Construction Value Added – 11/ 30

Construction, even though it’s complex, risky, requires close coordination and cooperation of many disparate groups and participants, is generally perceived as a commodity business.

There is no shortage of builders willing to provide their best price. Just look at what is currently happening in public tenders. There may be as many as 15 contractors bidding for one project.

All are perfectly willing to tackle the project. Definitely not all are qualified. And it’s very likely that the lowest of the bunch made some sort of mistake or overlooked something. That’s the contractor that will attempt to do the work, while the Client ends up with frustration. Not to mention the Architect and other designers. Surely they did not allow for the additional costs it takes to work with the low contractor to get them through the process.

When there is that much competition for the work, the fees suffer. Fees are not generally seen as good thing. But what does every Client wish their contractor has? The financial capacity to complete the project.

Financial strength comes down to profit. Profit stems from good financial management, which includes, collecting payments on time, knowing your costs, controlling costs, and setting healthy fees.

No one likes to pay fees. Everyone wants the lowest price. Why is a complex purchase such as the construction of a one-of-a-kind building seen as nothing more than purchasing a container of washing detergent?

Because the industry does not perceive the Contractor as adding any value to the process. The Contractor is a cost. The problem is that when fees are ground down, or mistakes are made at the onset of a project, the Contractor will use every bit of it’s expertise to look after it’s own interests.

The fully designed project does not look for, nor appreciates value added. In the design-bid-build market, suggestions for changes from the Contractor are viewed with caution at best and suspicion at worst.

Until Clients and Designers experience the value a competent and qualified Contractor can bring to a project, they are not keen to pay higher fees. The fees are contingent on perceived value added, or money saved.

Contractors must visibly demonstrate added value, or the fees will continue to be eroded. And their services will be seen as costs to be minimized.

Ideas, Tendering

September 25, 2010

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Innovative Solution for Complex Projects – 10/30

In a fee for service model the Client pays regardless of results. I spend three hours looking into a problem for you, you pay me for three hours. Regardless of the outcome. It would be nice if the three hours resulted in a good outcome for you. How about if the three hours resulted in a negative outcome for you?

Would you still be keen to pay me the three hours?

In a lump sum fee for service model, the Client pays a set amount, regardless of the amount of time it takes to achieve the outcome. As with the previous model, there is no guarantee of outcome.

But if the amount time required to complete the project is greater than I estimated, or if merely additional work is required, the Client is in for additional charges. Who likes charging for additional work, and who likes to pay for such charges? Depending on budgetary pressures, the discussion centers around – Why was this not included? You should have anticipated this? And why is this so expensive?

Now let’s add poor project definition, competitive pressures to be the lowest cost service provider, and a guaranteed outcome, and what do you see the outcome of all of this? Great working relationships? A happy experience for everyone? Sloppy work?

A better way to obtain the services you require looks something like this:

• Preselect several competent service providers. Each has the experience and technical competence to complete the project.
• Break your project into two segments. One segment is for work that is standard, has great definition and has few unknowns with regards to the effort required to accomplish. The other segment is the remainder of the project.
• Request a fixed price for the defined work. Request a percentage fee for overhead and profit for the remainder of the work based on final cost of the work.
• Request a list of anticipated project participants. Request hourly rates for project participants.
• Develop an analysis based on your experience of previous projects to determine the expected time and staffing required for the undefined work. Plug in the costs for each proponent.
• Estimate the costs of the entire project and apply each proponents fee.

Based on this analysis, you can select which service provider is expected to be the best value. And by estimating the amount of effort required for the undefined portions of the project, you can track and evaluate the efficiency of the service provider for future projects.

Using this model, great service is assured, while stress and confrontation is minimized.

Ideas, Tendering

September 19, 2010

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Smart is the New Big

Progress is never standing still. The rolling stone gathers no moss. If you’re not moving forward, you’re moving backwards.

That last one takes a minute to figure out, but in effect says that everyone else is moving forward, why aren’t you? Are you a looser?

I’m not sure how much of this is driven by marketing and consumerism. Although I know it’s nice to get new stuff every once in a while.

Yet when it comes to homes, I believe more and more people are starting to figure out size isn’t where it’s at.

