Make Money in Construction Distributed Model

The old model doesn’t work anymore.  The construction company either changes or it dies.  Radical statement? Hardly—change is happening right now everywhere.   With the new construction boom, plenty of people who understand it are making money.

There are many models and methods.  The model described below is only one of several.  It’s a distillation of several practices I’ve found when working with small to medium contractors who mainly use subcontractors or self-perform with a large mix of subcontractors.

This article only contains ideas.  Each company is different.  Take what will work for you.  Experiment.  Think success, and don’t be afraid to change if something isn’t working.

The main idea is: use the Web to minimize overhead.  The expense and hassle of transitioning to cloud computing and mobile apps are not necessary.  Use inexpensive tools and less expensive personnel to replace the expensive centralized office.  If you want to make money in construction, a distributed model may help.

How do we do this?  Details follow.

From 1995 to 2010, most general contractors struggled to set up a digitally assisted central office.  Personnel had to be trained to use computers, and paper-based procedures had to be integrated with digital procedures.  Productivity slowly increased and costs slowly decreased.  But savings were minimal.  Why?

Government and insurance reporting requirements exploded during this period.  Reporting demands grew faster than the productivity surge.  More people and better training was the only defense.  A central office of two people in 1995 grew to eight people in 2008.

Then the crash hit.  Layoffs were mandatory if companies wanted to survive.  Central office staffs learned to be more productive than before, but again savings were minimal.

Some companies learned to do things differently.  Very differently.

As you’ve guessed by now, one of the key methods is to reduce the central office overhead by moving a lot of its tasks to the field.

If a company in 2007 had six large jobs, it might have had eight office employees plus one or two field supervisors per job.  (This doesn’t include field laborers or tradesmen and it doesn’t include owners, executives or salespeople.)

In 2013, the company might have six large jobs, with two office employees and three field supervisors.  How can that work?

For starters, each employee of any type (including you, the contractor) must be an expert computer user.  There are no exceptions.

My experience in working with three hundred companies between 1997 and 2013 is that there are three basic components each employee needs to understand:

Operations
Admin/Finance
Computer expertise

Contrary to intuition, the most important skill is computer expertise.  It’s harder to train someone who understands operations but doesn’t use a computer well than it is to train someone in operations who is really good with a computer.  The same holds true for admin/finance.  It doesn’t matter whether you agree with this.  This is just my experience.

If the five employees in the 2013 company are expert computer users and have a good skill set in terms of operations and finance, their productivity will be much greater than any other combination.

Not so coincidentally, it’s likely that four of the five employees will be younger.  I won’t address the details of that statement, but you, the contractor can draw your own conclusion.  As I said, you, the contractor should also be an expert computer user or there will be significant drag at the top.

Please see the following diagrams.  My apologies for lack of clarity and resolution.  They should be good enough to illustrate the point.

The first is the old model.  The office handles almost all ‘paperwork’ (documentation).  It works fine when it’s implemented well, but it requires a large staff spending a lot of time.

Job Admin Centralized1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Job Admin Distributed1

 

 

 

 

 

 

 

 

 

 

 

 

 

The above is a newer model.  Much of the documentation is done in the field and emailed to the office or filed using VPN or Remote desktop.  It actually seems to work better to email it because of the lower cost, plus the office staff then has to ‘touch’ it once to file it.  This gives the office person familiarity with each item.  Some items need to be processed, obviously.

A key point is that each field supervisor is responsible for both the income and expense side of each job.  The job must make a profit or the supervisor is out of employment.  The supervisor handles billing (income) and expense (payment approval and job purchasing).  The supervisor must be aware of the financial targets (income and expense) at the beginning of the job and must write change orders to justify budget changes.

One field office for two or three jobs (trailer, shed, shipping container) wired with a landline and a cell phone is enough.  The landline doubles as DSL and a fax line if a fax is absolutely necessary.  Faxes are discouraged.  All documents should be scanned and emailed (use a good sheet scanner like a ScanSnap).  A key requirement is that the field person be trained in file naming conventions to make it easier for the office to save files for quick retrieval.

Note that each field supervisor is relying heavily on subcontractors to do their jobs without much supervision.  If you, the contractor have been in business more than five years, you probably have a list of preferred subs you can trust.  If you have to pay 5% more occasionally to make sure things are done right the first time, the savings in overhead outweighs the direct costs.

This model also requires you, the contractor to visit each job three times a week to inspect and direct.  You can’t expect your supervisor to have your operational expertise level.  You will constantly be training them to be a ‘mini-you’.  Travel time is work time.  Get a good Bluetooth headset.

Get rid of your expensive database-driven construction management program.  Use Excel for everything except company finances:  subcontracts, change orders, billings etc.  Use Quickbooks for the company finances.  You don’t need anything more than six copies of MS Office, three copies of MS Project, and two or three copies of Quickbooks.  When you’re doing everything on-the-fly like this, it’s all about how you set up your systems and how good your people are.  You can’t afford deadweight.

Once again, this article only contains ideas.  Each company is different.  Going into great detail about who does what is beyond the scope of this article.  This is my opinion based on seeing what happened in the construction industry from 1997 through the present.  It’s likely that things will continue to change.  I’ll update this article if something significant comes along.

Please contact me or send feedback at the Contact page.  Thank you.