Finding new methods to save money is a constant goal across industries, and especially in construction. The industry's cost of doing business is on the rise, and regulatory fees are piling up, so any tip, trick or advantage can provide welcome relief from the constant assault on a contractor's checking account.
Experts point to these steps as ways contractors can cut costs and keep their businesses on the right track moving forward:
Small steps with big results
Oftentimes contractors will focus on the "small stuff," or everyday ways to save a few bucks here and there. Some of the most popular ways include:
- Shopping around for the best price on materials and equipment. Even if you've been using the same material supplier or equipment rental company for years, you need to check market prices occasionally for the best deals. This goes for offices and administrative supplies as well.
- Investing in the quality tools you need rather than trying to get by with cheap substitutes. It will pay off in the end.
- Creating an inventory of all tools and equipment and having employees sign them out and sign them back in with every use. This will prevent tools from "growing legs" and walking away.
- Setting clear petty cash policies. Lunch on the company is OK on pre-approved special occasions, but prevent abuse by setting specific limits.
- Instituting a policy of responsibility if you provide electronics like iPads to employees. Employees should know that when the item leaves the project and is used for personal reasons, they become responsible for damage and the item's replacement.
Brad Robinson, immediate past chairman of the Construction Financial Management Association, said, "The world is getting smaller, stronger, faster — all the things that you hear about — and we are not immune to that in our industry." The pursuit of cost savings is "really to survive," he added.
Robinson said the vast resources that are dumped into a project in order to produce a relatively low profit margin is one of the reasons that contractors are so keen on saving money wherever they can, more so than other industries. "They've got nowhere else to go. For general contractors making 1-1/2% profit, you can't force a developer to pay more, so what you can do is manage the costs on the back end because that's really the only option that you have," he said.
Robinson cited several ways a contractor can save money, starting with managing a project appropriately. In the field, he said adopting a "just in time" philosophy of material staging prevents unnecessary cash spend throughout the course of a project by reducing the period of time between when the material arrives on the site and when it is installed.
In addition to "people ordering the right materials at the right time," he said, eliminating construction waste is also key. Not only is there waste of materials, which can be minimized by accurate ordering and recycling, there is also waste of labor time as a result of incorrect scheduling of trades and inefficient layout of a project.
Big changes dominated by technology
Then there's the "big stuff." Robinson said the greatest opportunity for savings is through investments in technology.
Robinson said a relatively small adjustment — converting to an electronic payment system for "small, nonrecurring transactions" — has saved a company he works with big money. He said the company was paying one person to reconcile hundreds of petty cash checking accounts a month and pay those invoices via paper checks. Over time, all of those accounts have been converted to purchase cards, and what used to cost the company more than $7 per transaction to print, process and mail check payments now costs $0.80 to direct deposit or pay those items via ACH.
"That's a no-brainer, but you have to invest in the time and effort it takes to set it all up," he said. "The amount of time you invest in getting it done and making it more efficient more than pays for itself within just a few months. Why would you consider doing it any other way?"
Stuart Binstock, president and CEO of CFMA, said, "Our more successful companies are embracing technology more and more." He added that many CFMA member companies are investing in revamping their enterprise resource planning (ERP) systems, in some cases a daunting task considering the size and scope of operations that some of these systems cover. "Some of the largest companies in the country have spent in excess of $1 million to modify their software, their ERP system. And if you're going to do that, you must see some kind of benefit down the road."
However, Binstock said, these kinds of investments are the opposite of what many companies think of when they hear the term cost-cutting. "But, at the end of the day, you have saved money because you've done some things that probably give you better information," he said. "You're able to make quicker decisions, so, therefore, you become more competitive. There's a cost advantage, which could inevitably lead to you garnering more projects and getting more business."
Why some construction companies are behind the curve
Robinson said the construction industry, being a notoriously late adopter of technology, is missing out on easy ways to save money and possibly prevent losing money by not having a more receptive attitude to new technology.
He cited building information modeling (BIM) as an example of technology that was once considered a brand new way to achieve a competitive advantage with customers and a cost-effective way to pre-construct a building and pass on those savings to the owner. Fast-forward just a few years, and companies that haven't adopted BIM are now "behind the curve" and risk losing out on business, he said. Robinson said the return on investment (ROI) for these technological shifts can be "exponential."
And to those companies that hesitate exploring new technology, Robinson said, "If you're not going to get more money from an owner, you have to find a way to cut costs — whether it's direct labor or overhead — and manage that margin to make a profit." As with BIM, he said, "You can wait until the wave passes, and then you're on the back end of it trying to catch up to your competition."
He added that for those in the construction industry, "you want to be on the curve of that wave because, for that magical period of time between when it's first adopted and before everybody else jumps in, you get a very strong competitive advantage."