Smart can be defined, and it will be, in many different ways. Each person has an idea what smart is. For some smart is – don’t spend too much and be house poor. For another, it may be – live close to where you work or play. Really smart is living close to both work and play.

Some think smart is having the right options in a house. Such as:

• Durable finishes
• Innovative design
• Eco friendly appliances
• Utilize renewable energy resources
• Creature comforts

Don’t fool yourself, these things are not cheap. The idea here is not live in a mud shack, but rather than buying new and buying bigger, buy better. You will get way more out of it.

Forget the big treadmill. Someone will always have a bigger house than you. You can’t keep up.

Play a different game. A game where you set the rules. You’ll win.

Ideas

Remodel, Renovation

September 15, 2010

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Competition vrs Innovation – 09/30

Competition spurs innovation, right? When you think of competition, what is the first thing that comes to mind?

I’m betting it’s not a novel service delivery model, nor is it unconventional hiring practices, or a radical job training approach. Competition = price in nearly all instances. If a competitor competes with you and gets the business, the natural instinct is to question your pricing.

If only we could reduce our costs. The good news is that you can reduce your prices. It’s easy really. Here are some ideas: (You can pay me with the money you saved, later, if you’re still in business.)

• Hire less well paid employees
• Provide less services
• Hire cheaper subcontractors
• Reduce supervision

Each of these has it’s negative consequences. If they are not disastrous in their initial application, they will be in the long run.

Or there is the option of consciously reducing your fees while tasking those responsible for delivering the service to increase the profit. There are many ways of doing this also. If you haven’t thought about these, here are a few commonly applied techniques: (As before, you can pay me for these ideas later, if you’re still around.)

• Track and charge for every change in service
• Track and claim for anything looking like a delay
• Overcharge for additional services while under contract
• Charge for items not required, nor provided, but which sound plausible
• Negotiate, force, subtrades to include work not bid on
• Charge trades for services provided, even those paid for by the Client
• Obtain work access fees from Subtrades

How many of these wonderful methods lead to long term relationship building, development of trust or value added?

Sure we can blame the system for forcing us to resort to such means and methods. It’s the Client’s fault for forcing us to compete on a non-level paying field. It’s costs what it costs to deliver the level of service expected. If they won’t pay upfront, we’ll get it later, thank you very much.

All of the things mentioned so far can be categorized as innovation. I would call them negative innovation. These techniques reduce the pie. The ball is not moved forward, and things are not being done in a better way. It’s just a scratching the surface way of responding to the pressures of competition.

Innovation can be defined as doing the same thing in a different way. Innovation is hard. We’ve all heard it before. But true innovation, the kind that betters the way things were always done, is what competition is meant to drive. And competition, aka market pressures,will force each and everyone of to do so in varying degrees.

The only way to beat the competition is to make them irrelevant. One way to distance yourself from the others and competition is provide greater value to the Client. Here are some examples: (You can pay me if they work for you, and they will.)

• Design the delivery of your services in a way that others have not thought about, and are not likely to think about. At least not for a while.
• Adopt an unassailable code of conduct, and rigorously enforce it.
• Hire for attitude, adaptability and creativity.
• Constantly evaluate everything, inform and adjust as required.
• Operate in an open and transparent fashion.
• Continually think of ways of adding value and disseminate within the company.
• Act differently in all your encounters.

While these ideas sound easy, they are tough to implement. But they are complimentary and additive. Meaning each one builds on the other and enforces the whole.

The other way is to form an oligarchy or monopoly.  There may be techniques for this strategy, but are infinitely harder to pull off.

Ideas, Quality

September 12, 2010

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Lunch Anyone? – 08/30

Intent is everything. Was it an accident or did you mean to do that?

The real motivation doesn’t really matter. It’s what I think that counts. If I think it was an accident, then that’s what I’ll believe.

The same goes with marketing. If the intent is to get something out of the interaction, it will be obvious to most. Like the lunch set up with the intent to talk about what the other party can provide. Oh sure, talk at the beginning is about all sorts of things. But as time goes on, and it gets closer to the end of lunch, things get a bit more tense. When do you ask about the other projects the person can direct you to? The more skilled the operator, the less awkward it will feel.

