The key to successfully managing any construction job rests on the project manager’s ability to minimize cost overruns, maximize profit margins, and overcome unexpected challenges
The best project managers (PMs) in the business are certainly a multi-talented bunch, possessing many of the same inherent personality traits that make them such sticklers for detail. Whether it's financial, interpersonal, or technical expertise — or the ability to constantly juggle multiple projects and their prospective deadlines — it's not enough to have these natural skills. It's knowing when to apply the right one at the right time that separates the good PMs from the great ones.
But even the best PMs have found themselves in a tough spot when senior management reprioritizes goals, without realizing they've compromised the success of the entire project. An example of this might be when a contractor relies on its project management staff to also act as estimators. Estimating a project and managing a project are contrasted in two ways: 1) completing an estimate is a short-term process requiring the estimator's undivided attention with a very well-defined deadline; and 2) estimating a project involves potential risk, whereas managing a project involves real risk. When project managers are required to estimate a project, they're forced to focus on the details of the estimate at the potential expense of their other projects already under contract.
Because scenarios like this one will inevitably arise, senior management should be tuned in to the stage of each project under contract — not force a PM to jeopardize the quality of an ongoing project for the sake of a potential one. To deliver a successful and profitable job on time and on budget, PMs must take a proactive approach. How do they accomplish this task? By maximizing performance in several key areas.
Project finances. The PM's goal on the financial front is to view each of his projects as a separate profit center, subordinate to the greater goals of his employer. In other words, each project must stand on its own merit when it comes to financial success and contribution to the company's overall bottom line. Because construction projects are typically long-term endeavors, it's important that an accurate degree of success be predicted as early in the project as possible. By relying on an updated construction schedule and honest periodic reporting on various aspects of the job's status, confidence in the eventual outcome can be developed and measured throughout its duration.
Most contractors have had one or more projects in which profit margins are misstated (usually overstated). This usually starts as a minor problem, but as progress continues on the project things mysteriously deteriorate. No one likes being the messenger of bad news, but the first step in overcoming a potential loss is recognizing a problematic project. Most poorly performing projects can be attributed to a poorly quantified estimate, insufficient field staffing levels, poor project administration, design oversights/deficiencies, unqualified/inexperienced general contractors, undocumented change orders, etc., or any combination of the above. Identifying the underlying causes as early as possible in the process provides more time to develop offsetting plans and to react to areas of weakness.
In general, senior management at a construction company will track the progress of each of its projects individually by means of a periodic work-in-progress (WIP) report. While development of the WIP report is typically the responsibility of someone in the company's accounting department, responsibility for the accuracy of the WIP report resides with the PM. He or she is the one individual with the knowledge and understanding of the project to accurately predict its ultimate success or failure.
For this method to be successful, however, the accounting department must be willing to share all job cost data with the PM. Due to the proprietary nature of the information, many contractors are hesitant to share true job cost data with their PMs out of a misguided notion that the information will be used by the PM to demand greater levels of compensation or bonuses. When approached from this perspective, the contractor has laid a foundation of mistrust that hamstrings the efforts of the PM and limits the success of the project.
With the introduction of sophisticated accounting software tailored to the needs of the construction industry, job cost reports are easily generated for use in creating and updating the periodic WIP report. At a minimum, this sharing of data should include actual costs, plus committed costs, relative to a budget established at the start of the project. With this data in hand and a thorough understanding of the work already completed, the PM can then establish a percent complete figure for the project, and make an accurate assessment of the cost to complete the remaining work.
The nature of construction and the billing process make it difficult to start a project from a positive cash position. As a result, every PM should strive to make the project cash positive as quickly as possible. Structuring the schedule of values such that up-front costs are identified and captured early in the billing process will help to achieve this goal. For example, although owners and general contractors won't approve of “front loading” a project, mobilization is one up-front cost that should definitely be reflected in your schedule of values. Additionally, many times equipment orders require advance payments based on a percentage of the total cost of the order at the time it's released for fabrication even though most owners and architects want to see proof of delivery before they'll allow the contractor to add such costs to an application for payment. An astute PM will anticipate this requirement and communicate it to the appropriate parties when the schedule of values is submitted for approval.
Fig. 1 above and Fig. 2 on page C26 illustrate the relationship between cumulative costs, cumulative receipts (invoices), and the value of each monthly invoice for a $1 million dollar project with an 18% margin. The point at which the cumulative receipts (red line) crosses or equals cumulative costs (blue line) is the point at which the project becomes cash positive. Fig. 1 depicts a well-crafted construction and billing schedule while Fig. 2 reflects a poorly constructed schedule of values and the resulting delay in the point at which the project becomes cash positive. The longer it takes you to get into a positive cash position, the more time you'll be required to finance the cost of the work.
As stated earlier, most industry-specific accounting software on the market today incorporates tools for creating reports that measure project costs against project receipts. A simple spreadsheet that's updated at regular time intervals with cumulative costs and receipts can accomplish the same result. Because costs can only be added to an application for payment as they're incurred it's important that vendor invoices be monitored closely. Major purchase orders can sink a project's cash position if a vendor invoice is paid and not added to the application for payment as quickly as possible. Communicating with the vendor and your accounts payable department is critical to ensuring this doesn't happen.
