5 Tips for Project Success
Here are 5 key components to keeping projects profitable and under control
This is a very big topic that could take volumes to discuss in any detail, but I promise not to bore you with anything like that. So here are 5 little gems with a bit of discussion around each to help give you a taste of some of the things you should be doing to make sure you’re projects are consistently in control, on budget and on schedule.
1. Start with an accurate estimate
You’d be surprised how many projects get underway without having completed much planning; or that move forward with an over-optimistic estimate. A vital part of a profitable project is spending sufficient upfront effort in detailing the component parts of the project to determine cost and complexity.
Estimating takes a bit of time, but it’s well worth the effort. It’s made easier and even more accurate if you can leverage information from historical projects to feed future estimates. Bearing in mind of course that not all projects are made equal and there are details in each that need to be considered, tweaked and accounted for.
Speaking of details: another key to accurate estimates is being able to determine costs down to the resource level. This implies that you first need to know your resource costs (for labor, equipment and materials), and second that you’re detailing your project tasks to include the resources needed, along with the quantities of each. This type of bottom-up and resource-level estimating requires a bit more effort, but pays off when your project comes in on budget.
2. Manage and Document Project Changes
Changes happen on projects. It’s inevitable. How you manage and document project changes will have a key impact on your profitability. Here’s one reason why: you can easily be held responsible to pick up extra project costs if you can’t produce the necessary documentation that proves out a change request. Don’t let that happen. It’s absolutely essential to have a formal way to track, measure and report on change – in addition to documenting its impact on scope and cost.
Getting into any sort of dispute with a subcontractor or an owner is not a good place to be; and disputes are almost always a direct result of either side not being able to produce an appropriate amount of documentation or audit trail.
I can’t repeat this enough: track and document everything!
3. Track your projects to get current and accurate information
Make sure you have a system in place to get current and accurate project information. Details. You need details. You don’t always need to look at the details, but when something goes sideways – and it often does – you can save yourself a huge amount of grief and cost if you have them. Unfortunately, paper-based time-cards, or using a spreadsheet to track projects is probably not sufficient if you have any level of complexity to your project. When you have a lot of moving parts, resources, activities, etc. you’re going to need a proper project tracking software solution that provides good reporting and metrics.
When choosing a tracking solution, make sure it can track more than just labor, and more than just time. Time is important of course, but tracking cost & revenue is key. To start with, make sure you can track the following: Labor, Equipment, Materials, Expenses, Suppliers, Project Documents (submittals, diagrams, etc), Subcontractors, Purchase Orders, Invoices and Project Progress (EVM). Make sure you can track it daily, and you’re able to compare those daily costs with your original estimate.
4. Distribute Risk
Make sure you don’t take on an unreasonable amount of risk going into a project. There’s always going to be risk, and of course you have to assume some of it, but don’t take on an unfair share. Whether you’re an owner or contractor, be sure to negotiate your position, and don’t get into a situation where there’s too high a threat of going over budget. This is a tricky topic to fully appreciate, but following are a couple examples.
As an owner you may want to avoid giving subs Cost-Plus or Time & Materials contracts unless you have a long history with those subs. Many owners have taken to paying subcontractors a Unit Price Contract for progress; which seems to be a fair way to share the risk burden from both sides. This is where the subcontractor is paid, for example, by “Meters of pipe installed”, or “Cubic yards of dirt moved”, etc., rather than hourly or on a fixed price.
As a contractor, on the other hand, you‘re probably most interested in taking on Cost-Plus or Time & Materials contracts; however, Fixed Price (Lump sum) contracts aren’t all bad, and can be fine as long as you’ve taken the following into account:
a) You’ve done a detailed estimate
b) You’ve factored in a contingency
c) You have a good change order process
d) You have a good audit trail – i.e. you track everything
e) You can easily invoice on progress or milestone
5. Conduct Post Project Reviews
Conduct retrospectives on what happened in historical projects to learn from past mistakes as well as to reinforce past successes.
- Evaluate your project metrics against your company’s objectives. If your company objective is to utilize staff 75% on billable revenue, achieving a consistent 65% isn’t going to cut it.
- Improve productivity by eliminating inefficiencies in past projects both by you and your subcontractors. Look for where productivity has lagged and identify why.
- Watch for trends in costs or rates from suppliers or subcontractors. Use this data to influence future negotiations.
- Get a good reading on historical project cash flow and how it relates to various other project metrics. If your cash burn is consistently higher in the first phases of a project – and your invoicing lags – there is going to be an impact on your cash flow that the business needs to manage.
- Make sure you have a good understanding where you’re most profitable and where you’re not. Sometimes the customer that provides the most revenue may not necessarily provide the best profits.
Thanks for checking out this article, I hope it’s been helpful. Please stay tuned for more top tips for project results in the coming weeks. If you’d like to contact us about this or anything else you see on this website, I’d love to hear from you – please click here to contact us and I promise to get back to you.
Have a good week!
Kim Tremblay, CFO
Simplify. Get Control. Make Money.
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