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Maximizing Construction Job Profit With Accurate Scheduling
By: Shawn Simmons

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Maximizing Job Profit

Maximizing contribution to corporate overhead and profit on all jobs automatically maximizes company profits.

So how do you manage jobs for profit? There are a number of steps necessary to do this:
1. Accurate estimates built around a schedule
2. Budgets with sufficient monies for general conditions and contingencies
3. Schedules with activities containing material, self perform and contracted costs
4. Accurate and timely input from job sites
5. Reporting systems that identify budget, committed costs, actual costs, and earned value
6. Accurate capture of historical information

Let’s take a look at these steps.

Accurate Estimates

Many excellent estimating software packages are commercially available. These systems can save significant time and produce good estimates. The accuracy of estimates requires unit prices, self perform labor, and burden rates be maintained as current as possible. The development of a schedule should parallel development of the estimate. Parallel development allows for estimated quantities of material and hours of self perform labor to be included in the schedule activities. Similarly, development of sub-contracts should include the estimated schedule activities and time frames. Estimates and schedules should be compared for reasonableness against prior jobs where possible.

Realistic Budgets

Schedules should recognize resource time requirements for job preparation prior to construction and analysis of what went well and not so well after job completion. On-going general conditions should be allocated across the life of the job as realistically as possible. One-time general conditions, such as permits, should be included and scheduled so that performance can be tracked. If the budget is to be most useful, it should not be changed throughout the job thereby providing a solid benchmark to compare actual against plan.

Schedule Activities with Itemized Contract & Self Perform Costs

The schedule should contain contracted costs for materials, self-perform labor and sub-contracts. It is best if the information is collected at the activity level although it can be collected at the resource level and then allocated to multiple activities. This way each activity has a cost associated with it that relates to a purchase order, sub-contract or self perform labor estimate. As activities are completed, activity earned value can be captured and summed to the cost code level to develop cost code earned value.

Some commercially available systems make cost loading of the schedule to the activity level easy. They use activities from the schedule to build purchase orders and subcontracts. Used in this fashion, all contracts and purchase orders reflect exactly the corresponding amounts listed on the schedule activities. This is the most accurate way to capture earned value and actually requires less clerical entry effort than multiple entries where accounting, scheduling and project management are separate systems.

Accurate and Timely Input from Job Sites

Imperative to profit management is to compare what is happening at the site to plan. This is best accomplished by using daily reports from the site that automatically feed the project management system. Often taking less than 15 minutes a day to complete, these reports keep management current on site activities including impact on job profitability. Daily field progress in percent complete or items put in place can be related through the cost loaded schedule to provide earned value daily, weekly and monthly. This information can be used to cross check subcontractor invoices and other payables for accuracy.

Reporting Systems that Identify Budget, Committed Costs, Actual Costs, Earned Value, and the Impact of Change Orders

A good reporting system keeps track of the original budget, committed costs, actual costs, and earned value. Usually budget and actual costs are available by job from the accounting system. Committed costs and earned value are available from the project management system. Together, they may be compared at the Cost or CSI code level throughout the life of a job. Committed costs result from on-going general conditions, purchase orders, sub-contracts and planned self perform activities. The difference between committed and budgeted identifies “buy out” margins. When committed is greater than actual, the difference represents money left to complete the cost area. When actual is greater than committed, the difference represents a ‘bust” where the contractor makes up the difference without benefit of an owner change order. The difference between actual and earned value provides for projected cost at completion. If actual is greater than earned, this activity is “upside down” and the cost to complete will likely exceed the committed cost. A good reporting system can automatically calculate this amount every time reports are run.

It is equally important that all change orders be identified separately by cost code. This makes it easy to review all approved owner change orders against related approved sub-change orders and view their impact on the profit margin.

With this information, it is easy to view at any time a job’s profitability based on original plan and the increases or decreases from change orders, buyouts, cost to complete, over committed and general conditions.

Capture of Historical Records

After the job is closed, a system that has captured the following information makes it much easier to identify actual profit (and general conditions absorbed) from the job and provide the basis for improving bids on similar jobs in the future:
? Estimates
? Budgets
? Daily Reports from the field
? Schedule Baselines
? Contracts, Committed Costs, Actual Costs, and Earned Value.
? Owner & related Sub Change Orders

Managing job profits not only improves understanding of where monies were made and lost on jobs, but equally important, improves the contractor’s ability to bid competitively and win more and more profitable jobs in the future.

Article Source: http://www.depositarticles.com

Shawn Simmons is a construction management consultant with HeadsUp Construction Scheduling Software

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