This year we have been examining the reality that our beliefs impact our business decision making. From the very beginning as children, we lay down little truths in our brain stem that never again come up for examination. This is how the human brain helps the race survive. Accumulating unexamined beliefs goes on for the rest of our lives. The problem is that some of these unexamined beliefs are true and help us survive, while some are not true and lead us into trouble.
- “If you touch a hot stove, you will burn your hand.” This belief is true and prevents us from burning ourselves.
- “Might is right.” This belief is not true and has led to an enormous amount of unnecessary violence.
For a long period during my life-long career in construction, I owned and operated the largest international consultancy firm serving the contract surety industry. The bonding companies engaged my firm to take over and complete construction projects that were interrupted when construction companies they had bonded became unable to continue. Often, when we were called in to complete an interrupted project, we found an otherwise competent contractor who had made a series of ultimately fatal business decisions. I ended up asking myself the following question: “Why did successful contractors make a series of little mistakes that eventually led to their demise? What were they thinking?” My determination to find out what happened and why eventually uncovered the risks and consequences of unexamined beliefs. These contractors made business decisions based on beliefs they had acquired over the years that appeared to be true but weren’t true. Such as:
- If a little top-line growth is good, a lot of top-line growth is better.
- Profit is made in the long run, not on every job.
- Accountants know nothing about the construction business.
- Trades men/women are motivated by money, not by a pat on the back.
- Contractors cannot adhere to strict long-term plans. The contracting business is too uncertain.
- Most business theory is too academic for the construction industry.
- Cutting home office overhead is dismantling the company.
- We can build anything.
These are only a sample of the beliefs uncovered while working with contractors who were forced to suddenly discontinue operations. What astounded me was that many of these contractors were surprised that they had run out of money. In fact, they were shocked and angry. They had no idea that they were in danger. Why didn’t someone warn them?
I’m Warning You
Since then, I have been warning repeatedly that a serious risk of failure lies in the unexamined beliefs that guide our business decisions. The analysis of literally thousands of financial statements of failed construction enterprises resulted in a new list of factual “beliefs”. Beliefs that construction professionals can use to examine their own understanding of how a construction business can be managed with less risk.
Beliefs Examined (truths)
- While the industry’s technical competence is strong, its business competence is weak as compared to other industries.
- The low bid system makes no business sense.
- Project selection is too often driven by ego.
- Growth always increases risk.
- Contractors regularly ignore risk.
- Profit trumps volume.
- Managerial maturity is critical.
- Top management succession is always treacherous.
- Joint ventures are unsafe.
- Understanding “financial capacity” is critical.
- “Work-in-progress” accounting is inaccurate and misleading.
- Monthly accounts payable are always understated.
- Monthly accounts receivable are always overstated.
- Project cost control should be separate from the general ledger.
Decades of working with both successful and failed construction enterprises uncovered some unfortunate realities. Accounting controls were ineffective in the majority of firms. Contractors in general had only a vague understanding of financial accounting processes. There was little appreciation for the controls that precise financial accounting afforded when used properly. Another concern exposed was the quantity of “estimated” numbers that make their way into financial reports. The problem here is that estimated numbers can say anything we what them to say at any given time.
A Closer Look
Next week we’ll begin taking a closer look at the 15 “warnings”/”new beliefs” listed above. Some introspection on everyone’s part will be required to uncover the beliefs you might hold without being aware of it. Beliefs that can entice you to take risks that could eventually cost serious money.
For a deeper look into construction beliefs, read more here: BELIEFS
For a broader view into business decision making, read more here: DECISIONS
To receive the free, weekly Construction Messages, ask questions, or make comments, contact me at research@simplarfoundation.org
Please circulate this widely. It will benefit your constituents. This research is continuous and includes new information weekly as it becomes available. Thank you.
