Job Management for Contractors

I read several articles the other day about why certain contractors are successful during economic downturns.  Opinions included giving serious attention to cost reduction (where needed), elimination of redundant processes and duties, and a huge investment of time and energy in the overall project management process.   This includes developing and actively managing  key financial metrics, one of which is the work in progress (WIP) schedule.  At the core of WIP schedule is the estimated cost column which typically involves a high degree of uncertainty and forecasting measures.  As accountants, we often struggle with the art of forecasting given this inherent uncertainty.  I’m reminded that estimating job costs and ultimately estimating job profitability is just that, an estimate.  Following are some reminders for project managers, accountants and owners of construction companies who are charged with the responsibility for developing and maintaining the WIP schedule along with other financial and project management considerations:

  •  Estimating total costs on a job requires forecasting which is as much art as science.  Exercise professional judgment at all times and sometimes your intuition is worth more than an excel calculation.  Don’t let this overly financially oriented exercise intimidate you.
  • If the first time you update the original bid numbers is at 90% completion you’ve missed the mark.  Update the estimated contract price and costs at job commencement.  This may be on the heels of receiving the bid award or several weeks/months after the job was bid.  We live in an ever changing, dynamic world, and so does your cost structure.  It’s a rare job that starts out as anticipated at bid time so make sure to update the estimates when ready to start the job.  A pre-meeting will help here.
  • Hold pre-job meetings involving estimator, project manager (PM), field supervisor and controller to discuss timing, job estimates, billing expectations, cash flow expectations, etc.
  • Balance an overly optimistic (speaking to you owners) job outlook with a realist perspective.  This includes taking into considerations job condition changes as they happen.  This allows the correct profit on jobs to get recognized in your interim financials that you likely are giving to your trusted business advisers who rely on this information to provide you financial advice or banking and bonding credit.
  • Measure and manage job productivity in the field using metrics such as quantities installed, labor hours,  or other key statistical measures.  Your in-house monthly summary financial statement produced by your accounting department, while valuable, represents a consolidation of all of your individual field based profit & loss indicators.  Your monthly financial statements should simply lend support to what your nonfinancial metrics are telling you.  If not, it’s time to investigate!
  • Update the WIP monthly and provide these job estimates to your accounting department monthly.  Bottom line Company profits can be significantly distorted without this adjustment and management should be analyzing financials and job trends on a monthly basis.  Not to mention your trusted advisors are in a better position to help when the information is accurate and reliable. 
  • Hold post-job meetings to continuously evaluate the bid dollars vs. actual dollars and other aspects of the jobs.  This analysis is also a critical element when evaluating certain indirect cost rates in both the estimating and accounting system.  It can also serve as a great education tool for estimators and accounting staff as they gain an understanding of the other end of the job.
  • PM should be educated and trained to measure, forecast and manage job cash flow.  Cash flow management is huge!
  • Actively monitor AR’s.  PM should be tenacious about assisting the accounting department in issuing billing and following up on AR collection disputes.  Cash flow management is huge!
  • Real results require real time!  Every successful organization should strive for having a team-oriented system of accountability built into their organizational framework.  With regards to your project managers, make sure you provide them adequate time and resources to fulfill their job responsibilities.  You need them fully and consistently engaged with all aspects of the job.
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