However, if the intent is to give something, the lunch will more enjoyable for all. Ideas are exchanged. A good discussion was had. Perhaps new thoughts were stimulated. You came expecting to give a gift, something that would be appreciated, and you end up receiving something more valuable.

What you received is attention. It’s what you choose to do with the attention that matters. The time spent will be more enjoyable if you spend it focusing on what you can provide for the other person.

Do that often enough, with sincere intentions to truly help the other person, you will build trust and a friendship that is based not on – What can you do for me?, but one of mutual respect.

It’s all about intent.

Ideas

September 5, 2010

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Create Incredible Value – 07/30

How often are we in a project design meeting, or reviewing drawings and think, “We need to save some money, how do we do it?”  Or better yet, your Client asks you for what your ideas are.

The answer will be limited to your personal experience, and if you choose to involve others, their combined experience. The problem is that we are all so busy, unless we actually devote a set time to doing nothing but thinking about Value Engineering (VE), the process gets short changed.

You will not get much of benefit by calling you superintendent, and asking him what he would do to change a particular detail. He hasn’t thought about it, and most likely he is dealing  with something completely different.   And if you ask him for general cost savings ideas out of the blue, you will be even less satisfied with the outcome.

The obvious solution is to form a project analysis review team.

The team should focus on current projects we are pursuing.  Pursuing can mean the following for projects:

• Bidding
• Budgeting
• Construction Management

You may also look at past projects to build skill in performing VE (Value Engineering) within company and build the VE list.

The standard objective of each session is to look at the project with many PM’s, PC’s, Supers, to determine value engineering, alternate or required methods of construction and ways of doing things better. Additional areas of exploration can be added as time allows.

There may be more than one iteration of this process.  Stage 1 will be internal company resources, Stage 2 will be with selected trades for projects we are pursuing or have opportunity to provide VE input.

I would not involve the Owner or Consultants in the VE ideas generation process. Due to project momentum, they will be likely to shoot down ideas during the initial formation stages.  They may be more receptive to the VE plan once it’s fully developed.

The length and timing of the VE session could be over lunch hour and could make use of smart boards and interactive technology. To get the process going, some participants will be nominated and encouraged to participate. Membership provides access to the output of the session.  Once the value of participating is fully understood it is anticipated that members will self select. Also, a free lunch is a hard thing to pass up.

The project leader will take all VE ideas and process them without regard to the current project.  This list will add to the database of VE ideas.  The leader will then evaluate all the presented ideas against the project to determine which ones will be presented to the Client and Consultants.

The expected benefits and end products include:

• Better team work within company
• Builds experience for participants
• If used with trades, builds better team work with trades
• Provides list of possible value engineering ideas for next project
• Adds value to project
• Provides concrete deliverable for Client and Consultants
• Distinctly differentiates us from the other service providers

The product will be shared with the project team (Owner and Consultants) in an effort to provide a better project than had the process not taken place. Share the result with the Client and Consultants in a working session, even if we are not successful in our pursuit.

That’s a gift that keeps on giving.

Ideas, Quality

September 2, 2010

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Give Freely – 06/30

Information wants to be free.  At least that’s what I’m hearing everywhere.  But what is the value of this free information? And how does me giving away free information enlarge the pie for everyone?

In my business, construction and construction management, there is no shortage of data, and information.  But it takes effort and vision to turn all that into knowledge.  I have a previous post on the subject.

To turn data into information, and to turn information into knowledge, I like to toss the former into a what I call a funnel.  The funnel massages the data/information into a usable format.  What should some of those funnels be so the information can be applied in a knowledgeable way to other problems.?

This takes some thought.  And it takes effort.  Why would I give that way for free?

But actually, even if I told you that it costs roughly $25 per sqft to demolish a concrete structure, what can you do with this data?  You may need more context in order to apply the information, or be somewhat confident that you have something to hang your hat on.  And you wouldn’t price a project based only on this post.

What you could do though, is use this information as a data point to apply to your own database of demolition costs.  Then if you need a quick price, you have something handy. And once you have the project, tendering the demolition and reviewing it to the budget of $25 per sqft, allows you to then ask some questions.

Why is your price more/less?  The act of asking the questions will allow you to gain knowledge and will ensure that the price for the work is more or less the correct price.  It’s a win – win.  You win because you have the correct price, and the trade wins because someone bothered to check their number.

