ARTICLE

Could operational visibility reveal a brighter future for contractors?

by: Smith and Howard

July 17, 2015

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Most business owners, including contractors, likely believe they have a pretty clear vision of their operations. But the hectic struggles of running a company could quite understandably narrow your viewpoint to only the problems directly in front of you. In turn, your awareness of other aspects of your business may blur. One way to manage the risks of such a predicament is through the concept of operational visibility.

Look all around

Operational visibility refers to maintaining regular attentiveness to every major aspect of your business. For contractors, that means paying close attention to several areas. First, and most obviously, there are your current and pending projects. Ideally, you need quick access to a dashboard that delivers regularly updated key performance indicators (KPIs) for each job.

For projects underway, these should include labor productivity, schedule variance, budget variance, unapproved change requests and cash flow. For upcoming work, critical KPIs include your total work backlog and committed costs.

Another key area is your office. There are a wide variety of financial KPIs that can help you guard against cash flow or debt problems. Four particularly important examples are your:

  1. Debt-to-equity ratio,
  2. Gross profit margin,
  3. Average age of accounts receivable, and
  4. Working capital ratio.

If you haven’t done so lately, ask your financial advisor to go over these and other KPIs and, again, set up a means of monitoring them on a daily or weekly basis.

Total operational visibility also involves staying apprised of external factors that affect your company. These include local, state and national economies as well as political developments affecting the laws and regulations that pertain to your business.

And, as always, there’s technology. Cutting-edge innovations could allow you to work more effectively and efficiently — or permit your competitors to do so if you ignore technological changes.

Gather information

It’s critical to have monitoring systems in place to track chosen KPIs and other measures every day. But the data you gather also warrants deeper examination that can only come from report generation.

Field reports should generally include the project-specific KPIs mentioned above as well as other job-costing data. They can also include job-progress narratives by project managers with notes about labor productivity. A side benefit of field reports is that, in some cases, you may be able to use them to prevent or fight claims by demonstrating that work was performed in good faith.

Office-generated information should end up in your financial statements. Some newer or very small construction businesses tend to undervalue these documents. A small percentage of companies don’t even keep them. Big mistake: Your financial statements contain an incredible amount of information that can help you better understand your financial position.

How you track and report economic, political and technological issues is up to you. Consider delegating this task to a manager and having him or her present updates at monthly or quarterly meetings.

Set (or revise) goals

The third major aspect of operational awareness is analysis and prediction. Granted, information overload is a way of life in today’s business world, and the construction industry is no exception. You want to analyze everything, but too quickly find yourself overwhelmed.

This is where having well-defined strategic objectives come into play. In short, to succeed at operational visibility, you must know precisely how you’re going to grow your business. Common and perhaps worthy goals include increasing top-line revenue or improving labor productivity. You might even consider expanding into a new market.

Additionally, you can use knowledge gained through operational visibility efforts for predictive purposes. That means spotting industry trends, forecasting budgets and steering clear of cash-flow choke points before your business runs aground.

Exercise your vision with operational visibility

They say don’t sweat the small stuff. But, once a project is underway, it’s all small stuff! Yet if you let the details consume you, important strategic opportunities may slip away. Integrate regular exercises in operational visibility into your executive schedule and you’ll be more likely to see your way toward a brighter future.

Construction Advisory Services

Looking for help with developing operational visibility for your construction business or simply looking for construction accounting and advisory services? Contact Marvin Willis at 404.874.6244 and or simply fill out our form below and we’d be glad to help.

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