Cost and Profitability: 1 in 3 Construction Businesses Plays the Guessing Game

Technology has always been essential for craft professionals. From a self-leveling laser to wearables and robotics, technological advancements are vital to driving the industry forward. So it’s interesting that year after year, there’s a new report on how construction businesses remain slow to adopt technology. In a joint survey about tracking costs and profitability in construction, 2 in 5 respondents say estimating project costs is the hardest financial process to get right. Meanwhile, another 38% identifies labor as the hardest cost to estimate. Let’s dig a little deeper to find out why. For some, job costing is pulling numbers from thin air But first, some good news: 1 in 2 businesses surveyed prepares an estimate before a project begins, while 7 in 10 say the estimates are typically very close or exact. When asked how they’re tracking project costs, 46% of all respondents either use accounting software with job costing features or a standalone job costing tool. What about the other half, you ask? Nineteen percent use spreadsheets. This means some form of manual data entry is involved. And to err is human. But things get more labor-intensive. 27% say they keep track of project costs on paper, by hand. A brave 7% admits to doing the math in their heads, without records. That means 34% of businesses are playing a guessing game, operating without the help of technology or hard data.  Lower confidence leads to lesser profit, even bankruptcy When asked about the accuracy of their estimates before a project starts, more than 40% say they’re somewhat accurate or not at all. This may not be a high number at first glance, but nearly the same percentage also says one to three bad estimates could put them out of business. This suggests a critical gap in their operations. So it’s no wonder 28% say profit is usually less than expected. Bankruptcy is any business’s worst nightmare, and it reflects more than just bad operations. Damaged reputations tend to linger. 2018 saw some of the highest-profile bankruptcies in the construction industry across the globe, from Carillion in England to Natelco Corp in Maryland. Attorney Lei Lei Wang Ekvall of Smiley Wang-Ekvall told Construction Dive that 2019 would remain positive for construction. But that doesn’t mean businesses can’t minimize market threats. Her top recommendations include accurate job costing, from material pricing to expected duration.  Technology eliminates error-prone methods for critical processes In the QuickBooks and TSheets survey, the challenge is not to see whether construction businesses know about the importance of job costing. Rather, it is to uncover if and how they’re using technology to do it. Despite the 46% of respondents who use some kind of job costing software or app, many say collecting data to input is still the number one hurdle. When asked about how they track labor costs, only 19% are using technology to boost accuracy and efficiency. Respondents say this is the same labor data they use to run payroll and prepare estimates. Yet over half of the businesses surveyed are tracking time manually. ●       22% have the foreman or manager record hours for employees ●       15% have employees use a punch clock ●       15% have employees use paper time cards It’s probably fair to say businesses operating this way may not know their actual profits. Most time tracking technology lets users track work hours automatically, with location-aware features for added accuracy. Then there are additional features like attaching photos to timesheets, built-in estimation tools, and real-time reporting. There are so many variables affecting costs, from the economy to tariff wars and changing trends. To not actively and constantly have a handle on your estimates is to leave your bottom line in the dark. And that is the surest way to send your business the way of the dodo.

Author

Dottie Chong

Prior to becoming a copywriter for TSheets by QuickBooks, a time tracking and scheduling solution for small businesses, Dottie Chong spent 15 years...

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