Adding the demolition tender results, and the context, to your database will provide another data point for your  future reference.  Before you know it, reviewing the demolition data points, you can come to some rule of thumb about the costs of demolition of that type of structure.

And if you’re feeling generous, you could share that information with the rest of the world.  The pie does actually get bigger.

Ideas, Tendering

September 1, 2010

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There’s A Procedure For That 05/30

Some things lend themselves to written instructions, a manual, a cook book and best practices. If you want to bake a cake, repair an airplane engine, or run a processing plant, you should consult the manual. Or if you are learning the business and how things are generally done – read the best practices.

And if you want to scale your business, implement plenty of written procedures, checks and balances, check sheets, and so on. Hire a few supervisors to ensure strict adherence. Doing so, you can hire mediocre talent, have them follow the instructions, and generate acceptable work. If they follow the manual, it is hoped, the number, size and scope of operational problems and risks will be reduced.

This may work in an environment where there is tight control of the environment and inputs. Such as a factory, a plant, a call center, or a forms processing office. This is where you want workers at the lowest dollar, with the minimal amount of training to follow the procedures. If you need more work done, you can easily hire more workers, throw them a manual, and away they go.

Some of this will apply to a construction company. Aspects of work where there is repetition, such as how to issue contracts, process shop drawings, process RFI’s and changes, a procedure and manual will ensure consistency. It should also be noted that this type of work is ideally performed by the least costly members of the team.

But too much reliance on manuals, procedures and a tight command and control system does not encourage the kinds of decisions required to be made on a day to day basis.

Because construction does not generally operate in a controlled environment, manuals cannot anticipate the types of problems that arise. Further, most of construction is accomplished through other people where best practices, manuals, and efficiencies do not apply.

The trick then is to find the balance where repetitive and routine tasks are performed by manual followers, while custom solutions and problems are solved by experience, finesse and personal judgement. Defining the positions require manuals and which don’t, and enforcing to ensure the tasks are performed at those levels, will result in improved overall results.

Ideas

August 29, 2010

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How Much For That? 04/30

Data is generated with every email, every spreadsheet, every price, and every estimate.  It’s out there, and with more generated each day, unless it’s properly looked after, the data gets lost in the volume.

The trick is to turn the data into information at the time of generation.  And to organize the information in a way to allow efficient recall.

How much time do we spend looking up information that should be easily accessible?  With more and more data being digital, there really is no excuse for not being able to find what’s being sought.

Even search tools, like Google Desktop Search, will not help much unless the issue of retrieval is thoughtfully considered.  Just like file structures were used in the past, a digital equivalent must be implemented and enforced company wide.

It takes additional effort to relate the data to other data and turn it into information and knowledge.  All this takes effort. It’s this investment, if made a top priority by employees, that will create incredible value for the company and will create a competitive edge.

For example, a question was asked today how much it should cost to provide epoxy flooring on a concrete floor slab.  This information should be readily available to all employees.  Surely one employee has had experience with the costs and pricing of this work.  Estimating must have the data.  But has the trade quote been related to the applied square footage?  And what are the other extenuating circumstances relating to the price?  Maybe the product, thickness, and substrate preparation should be indicated.

Unless this data is combined in a meaningful way at inception, each question results in wasted time and effort.

Ideas, Info

August 25, 2010

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What Are We Doing Today? 03/30

In the contracting business there is always plenty to do.  Things that can be wrapped up, chased, followed up on, paper processed, invoices paid, etc.

Events overwhelm the best intentions.  Without clear priorities and constant focus things just move along and get done . . . somehow.

A better way is to set weekly top priorities of things that need to be done this week.  This isn’t a running to-do list a mile long.  The top priorities list should focus on the most important things to accomplish that week.

By setting five top goals for the week, you move the project along on your terms.   Selecting the top five things to get done this week, you leave enough room in your schedule to take care of the things that will pop up.

Reviewing the list of things actually accomplished at the end of the week, and focusing on why some items were not completed, can provide useful feedback for selecting the top priorities for the following week.

By focusing on your priorities for the week, you ensure that the important things get done while providing time for urgent and emergencies.

Ideas

August 22, 2010

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