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Many businesses operate based on the "things to do" strategy. While this can be successful, it is also very stressful.

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What if you were to sit down with your team and jointly decide what a perfect day, week, month, and year would look like in your company? Strive to achieve these ideals every day. Focus on the process, not on the task. I am not advocating the elimination of planning and goals. The achievement of these goals can be enhanced if you back up and focus on the underlying processes that lead to successful execution. If you design the process correctly, and focus on the process, then goals will be achieved as a byproduct.

For discussion purposes, let's focus on one version of an annual cycle for a contractor. This cycle will achieve great results, but the process is very hard to execute. There are many things that come up throughout the year that will make the contractor want to delay or delete certain phases of the cycle.

The best companies start with a process like this, usually at the annual level, and then break it down into quarterly, monthly, and weekly processes. Refining the processes is what drives results.

Trying to drive results with a task list can work, but it is VERY stressful and puts a lot of the responsibility (stress) in the hands of the person(s) making the list.

Let's take a look at the phases of our model construction year. This cycle has more to do with when the busy / slow times of the year are versus the accounting cycle or calendar year.

• December (General Goals): This is the time of the year when things have really slowed down. You are just getting back from Thanksgiving. If you are an underground contractor, moratoriums are likely in place and you cannot work on the city streets. It is possibly raining or snowing for many of the days during the month. Everyone is thinking about the upcoming holidays. This is the perfect time to get your team together and start creating some general plans for the upcoming twelve months. Is there a new market you would like to enter? Do you want the company to grow? By how much? Are there specific areas that you would like to cut costs? Are there some major capital investments you would like to make? This does not have to be anything fancy - just a list and some brainstorming. Keep it short with no more than five or six major items.

• January (Action Plans): People have come back from the holidays and now it is time to unveil the plan for the rest of the team. Hold a series of meetings to describe each of the big goals. As a group, break down each of these bigger goals into specific action items and assign responsibilities and due dates. It is at this point that a common measurement system needs to be put into place to monitor progress; this is where accounting comes in. If the goal is for a certain amount of growth, then tracking systems need to be set up to monitor estimating progress, earned revenue, gross profit maintenance, manpower levels, and cash. These systems need to be set up to identify problems and opportunities on a weekly, monthly, and quarterly basis. Without these feedback systems, execution will be haphazard.

• February (People): People are the driver for EVERYTHING that happens - either good or bad. Jack Welch was the CEO of General Electric for over twenty years prior to retiring several years ago. He is known as being both one of the best and toughest bosses around, and GE's financial performance reflected this. His thought on people was, "if you pick the right people and give them the opportunity to spread their wings and put compensation as a carrier behind it, you almost don't have to manage them."

At this time, you should have your general goals for the year defined, as well as detailed action plans and feedback systems in place to support these plans. You should spend the month of February reviewing individual action plans with each person. Look at their performance from last year. Set goals with them during this review process. When applicable, tie their compensation to the achievement of these goals and specific action items. Set learning and personal development goals for them that support both their personal vision of a "perfect day" and your vision of a "perfect year" for the company. Make sure they understand the feedback systems that are in place so they can monitor their own progress.

• March-May (RUN!): By March, the work is usually starting to break loose and everyone is in run mode - it feels like a full sprint most days. Jobs are starting, there is not enough manpower, equipment breaks down, schedules are getting compressed and cash is tight; all the normal things that happen during this time of year. If you do not have a general plan, established goals, feedback systems created, and "people plans" in place, this process seems very frustrating. It can lead to very little actual growth in the value of the company. In this case, everyone is doing things based on little planning and with no feedback.

During this time, thousands of decisions are made throughout the company every day. Each of these decisions has a direct impact on cash, profitability, quality, safety, and customer service. Some of these decisions are good - some are bad. Good planning and rapid feedback systems will increase the number of good decisions that are made.

• June (Review / Adjust): This is very difficult to do. During June, you are still in peak production. If you close your fiscal year in June, you have that additional stress as well. It will be very easy to push off a formal review at this time and react on gut feeling instead. This is exactly why you need to make the time in June to review your progress and make adjustments. If you worked hard in December, January, and February, this should be a relatively simple process because all the information will already be available. If the process is difficult, then work your way through it as best you can and remember this experience so you can improve the process starting in December.