Communications. Effective communication with the field, via the project foreman, is a critical practice in project management. The PM must be able to accurately convey the goals of the project to the company's foreman as well as all other team members associated with the project. Doing so in a timely manner allows the foreman to procure the proper tools, manpower, and materials to accomplish the job tasks as efficiently as possible. A good rule of thumb is for the communicator to ensure all parties clearly understand instructions no matter how simple. Poor communication can create unwanted delays and add unnecessarily to expenses on the best of projects.
Most commercial construction projects have weekly job progress meetings that are held by the general contractor. These meetings usually involve all of the various trades working on the project and provide an opportunity for the project manager to resolve conflicts during the construction phase of the project. Prior to the meeting is the time the foreman should be speaking to the PM, communicating the issues since the last meeting that have not been resolved. After the meeting, it's the PM's turn to communicate to the foreman, letting him know how certain issues are to be resolved.
If someone other than the PM estimates a project, it's crucial that the PM completely understand the perspective from which the estimator originally quantified the costs for the project. One proven approach that works well is to bring together the PM, estimator, and foreman early on to evaluate various stages of a project.
A PM must also be able to effectively interact with representatives from other trades involved in the construction process. Many of these individuals will have goals that most likely compete or conflict with those of the PM and/or contractor he represents. Understanding how the electrical work fits into the greater design of the building and then effectively communicating that understanding to other contractors, architects, engineers, and the owner is a fundamental part of an effective PM's job. This requires him to document all verbal and written agreements and share written records with all those affected by changes made throughout the construction process.
One specific example of this might be where an agreement with another mechanical trade has been achieved to resolve a spatial conflict that exists above a ceiling. If the PM fails to share this agreement with the electrical foreman it will go unresolved in his mind. He may reach a point where he works around the conflict in an effort to maintain progress and the schedule. Because the agreement was not communicated to the foreman, time was spent unnecessarily — and credibility and good will may have been lost with the other trades.
Technical acumen. Because construction of a building is a coordinated effort among many different trades, the PM needs to have a thorough understanding of not only the electrical work on the project but also any outside factors affecting its installation. For example, he should have a basic understanding of how the mechanical and plumbing systems within a building are installed and operate.
The knowledge of codes and regulations is another key responsibility of a good PM. Many states and local authorities having jurisdiction have put in place their own guidelines, which many times differ somewhat from national standards. Most of these codes undergo periodic review and change. Therefore, it's essential for the PM to stay current with these updates and account for them when sequencing activities in the development of a schedule, ordering and staging materials, and estimating change orders. If the PM is unaware of the code requirements on a particular project, it's possible that costly re-work will be required. The PM must not rely on the foreman to catch these items, as this creates a reversal of the PM/foreman relationship and leads to limited efficiency of the work tasks. The most common occurrence here is when the PM estimates a change order (possibly based on sketchy and incomplete information from the architect/engineer) and fails to understand completely the code issues involved with the work being changed. When the PM fails to account for the requirements of the code and the foreman installs it in accordance with the code, the end result is a negative effect on profitability.
Additionally, many (if not all) professional liability insurance companies exclude means and methods of installation from the policies purchased by the engineers of record for the various engineering disciplines associated with a building project. In the unfortunate event of litigation resulting from failure of a designed and installed system, legal counsel for the engineer responsible for the design will attempt to prove the failure was a result of the installation and not the design. Based on this fact, many engineers are hesitant to provide specific direction on how a system should be installed or the methods employed to install it. A PM with a strong technical aptitude will be able to work closely with the foreman to identify and develop methods of installation that do not compromise the original design.
Scheduling. More and more project specifications now require a subcontractor to prepare some sort of schedule prior to the start of work that's consistent with the general contractor's schedule. The PM must not only have the skills necessary to evaluate and develop a workable construction schedule based on the chronology laid out by the general contractor, but also to periodically update it to avoid areas of conflict before they occur.
Being skilled in the use of scheduling software packages allows the PM to clearly indicate how individual project activities logically tie to other activities on the project. An organized and updated construction schedule is critical on fast-track projects or contracts with liquidated damage clauses. The best scheduling software allows the PM to plan the work logically, show the critical path and show progress for each task through periodic updates.
A recently updated and current schedule also provides the PM with accurate information for determining percent-complete and cost-to-complete reports, both of which are essential when preparing data for the WIP report.
Armed with job cost data and an accurately structured and updated construction schedule, assessments can be made on the project's pending success. By simply dividing the hours used by the hours budgeted, and then comparing the percent of hours used to the percent complete shown on the updated schedule, the PM can instantly evaluate whether he's ahead of or behind his overall labor budget.
Successful PMs always look for opportunities to enhance their skills. Natural development of these skills will come with experience; however, formal training is available through university extension courses, and industry related organizations. A commitment to invest in this training by senior management will lead to better project administration, a more qualified project management team, increased profit margins, and the potential for seeking work in previously unexplored markets.
Englert is manager, commercial D/B services, with Industrial Electrical Engineers, Inc., in Elgin, Ill.