Costly Everyday Business Decisions
In most of my seminars and convention workshops I draw a picture of a balance scale and put dollar signs on each side. This illustrates weighing what each option will cost vs. what it would produce or cost if you do not choose that option. I also remind the participants that time costs money and they must always consider that when making a critical business decision. Whenever possible or feasible, weighing all these options and results should be done on a piece of paper rather than in one’s head. This is extremely important when you will need to justify your decision to your boss, an owner, or another party. You will also see a much clearer picture when you take the time to list all your options.
The most crucial part of this costly decision-making process is to be certain that you are aware of all the available options. The best example of a parallel situation I can give you is shopping for clothes or shoes. Whenever I need a pair of shoes I walk into one store and find a pair that I like, ask for my size, buy them and go home. Not so with my wife! Joan will walk through every shoe store in our area and look at every option and price. She will try on every pair that she likes and then go back to buy the single pair that was the best choice at the best price.
What Are Your Options? But buying shoes or clothing are not earth-shaking decisions, such as joining the union, going double breasted, starting a new division, buying new trucks or major equipment, buying or building a new shop or warehouse, hiring or firing key personnel, bidding a large project or signing a major contract. Any one of these business decisions could make you very rich and successful or bankrupt your company. Finding out what options are available for these critical decisions is also not as simple as shopping in every available shoe store.
You may have earned a college degree in accounting, business administration, engineering, construction management or law and still find yourself facing critical decisions that involve options that were not even mentioned in those college courses. Likewise you could have two or three generations of practical business experience without ever having encountered this particular situation or all of the feasible solutions. Many of you gain much of this practical knowledge at seminars, conventions and trade association meetings, as well as reading these monthly trade publications. Since all of this requires far more of your time than any of us have available, your most sensible option is to buy the specific information and options for each individual critical decision we face from a professional who specializes in that area of expertise. You go to your doctor for medical advice, your CPA for accounting and taxes, your attorney for legal matters and I hope your management counselor for dealing with everyday “people problems” and practical advice for running a proud and profitable construction business. That is one of those options where you can weigh what it costs vs. what it will produce (or cost by not doing it) and quickly reach your decision to get advice.
Today’s construction industry’s skilled craft shortage emphasizes the need to maintain high morale on your jobsite. Providing flex-time work schedules, tents for rainy days, lights for longer hours and prefab facilities to insure those wage earners of a full 40–hour paycheck are just some of the options where you should weigh your costs vs results. Human relations training for every craft foreman and supervisor to motivate, measure, reward discipline their subordinates will far outweigh any costly mistake that would demotivate even one employee or cause one to quit and change jobs. Simply training your managers to handle their employees’ gripes and grievances would justify your costs.
Plenty of Decisions: But your critical costly decision-making options go much further than employee relations. We can start with marketing. What size jobs should you be bidding? Should you be offering design-build and pre-fab? Do we need an attractive company brochure? Will our employees be willing to travel? What about travel costs and subsistence? Should we do our own site work? Should we buy or rent a backhoe? You can easily understand why you need to write down and weigh what each of your options would cost and produce before you commit to any of those critical marketing decisions.
Likewise with negotiating and signing contracts and subcontracts. Do we need this job bad enough to chop our bid price? Can we alter the scope of work enough to justify those reductions? Could we value engineer the job enough to clear a nice profit? Is the payment language strong enough to get us our money on time? Should we change the lien rights? Will that arbitration clause help us or hurt us? Should we ask for front money? Do we need a late payment penalty clause? When you weigh what these options cost compared to what they might benefit you in dollars, I’m certain they will help you render some very good business decisions.
You face similar decisions when it comes to purchasing or “buying out” each project. Should we wait and buy out these two projects together to get a better deal? Can we separate the piping from the equipment and get better prices? Will these submittals be on time? Will the engineer and owner accept this substitute? Can we trust them to deliver on time to meet our schedule? Will they give us an extra 90 days to pay? Should we self-perform that work or sub it out? Whatever amount of time it takes to weigh these options before you write a purchase order will cost less than what you save.
Delegate Carefully: But all of those options and expensive business decisions regarding estimating, negotiating contracts, purchasing and submittals are not as complicated as deciding who is the most qualified individual in your organization to best make all of those decisions. In some companies, the owner does it all. Some have an estimator who only estimates, and another individual who does all of the purchasing, while others use one individual to do both. Likewise with submittals of shop drawings, etc., and processing change orders and handling RFIs and job correspondence, as well as supervising the on-site construction personnel.
As most of you already know, more of this is done poorly rather than efficiently. You need to analyze your own organization and carefully weigh all of your options to see what you are spending along with what it is costing you, because something does not get properly processed on time. By doing a basic time study on each of your management staff, along with defined responsibilities, you can identify any weakness or tentative problems. You need to weigh your options for delegating each of those tasks to be certain that you do not use “dollar people” to do “penny tasks!” You also need to put that entire “project management process” on automatic pilot to assure that every one of your projects is completed and paid for on time.
Unfortunately many of our business decisions are actually dilemmas that are a choice between two or more undesirable options. Some may allow employees to have an alcoholic beverage with their lunches and then drive your company vehicles back to the job sites. There are also still many contractors who prefer not to do any drug testing. You may not want to lose a good employee or you might feel that your policy interferes with their personal life. In either case, you should simply write down all of your options to see what it will cost to implement versus what it might cost if you don’t.
Next month we will continue with making cost effective hour-by-hour jobsite decisions with this very same CEO process.