A successful contractor recently told me: “I find that running a contracting company is like playing with Dominoes. In this business, one thing just leads to another. Oh, we try to plan for the future but then reality rears its ugly head, and we start reacting rather than ‘pro’- acting. You’ve got to be quick on your feet. If you can’t move like a cat, this business will steamroll you into the poor house. You just have to let the dominoes fall and follow them to the finish. That’s the contracting business.”
Dominoes
Contracting is like Dominoes. Not a bad analogy.
- When weather delays the site work, the footings can’t proceed.
- The iron workers are waiting on the footing anchor bolts.
- The block has been delivered but the masons can’t start until the weather lets up.
- The carpenters are waiting for the concrete finishers to pour the floor slab.
- One thing leads to another.
- The dominoes fall one after the other in a prescribed pattern.
There isn’t enough room to extend the analogy in this limited space. You all know where this is going. The point is that if you look no further, you might conclude that contracting is just a random series of unrelated events. Weather, material cost inflation, labor shortages, accidents on the job, equipment breakdowns, delivery delays, and a host of other unforeseen factors slow the work and increase costs. Many contractors believe: They can only nudge the odds in their favor. The construction team must learn to bob and weave their way through each project and a successful outcome is ultimately determined by fate and luck.
Planning
It’s not hard to understand why contractors are not enamored with long term strategic planning. The five-year plan and the annual detailed financial plans that are essential to managing large scale manufacturing and retailing enterprises are not management tools that most contractors are comfortable with. We give planning lip service because it seems sensible, but the real time management decisions are often reflex and reaction.
Vision
Most successful contractors have a vision for the future of their company firmly in mind. But rarely do these same contractors rely on a detailed five-year business plan to execute that vision. A recent exchange with a successful regional electrical contractor revealed how this apparent conflict is not a conflict at all.
TS: You’ve built a great company. Where are you headed with this organization?
EC: In about four years I would like to dominate the statewide school and office building construction market. We’ve got the team in place to do it.
TS: How much bigger do you hope to be next year?
EC: I can’t estimate an exact top line number until I see the potential bid lists and figure which ones we want and can win.
TS: What yearly growth percent do you envision?
EC: There is no consistent year after year growth percent. The market is too erratic. No two years are alike. Each year we take the next year as it comes. We can plan, but it never truly comes out the way we plan it.
TS: So, do you just plan one year ahead and begin to collect data on potential work for later years?
EC: That’s about all any of us can do. Sometimes we get to budget a project a year or two out, but not enough to rely on. Bit by bit we erect a vague vision of the future. We decide which projects we really want as we get closer to submitting a final bid.
TS: So, in your opinion there’s no such thing as a definitive five-year strategic plan in the construction business?
EC: I wouldn’t say that. I have my accounting department put together a five-year plan by taking my vision for the company (statewide dominance in school and office building construction) and reverse engineer a plan back to the present that estimates both revenue market dominance four years out and compounded yearly cost inflation.
TS: Do you use this document as a budget?
EC: No. Only the first year is used as a budget. We use the following years as a guide toward which we can bend the direction of our actual performance. You might say it’s a pattern we lay out for everyone in the company to follow. When the dominoes start to fall, they follow the prescribed pattern.
TS: Oh, I see where you’re going. In business school, they call that a Strategic Plan.
EC: In contracting, that’s a dirty word.
TS: But it’s almost the same thing, isn’t it?
EC: Yes. I guess so.
Next week the difference between strategy, tactics, plans, budgets, and how they can all be used to reduce risk and maximize profit.
For more information on strategic planning, read more at: PLANNING
For a broader view on role and duties of a CFO, read more here: GROWTH
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