The Seven Deadly Sins of the Construction Industry

The Seven Deadly Sins of the Construction Industry:

Seven Avoidable Mistakes Construction Businesses Commonly Make

Wrath, greed, sloth, pride, envy, lust and gluttony…now that I have your attention:  whether you are a custom home builder, or high-end commercial contractor, the absence of appropriate internal controls can be fatal to your business.  As a civil litigation attorney who has seen the underbelly of many-a-contractor under very stressful circumstances, the ability to solidify your company in a fluctuating market with appropriate internal controls is the difference between success and failure.  Over the next few weeks, I’m going to discuss seven mistakes commonly seen in the construction industry, and talk about ways you can institute internal controls to correct these situations.      

The first of the seven avoidable mistakes is the failure to hold your people accountable.  The president of the company cannot do it all.  In very basic terms, ‘accountability’ means that every employee knows what is expected of him or her each and every day, how his/her job performance relates to the profits and sales of the company, and how his/her success is measured objectively.  Objectively measurable standards include sales objectives, gross profits, labor productivity, meeting schedules, material controls, and production overhead, for example.

                              

Employees must understand what ‘accountability’ means to your sales and profit.  Making a profit is directly connected to lead generation, estimating, pre-construction activities, purchasing and inventory control, labor scheduling and productivity, deliverables, equipment and vehicle maintenance, job costing, and quality control.  The estimating staff needs to understand how their efforts relate to sales and profitability no less than the foreman in the field making the project come out of the ground.  If employees are clear about the expectations you have of them, the objective measurement of their performance, and their role and job duties, then your whole team will be guarding the company’s sales and profits, not just upper management.   

Once achieved, accountability must be managed.  Managers are the hub of the accountability wheel.  Managers must communicate with employees, troubleshoot, support achievement of objectives, and simultaneously stay out of the way and let your employees do their jobs.  Managers, working with accountable employees, are a valuable resource to the company.  Employee standards linked to the profit and sales plans of the company must be clear to the employees. Objective standards of performance allow for a more open dialogue when a problem arises, because there is less room for blame or confusion over who had responsibility for the task.

Of course, securing ‘accountability’ doesn’t mean there aren’t ever any problems.  As one of my clients often says, “Construction is a blood sport.”  In any business, problems arise daily, especially in construction.  Accountability is a tool to mitigate the problems, and their effects on profit and sales. Accountability creates a process by which you can avoid making the same mistake over and over again.

Stay tuned for my discussion on the second avoidable mistake:  ignoring your cash position!