Navigating Perilous Times in Construction
Cheri Hanes | April 17, 2020
Running a construction business has a lot in common with sailing, where some say there are just three rules.
- Keep the boat in the water
- Keep the water out of the boat
- Stay in the boat
In construction, the equivalent may be the following.
- Keep work going on the site
- Manage that work profitably
- Keep work in the pipeline
Simple, right? In both cases, there are many factors that keep the rules from feeling simple or easy. Tremendous foresight and planning, constant fine adjustments in course, and flexibility in approach are all necessary to keep things "on an even keel." And every now and again, there is a measure of heroism required. This is one of those times.
There's an African proverb that says, "Smooth seas do not make skillful sailors." It's the challenging times that build strength and resiliency. With that in mind, this is an opportunity to grow your skills, unlike any that we have seen before. And we'll get there by focusing on these basics.
Keep Work Going on the Site
Work on the site grinds to a halt if subcontractors can't or won't come to work. Recently, you have probably thought about site hygiene more than ever before. Your safety plan may now include social distancing, additional cleaning, virtual meetings, temperature monitoring policies, and more. It is crucially important to limit the spread of disease on your sites and to ensure compliance with evolving governmental requirements and recommendations.
But, the plan is also valuable for its ability to keep your labor force feeling like you hear and value them. Does your plan include a method for site personnel and subs to raise concerns and get them answered? If it does not, consider adding it. They need their concerns heard to feel like they can continue to work on your sites safely; make sure you are listening and responding.
A deep understanding of your supply chain is also important to progress on your sites. To start, assess your current exposures with a detailed supply chain audit. Talk to your subs and their suppliers to get an understanding of where your materials are coming from and how they will get to your site. From there, zero in on materials that present a higher risk to continuity on your projects and make a plan to address them via proactive acquisition and storage, alternate suppliers, alternate materials, or other techniques.
Manage That Work Profitably
They say the time to plan for a storm is a sunny day. If you wait until it's storming, it's likely that your plan will be less than optimal. To continue the sailing metaphor, this means following the same process of stowing everything securely for every voyage—even if it looks like smooth sailing—because the last thing you need in a surprise storm is the contents of your tackle box flying around the pilothouse. It may feel a little late to say that in this situation, but the good news here is that you have likely already made this plan—even if you didn't call it that. The practices you should be focused on now are normal course of construction activities; it's just that the importance of getting them right is hugely multiplied. This is time to double down on those practices.
At some point, your risk management, project controls, and quality practices may have seemed like overkill on seemingly straightforward projects, but those were opportunities to develop a type of "muscle memory" for your teams so that they know what to do even in the churn of a challenging moment. Diligence in regular practices like documentation, payment protocols, scheduling actualization and updates, communication, and collaboration should be so ingrained that they are automatic.
It's important that your team pause, take a breath, and remember that they already know how to do this. This practice of taking a pause to strategize is like deploying a sea anchor. When sailing really rough seas, a sea anchor is used to slow things down and dampen the effects of the waves. Deployed like a parachute underwater, it prevents uncontrolled surfing on intense waves. It slows progress slightly but allows for course correction, thoughtful decision-making, and greater comfort. It reduces the instinct to panic and limits the impact of stress on the task at hand. Give your teams permission to "use their sea anchor," and the outcome will likely improve. Otherwise, in times as unsettled as these, normal practices may be swept overboard in the turbulence of the moment.
It's important that you also realize your trade partners need your sense of calm, control, and leadership to keep them on track. Make sure they know that you are on the same team and that their success is important to you. Brainstorm solutions with them, collaborate, and listen to their ideas and concerns. To prevent profitability impacts from becoming subcontractor failures, sit down and reassess their financial positions. Financials based on last year's work and work-in-progress schedules will not accurately reflect many subs' current states.
For particularly large or critical subcontractors, especially, a meeting with their management to get a refreshed look at interim statements and discuss their current business outlook—and how they are weathering the storm—should benefit all partners.
Keep Profitable Work in the Pipeline
You may have noticed the addition of the all-important word "profitable" to this step. Strangely, many impacts happen as recovery begins—and that can affect profitability drastically. We know from the past that, as the market starts to rebound, the risks to your project's profitability will actually be rising.
Much risk is "baked in" to projects at the earliest pursuit decision. As we recover, exercise extra discipline in your go/no-go analysis. To the best of your ability, choose only projects that your firm has the history, relationships, and bench strength to perform. Entering new markets or geographies, or even ones you are familiar with but know to be problematic, can be disastrous with the additional risk a fresh recovery adds to the equation.
Work currently in preconstruction or buyout presents a chance to use newly gained perspective to increase awareness of developing risks and avoid or manage them appropriately. Renew your focus on your prequalification practices as noted above, but don't stop with financials. A close operational look is also warranted.
After coming out of this event, subcontractors will likely be challenged to complete committed work that has been slowed down/delayed or hungry for additional work and tempted to deviate from their fields of expertise in order to improve revenues or cash flow. Help your subs stick to their sweet spots. History tells us that often it's not the lack of work that puts subs out of business; it's taking on too much, too large, or unfamiliar work. If you uncover issues in the prequalification process, whether operational or financial, don't hesitate to enact a risk mitigation plan that addresses the issues directly and, by all means, track their implementation.
Summary
These are unprecedented times, and I hope we never see the like again. The success factors will likely come down to additional diligence in the practices you already know and expect; double down on them. Keep your sites safe, your work progressing, and your jobs profitable by keeping a level head and reminding your teams to do the same. Keep a firm hand on the wheel, an eye on the horizon, and keep sailing. We'll get there.
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