• July-November (RUN FASTER!): You are still in peak production months. Continue executing every day, every week, and every month just as you have been. Look closely at both the results AND the process. Are you making decisions based on good feedback? Is the feedback fast enough? Is it accurate? What else would help? You will need to take this information right into the December planning phase when you start all over.
  

Focusing on improving the process is a simple and important shift. Making a buck is hard - building a process that makes a buck is VERY hard, but this is the only way to create long-term value. It is the only way to stop feeling like a fire fighter.

This works at the project level and at the company level. It also works at the country level, with the United States having an almost insignificant portion of the world population, and being a "toddler" in age, yet holding most of the world's wealth and power.

D. Brown Management provides a wide range of services to help define and document critical processes. These range from the simplest, such as how to properly fill out a Daily Job Journal to bigger, more global processes, such as a "Project Manager's Perfect Week" or even the "Perfect Construction Year".

"Imagine an automobile assembly line where each step along the line is undertaken by a different company with its own financial interest and separate labor union!"

 Moshe Safdie, internationally renowned architect

I can't think of a more valid description of the way a typical construction project goes together than the one described above.  Anyone who has spent more than a few weeks in the construction trades has plainly seen this dysfunction but because it seems to be everywhere in the industry we tend to just say...

"It is what it is..."

...and move on with building the project. 

Is this really the only way?  This book goes a long ways into studying the problem and providing some real-world solutions.  It is a must-read for anyone in the industry from crew-leader to executive to project owner. 

Making this book a mandatory read for the submittal process would go a long ways towards helping fix some of the problems we experience on projects! 

Broken Building, Busted Budgets - By:  Barry LePatner

More Information About Barry LePatner

Tel: 212-935-4400
Fax: 212-935-4404
E-mail: mail@lepatner.com

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“Two rules:  #1 Preserve the principal and #2 When in doubt, see Rule #1.”

–Warren Buffet

QUESTION: What possible good could come out of the construction slow down?

ANSWER: Too many to cover in just one short article!

Here are just a few. Of course some action may be required on your part. This first series is on cutting the fat and turning a financial downturn into a win for your construction company.

Forced Ranking

Look around your company for those employees that just don’t shine quite as brightly as others.  Now trim the fat. Use this time to get rid of “Okay” performers. Think very carefully before cutting key employees.  Ranking on detailed lists will help. Many of the costs for replacement are hidden. Long term employees know and understand your business. It’s essential during vast change to keep together a cohesive core.

Salaries & Wages

Where did salaries go through this last building craze? Through the roof.  Guess what? The slope just changed. Take command of your company.  Trim just five or ten percent across the board while it’s here.  Will it go over well? Probably not. However, having a job is much better than standing in the unemployment line. Employees will recover nicely, especially when the realization that over fifty percent of the positions in home building and other sectors don’t exist any longer. Let them go look. It’s not out there.

Equal Opportunity

One last thought on employment: age, race, weight, and sex all seem to have come to the aid of some in the way of job security.  Any cuts made with a broad enough knife can include all those politically correct classes. Tough love.

Insurance & Taxes

Be sure you’ve scrutinized your insurance policies. Be sure to adjust estimated payrolls for projected premiums. Look at your estimated tax payments. Be sure they are re-aligned. The impact on cash flow from adjusted tax deposits and premiums can only be of help.

Overhead

Look up.  Why?  Because I want you to see what’s overhead.  That’s right; no doubt things became a little cushy.  Trim it all.  Many costs as you downsize naturally fall.  Look at your floor space.  It’s not going to shrink.  If, like many contractors you own the building, cost compare renting a smaller space, leasing your space to another business.  If you’ve recently built, the change may pencil.

Profitable Details

Keep the knife sharpener handy. Cuts don’t have to be deep nor drastic by any means.  From toilet paper quantities, to pencils, to cell phone plans, to benefits, cinch it in. Lock it up if you must and designate a gatekeeper.

Harness Brainpower

Hold brainstorming sessions on how savings can be achieved with key employees and their subordinates. Create departmental teams and offer incentives for finding ways to save or increase efficiencies.  

Tighten Controls

Take a very close look at your material handling or lack thereof.  Take your field guys to the conference room.  Audit material handling and develop strict material handling training and processes. No nail shall go unclaimed. No board shall be cut too short. Use them as your tool for coming up with best practices. Most of it should stick when the heat dials up again. You’ll be operating as the new trimmer you.

