Masonry Magazine October 1993 Page. 11
ANALYZING BUSINESS OPERATIONS
Poor financial management often reflects the state of the entire company. The question is not if you can afford to analyze and plan, but whether you can afford not to.
By MARK CUCAROLA and MARK KUTA
Senior Consultants
FMI Corporation
EVERY DAY some construction company closes its doors because it just can't make it, while another reaches the pinnacle of success. What enables some contractors to achieve success while others are destined to fail?
Unfortunately, there is no easily definable answer. However, you can increase the probability of succeeding by sticking to business basics while continually learning to apply new techniques in your company. Being in the trenches of daily operations makes it easy to lose focus in determining where you are headed, what you should be doing to get there and what is standing in your way. As customers, competition, employees and technology change, management practices should be continually assessed relative to the demands of a changing environment.
There are many issues that confront you and your company. First, whether or not to remain in business is one issue that should always be raised and evaluated. For example, you may have five years of operating losses, lack of management experience and a declining local market. On the positive side, however, you have adequate capital, solid technical skills and dependable employees.
Because construction is a high risk business, you have to ask yourself if you are an owner who is enthusiastic enough to put the company on the track to success; and second, who is consistent enough to follow through on changes. If the answer is yes, an in-depth analysis of the organizational structure, field productivity, marketing, business planning, and financial capabilities and practices can prove to be very insightful in bringing about necessary change.
On the organizational side, not all employees should necessarily report to the president, which is often the case. Often, managers and employees alike frequently disagree over who they work for and who works for them. The organization should be structured in a way that recognizes the "get work" side of the business from the "do work" side. This will allow for greater accountability of individuals. Often the estimating (get work) and project management (do work) functions get muddled, which increases project risk, liability and inefficiency.
Position descriptions should be written that define individual duties, responsibilities and expected results. Position descriptions should be developed jointly by management and employees to clarify employee perception of his or her job. This will guide individuals in achieving appropriate work behavior relative to their highest and best use. Finally, an organizational charge should be published and communicated to all employees defining structure and reporting relationships.
A performance evaluation system should be directly tied to job description requirements. The first real indication an employee has of management dissatisfaction should not be a pink slip; conversely, the only measure of management satisfaction should not be continued employment. Employees who anticipate being let go without warning or without opportunity to improve performance are clearly not as motivated as when a system is in place for providing feedback on performance.
The organizational structure should be reinforced and supported by a coherent compensation system. Compensation in the form of salaries and bonuses should not be arbitrary, but rather be directly related to responsibility and performance. Together, a performance appraisal and compensation system improve overall morale and promise rewards based on productivity.
It is important that criteria for movement within salary ranges and incentive compensation mechanics are quantifiable and clearly understood by everyone.
Improving field productivity is the single most important factor in minimizing risk while maximizing profitability. Often productivity suffers from a lack of management, communication and planning. Pre-job planning meetings should be held to anticipate and avoid potential problems on the job. This will also foster universal understanding of how the job will work before the project is started.
No matter how successful with respect to organization, productivity, marketing and financial management, all contractors benefit greatly from periodic evaluation and a program of ongoing management planning. The more you find, the greater the potential impact on your business profits.