdowns in the construction industry is between the accounting departments and the production department. Many offices use two completely separate systems and have very little (or very poor) communication between these groups.  The accounting department has to beg and plead for information, such as project budgets and approval of payable invoices. The project management department resents the nagging and distrusts the reports they do get because of errors.

You can help solve this problem by using an integrated software system.  The key lies in providing each group with what they want and need from the other group.  And you may need to nudge each group a little to communicate with the other group more.

Purchase orders, subcontracts and change orders can bridge the gap between departments and make teamwork so much easier. By learning how to effectively create budgets directly from the estimating software, you have eliminated the “begging” that the accounting department previously had to do for budgets. And, with properly prepared purchase orders and subcontracts, the accounting department no longer has to wait forever for invoices to be coded, only to have a big “rush” on entry when they finally get the invoices back. The invoices are effectively “pre-coded” when the purchase orders and subcontracts are issued.

From the project manager’s point of view, reports can be trusted more because the invoices are pre-coded so there is minimal chance for clerical error.

Everyone’s job is easier and more pleasant and now the departments who were formerly at odds with each other can work together as a team. It won’t take long for the increased productivity in both of these departments to begin to show on the bottom line.

Please contact us if you would like to learn more about instituting a comprehensive training process.  Thank you.

Payroll

Payroll is a big subject.  It’s the second-largest module in Master Builder, and subject to more laws than any other part of business.  Setting up, operating and maintaining the Payroll module in Master Builder is beyond the scope of this article.  The steps outlined below are only intended to be a general guide to setting up Payroll.  Since each company, each state, and often each region within a state involves different laws and practices, the best way to set up and operate the Payroll module of Master Builder is by working with a qualified Master Builder consultant.

Without a good foundation, the Payroll module in Master Builder becomes very difficult to deal with.  Many companies choose to outsource their payroll, hoping that it will take a burden off of their overhead time and costs.

Since Master Builder relies on Payroll for a large portion of its job costs, a company running the program is almost required to run Payroll in Master Builder in order to obtain its true job costs.  The savings in overhead by outsourcing Payroll become almost meaningless, and the supposed shifting of liability to the third party is a mirage.  In the eyes of government agencies and insurance companies, the company which is the employer is always liable for payroll inaccuracies.  So there is no reason not to run the Payroll module in Master Builder, and there is every reason to learn to run it well.

It’s a really good idea to test the Payroll setup prior to starting to use the module by entering a few records with specific scenarios and taking them all the way through the process.  Some refinement of the setup will often be necessary to achieve the correct results.  Any test records which may be entered can always be voided.

Screen 5-3-1 Payroll Calculations:

To set up this screen when no calculations have been entered, click on Options, Setup Payroll Calculations, Standard Calculations.  If you have the current version of MB, certain calculations will be set up according to Federal and state law and tax tables.

Screen 5-3-2 Workers Compensation:

Enter the classifications, rates and Experience Modification supplied by your Workers Comp carrier.  Ignore the Liability column for now – it’s too large a subject to tackle without a detailed explanation (consult with Technical Support or a Master Builder consultant).  If the state(s) in which your company does business require(s) Hourly or Maximum Wage amounts to be entered, consult with Technical Support or a Master Builder consultant.

Screen 5-3-3 Positions: Read more »

Marketing and Sales

The following are a number of questions, talking points and suggestions which you may find helpful in management discussions.  Use this outline as a framework for your own ideas.  Print it and write notes in the margin.

I. Designing a marketing program:  What is the Market?

1.  Describe what is being sold

•          What is the product?

•          What are the value added services?

•          What is the guarantee?

•          What differentiates you from your competition?

2.  Identify the target client

•          Who are they?

•          Where are they?

•          What kind of person are they?

•          What are they motivated by?

•          What are their fears?

•          Where can they be reached the easiest?

•          Radio

•          Direct mail

•          Networking

•          Client referral

•          Professional referral

•          Other

3.  Design experiments and test the results

•          Who is not the client?

4.  The office environment

•          Neatness counts

•          Creating a comfortable conference center

•          Using photos to sell satisfaction

•          Training for client satisfaction

5.  Building a reputation

•          Describe it

•          Speak it

•          Train employees

•          Advertise it

•          Make it true

6.  Creating customer satisfaction

•          Neatness counts

•          Employees matter

•          Contact the neighbors

•          Communication, communication

•          Dot the i’s and cross the t’s

•          Get the job done on time

•          Bill early, bill often

•          Handling complaints

•          Slow down

•          Ask for more

•          Thank them

•          Have a plan

•          Keep your promises

•          Guarantee your work

•          Give a gift of appreciation

II. The sales process: Read more »