Renegotiate Everything:

Renegotiate with vendors. How low can they go? Negotiate a long term relationship to stabilize your costs.

Coming Soon: This is just the first in an entire series of articles and tools that will help you manage through a financial downturn and come out stronger on the other side.  Stay Informed: www.dbrownmanagement.com/subscribe.htm

D. Brown Management has successfully helped a variety of different contractors manage business processes, systems and training. We consistently perform by improving cash flow and profitability for our clients through innovative tools producing great results. A third party can make it much easier to make the necessary hard changes in times of cutting back. We can push you past the emotions by illustrating the harsh reality of not taking action. This validation relieves stress at critical junctures. We offer onsite coaching and sessions that can be done remotely to minimize the impact on your team. Our team is from construction working exclusively for contractors.

One area where we find a lot of efficiencies and profit is in the tighter integration between operations and accounting. Learn more at:
www.dbrownmanagement.com/solutions_ops_acctg.htm

Direct Contact (Financial Solutions)
LeAnn Evoniuk
leann@dbrownmanagement.com
(916) 719-6866 PH | (916) 244-0413 FAX

 The first comes from Melinda Gates -

"If you are successful, it is because somewhere, sometime, someone gave you a life or an idea that started you in the right direction.  Remember also that you are indebted to life until you help some less fortunate person, just as you were helped"

We could all benefit from feeling a little more indebted and seeking to help out others. 

The second great piece came from Robert Polet who is now the CEO of Gucci and discussing a time when he was first put in charge of all Malaysian operations for Unilever when he was just 35 years old. 

One day when faced with a particularly tricky issue, Polet put in a call to Unilever's head office to ask for help.  The advice that came back was simple:  Take a piece of paper, write down all the options available, and pick the best one.  "The next morning I said to my wife, 'They're right,'" Polet recalls.  "It's only by going through tough experiences that you can grow."

I think that a lot of times we all forget this.  People often forget that most of their most difficult times were also those that taught them the most.  Don't think that you are being a good boss by "helping" people past those difficult experiences.  You are really doing them a dis-service.  The best thing you can do is to actually make sure that your high-potential people get as many chances to go through difficult situations as possible. 

Today I was driving from San Jose to Atascadero in CA. I took Highway 101 which has poor cell phone reception.

Leaving San Jose I sat the laptop on the seat and connected to the internet through the Sprint card. From there I established a VPN connection and started a log of the connection.

Throughout the 150+ mile drive it only missed a total of (4) pings to the server via the VPN tunnel and NEVER dropped the VPN connection!

This is just plain amazing - I couldn't even get the GPS on my AT&T powered Blackberry to work for part of the trip due to no signal.

I'm sure that this has partly to do with the internal antenna built into the Dell laptops but the end result was fantastic. I would recommend this solution to any company that needs to connect from the field.

RS Means just released their 2008 cost data books:

What they had printed for us (when I was at Royal Electric) were a bunch of "24 Hour Service" labels for equipment that had a reflective background. These looked great and make it easy for maintenance personnel to find the company's phone number if they were looking for an equipment problem in the dark.

Anyway, the company did a great job, the labels looked and worked great. I would recommend Allied Decals for any label job.

But the biggest thing to note is the power of making regular phone calls to existing, potential and old clients. If you are just waiting for the phone to ring you are probably leaving about 50% of your business results behind!

A couple hours a week of phone time will yield HUGE results.

Summit Technology Group: Divide and Conquer

The business strategy of diversification is huge for a contractor. The other thing we love about Summit Technology Group is their relentless focus on customers and employees. These are the two drivers that produce long-term profits. Any other strategy will fail in the long-term.

This is an interactive module of Profit Happens Here... This module down breaks the Work-In-Progress down into five basic segments giving insight to the practical affect each process within a projects life cycle has on the report.

QUESTION: Where in the world do you find the most productive workers with the best work ethic?

ANSWER: We have 12,000 projects, so I see vast differences in productivity. But I can't attribute it to a country or a culture. I attribute it to the management on a project. Productivity is not the willingness of the workers but how good and demanding the supervision is.

I haven't been on 12,000 projects but have been involved in a significant amount of project turnarounds and have NEVER had to replace the workforce in order to turn a bad project around. This is the fault of the industry, not the individual foreman, superintendent or project manager. There is a significant amount of craft training but very little management training.

