Key Personnel Retention
Growth Risk Factor Four
Thirty years of research into the causes of contractor failure has revealed that when companies aggressively participate in growth construction markets, they encounter five recurrent and industry-wide elements of risk to potential profit or failure. We have discussed the first three in recent blogs so today we are taking a look at number four.
- Increase in project size
- Unfamiliarity with new geographic areas
- Moving into new types of construction – for growth contractors often change from one type of construction to another or add a new type of work to their existing specialty. The learning curve can be very expensive.
- Changes of key personnel
- Lack of managerial maturity
- “Every construction business regardless of size has three primary functional areas: estimating and sales, construction operations, administration and accounting.
- “In every successful construction organization someone has direct, personal responsibility for each of these functions…A weakness in any of these three areas can single-handedly cause a construction business to fail.
- “Beyond key department heads in the home office, when construction companies talk about key employees, they generally are referring to senior level project managers and estimators. After all, these are the people with ultimate responsibility for overseeing the project and its profitability.
- “For all intents and purposes, changes in truly key personnel of a successful construction company creates anew
- “As a company grows, it must continually add to its management staff, and in rapid or sustained growth new people are often placed in key roles…You now have a new, larger, untested organization doing a greater amount of work…People who have succeeded separately or in different groups cannot automatically be assimilated successfully into a new group. Each new grouping has its own set of challenges in matching skills and, therefore, needs to prove its ability to work together and make a profit before doubling and redoubling the organization’s bet.”
(From Managing the Profitable Construction Business, Thomas C. Schleifer, Ph.D., Kenneth T. Sullivan, Ph.D., John M. Murdough, CPA, Wiley, 2014)
For construction concerns experiencing rapid growth, having a process in place for hiring the right people and retaining key employees may be the most effective way to mitigate this growth risk factor.
“Perhaps the two most important factors to remember when designing an employee retention program are:
- The program should be designed around the company’s long-term strategic plan, whether that plan is centered on continued growth or an exit strategy.
- Key employees deal with the company’s clients and other centers of influence on a regular basis, which makes them integral to the successful completion of the project. Whatever amount spent on retention is certain to be less than the cost of replacing a key employee, especially in the middle of a project, not only in dollars spent but also in terms of lost relationships and lost knowledge, which can be difficult to replace. Human capital and intellectual capital are expensive to replace.
- Traditional benefits such as monetary compensation and a good health care plan are important, of course, but recently more attention is being paid to intangible benefits—time off, flexibility, training, education, recognition, technology and the opportunity for advancement.
(Key Employee Retention Plans for Construction Firms, Marc A. Newman, CPA, CGMA, Phillip M. Ross, CPA, CGMA)
The recent growth market has placed a heavy burden on construction human resources. Management, distracted by the immediate shortage of skilled labor, has been largely unaware of the more insidious key personnelcrisis. If you’ve been frantically trying to keep up with more and larger projects, you might not have noticed the increasing burden being heaped upon your key people. Watch carefully for burnout and turnover. They can be deadly.