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Which Project To Bid?

I just got a chance to start reading Matt Stevens' new book "Managing a Construction Firm on just 24 Hours a Day" and it is full of great advice.

It's impossible to point out all the good details - you simply need to buy the book! One thing to make note of is the section on calculating ROI on a project starting on page 117. Too many contractors are more technically than financially savvy and that leads to problems including failure.

Revenue and gross profit are HORRIBLE financial measures yet they are the numbers people talk about the most. They are the numbers most easily measured in accounting systems. They are the easiest to understand.

Taking a good look at a project from an ROI perspective is considerably different.

I'm a huge advocate of looking at ROI (Return on Investment), ROA (Return on Assets) if you are an equipment intensive contractor and rewarding project managers on cash flow. These are a little more difficult to measure and teach people how to use but the rewards are worth it.

Using Matt's example of calculating projected ROI before you bid and knowing how much working capital the project will take can help you make the best use of your money. Focusing just on revenue or gross profit can and has put many contractors out of business.

Posted by David on January 1, 2007 06:32 AM|Permalink

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