Companies who are looking to succeed will be the ones who are building strong construction management and leadership training programs.

At the heart of the matter is a difference in execution styles - some companies and people want to try to plan out every single detail having meeting after meeting working on a grand "master plan." Over time these companies build cultures that are afraid to experiment and believe they need every detail planned out in order to get anything done.

The other execution style focuses on getting the major pieces of the plan worked out and then gets to work rapidly implementing. They rapidly try things out - often trying several small things at once. As soon as they find something that works they build on it. When they find something that does not work they ask "how could it work?" and "what did we learn?"

While the "Master Plan" approach may seem great from an acedemic perspective it rarely works in reality because there is no way for anyone to be able to see all the details in a complex system (like a company with more than 1 employee!) to be able to create that "Master Plan" no matter how many meetings are held.

The rapid experimentation, if built into the company culture properly will always perform the best. While this method may seem like chaos - it can be very effective is the chaos can be controlled just a little. Managing the chaos is very challenging and you will always be working in the gray area between total chaos and restrictive bureaucracy.

Managing the chaos should come in a few stages:

1. Set clear goals for “RESULTS” – not “PROCESS”

2. Encourage the team to “EXPERIMENT” with different “PROCESSES” to attain the “RESULTS” – if at all possible have more than one team working on the problem separately

3. Push for experimentation and thinking outside the box – ask “WHY” (5) times at each step of the process – including “Why even do this step?”

4. Reward even failures – the constant “EXPERIMENTATION” is the key to long-term organizational success

5. “MEASURE” the differences between the different “PROCESSES” and the actual “RESULTS” achieved. Discuss the various experiments rigorously with the team(s) and determine what the best “PROCESS” really is

6. “DOCUMENT” the process thoroughly including descriptions of why and anticipated results

7. Setup “VERIFICATION” systems to ensure the new “PROCESS” is being followed including reports and visual indicators

8. “TRAIN” everyone across the company in the new “PROCESS”

9. “VERIFY” that everyone is using the new “PROCESS” consistently – in the long-term any “system” will beat any “non-system” in performance

10. Once everyone is using the system consistently encourage people to start “EXPERIMENTING” again on refinement. There is no “PROCESS” that will last forever so constant reinvention of the systems is crucial. Go back to step 1.

Profit as We Know It Could Be Lost With New Accounting Statements

See the draft layout of how the new rules could affect financial statements

While this may seem trivial the effective design of financial reporting can create more rapid and thorough insight into a company. You should spend as much time designing your financial reports as you would designing your estimating take-off / recap format. Using the standard, "canned" reports that come with your accounting system is unlikely to produce optimal results for your unique business.

If these details are not managed correctly then the chances of those additional revenue dollars turning into profits are slim to none - losses are more likely.

There is a great short article called "The Right Way - and Some Wrong Ways - to Make an Acquisition" written by Wharton / GE Capital that outlines some best practices. The dynamics of integration do not change whether it is a $10M company integrating a $1M company or a $100M company buying a $10M company or simply trying to tie together a strategic partnership.

Let's take the a look at change orders and extra work for instance. What affect does extra costs hitting a project have on the calculations of earned revenue? What if the contract is not adjusted to meet the value of what is actually to be expected? The affect is that the project looks as though more work has been completed. Because the schedule is driven off of the original estimate, as actual costs rise the mathematical calculation against the projected earnings essentially rises causing an increase in the under billed. That is why it is so important for changes to be updated on both sides of the system. Costs are naturally captured. Estimate adjustments/documentation of change orders are driven only by how well processes are set in place. Discovering whether or not extra costs are going to lead to increased revenue in the way of billable change orders or if the case is that the project is running over early on in the project is crucial. Examining line item budget items if over billing occurs will lead you right into whether or not a project is running over budget or is just not invoiced up to date. Identifying cost overruns makes a huge difference in the steps that will be taken from that point on. If it's discovered that a project truly is running over early enough, perhaps you as the CFM can be the star in assisting the turn around on a project.

In summary, a CFM should always question the under billed. Assuming the cause is a lack of billing that will catch up in the next cycle is if nothing else is dangerous. Apply business sense to the numbers that appear in front of you and it's surprising as to what might be uncovered. Especially in an under-billed situation. There are many factors in the life of a project that can affect the numbers on the work in progress. Learn what they are. Don't just produce the work in progress and balance out the income on the financial statement.