By Mike Merrill
The US economy is always moving, it is the nature of the system to regularly cycle between growth and correction. We have been fortunate to have experienced an unprecedented 126 months of growth before the current crisis started. Yes, the economy is in recession that no one could have predicted, but the good news is we knew it would eventually happen.
The FMI Corporation has been calling for construction leaders to prepare for an economic downturn since 2019. Their reports show that construction companies should embrace technologies to enhance their performance during a recession. The time to prepare has almost passed, it is time for contractors to react quickly to the current situation if they desire to survive during this turbulent time. Fortunately, live field data is the key to five of FMI’s suggestions is simple to achieve, providing guidance and clarity where traditionally there is only fear and uncertainty.
Construction companies can recession-proof their businesses, but they must first understand FMI’s recommendations and then use technology to help them take action.
ADVICE FROM FMI
FMI shares insights based on their forecasts and decades of experience. Here are five of their most important actions that need to be taken to ensure a company survives the current recession.
Cut what isn’t working in the business and promote what is. A recession proof company will cut anything that isn’t adding to the bottom line, including employees and equipment that are underperforming. It is also important to identify key employees and plan ahead for growth.
Find a sweet spot and stick with it. During periods of economic growth, construction companies can afford to take risks and pursue aggressive projects. But when the economy slows, construction companies should focus on their strengths.
Be proactive in developing a more creative business strategy. To be able to effectively work through a recession, a contractor needs to keep his focus on the big picture. This means not getting hung up on small issues; instead, focus on what needs to be done to keep the entire company healthy.
Understand the true cost of work to remain agile. Job costs are an important part of a contractor’s project planning phase, and their accuracy determines the bottom line. In a booming economy, the accuracy of job costing isn’t as important because the profit margins are larger. In a recession, it is important to have a real understanding of what the current costs are for each job at any moment. Small changes can bring disastrous outcomes.
Keep cash on hand. Not having enough cash on hand during a recession can mean the end of a construction company, even if they have a healthy flow of business. Contractors should always know what their working capital needs will be for all projects planned for the future. Understanding what cash is needed to complete the projects that are already on the books gives contractors confirmation that they are ready to take on their projects or shows them where they need to shore up financing.
LIVE FIELD DATA BENEFITS
The advice from the FMI is wide ranging, and construction companies may feel overwhelmed and unsure where to begin. This is why technology is imperative—especially during economic downtowns. Not only does construction technology provide support to key areas of business, but it also saves precious administrative time, prevents human errors, and increases job cost accuracy. In particular, live field data helps management by providing:
Clarity on labor productivity. Live field data from employees clocking in and out of tasks and entering production provides accurate progress on the project. This data is immediately shared with the rest of the company, giving managers the opportunity to see which individuals and teams are most effective and productive. This helps companies by showing who their most and least productive individuals and teams are, so they can make more informed decisions for scheduling and project budgets.
Detailed equipment tracking. Tracking equipment in the field gives management teams insights into which assets are being used, which projects are using them, and for how long. It also makes your teams more productive when they aren’t wasting time trying to locate equipment and can use mobile-to-mobile asset transfers in real time for the most accurate asset tracking. Companies can also keep an eye on maintenance needs with a resource management solution with asset inventory, scheduling, and utilization all in one app. Live asset tracking also helps balance out the asset utilization to extend the useful life of the equipment and reduces unnecessary equipment replacement costs. For companies renting equipment, live asset tracking also ensures that rentals are returned as quickly as possible to control equipment rental costs. During recessions, when companies need to account for everything, equipment tracking with live field data will help streamline operations and avoid costly replacements and excessive equipment rental fees.
Up-to-the-minute budget analysis. Tracking labor, production, and equipment by job and cost code with live field data allows contractors to immediately compare the projected budgets against the actual expenditures in the ERP for proactive management. Contractors can then easily see what projects are profitable and reliable, revealing the company’s sweet spot. The sweet spot is where the company needs to focus all energies during the recession. This will help them ensure that they are limiting risk and increasing profits where they can be better realized.
On-demand reports. Live field data is continually collected and updates the project’s job cost reports in the ERP, allowing them to be immediately shared and actionable. The project manager, job superintendent, and controller can review what items are still remaining to complete the job as quickly as possible and identify any remaining issues affecting the profitability of the project. With accurate live field data, companies can make data-driven decisions.
Cohesive tracking. Live field data collection is done inside of one app giving clarity to the functional efficiency of the entire company. This cohesiveness allows unprecedented access to information for strategy and big picture planning. For companies to create new strategies, they need complete visibility into what is working and not working for each project type and for all projects across the entire organization.
Increases cash on hand. Live job costs from the field help companies determine what cash they need on hand to complete their awarded projects. Knowing the health of their cash reserves not only ensures they can complete the jobs they have already procured, but it will also give them confidence that they have room to breathe.
It isn’t too late to productively respond to the challenges we are living in but time is of the essence. FMI’s suggestions are not going to be easy to accomplish, but gaining live field data is not a complex or expensive change. The benefits of using live field data don’t stop once the economy recovers, in fact the benefits will only grow. The important thing is that contractors across the industry react now and remain in business to reap the benefits of the next economic boom.
About the author:
Mike Merrill is the cofounder and COO of WorkMax. With 10 years of experience in construction and real estate and 16 years as a technology executive, Mike brings strong leadership and expert knowledge to the WorkMax team. For more, visit www.workmax.com.
Modern Contractor Solutions, July 2020
Did you enjoy this article?
Subscribe to the FREE Digital Edition of Modern Contractor Solutions magazine.