5 Critical Lessons You Can Learn From Your Construction Project Documents

Your construction project documents aren’t merely records.

They’re sources of data that can reveal unseen costs, help you forecast and give you a clear idea of how your business as a whole is performing.

Here are five important lessons you can learn from your project documentation:

What Hidden Costs Are Eating Into Your Profits?

There are four costs in any construction business that can spiral upward rapidly if you don’t document them and watch them closely.

The first are labor costs, which start to add up quickly when timelines get extended and work has to be redone. A good first step in getting labor costs under control is to track both productive hours and lost hours in your daily reports. If lost hours tend to run higher than what you’ve estimated, then recovering profits becomes a matter of reducing lost hours and making sure your future bids leave more room in the estimates for lost time.

The second big cost is your cost of materials. Tracking usage rates in your dailies is a good place to start your material cost management efforts. This will let you get granular about how much of a given material is needed to complete a given task. With materials and labor tracked closely, you’ll be able to estimate how much it will cost you to run 500 feet of copper wire or to install 100 feet of PVC piping.

Assets are the third type of cost. These include things like hiring a bucket truck for a week. “[A]ll too often a project will be over-resourced at the outset,” writes Chris Knight, global director of construction and engineering at IFS. “Without asset planning, for every bulldozer that is hired for a year, the risk that it will be sitting unused for several days or even weeks increases, with the attendant unnecessary cost.”

The fourth type of cost can be summed up simply as bad luck. This covers everything from ad hoc project changes, work site accidents and timeline delays, as the team at Cormode & Dickson writes. You cannot control many of the things that delay construction projects, but you can document them. This is what protects you from disputes with the GC or owner, or demands for rework or unpaid work.

How Accurate Are Your Estimates?

If you track your costs diligently, then at the end of a construction project you will have final numbers you can hold up against your initial estimates to see how close (or far off) your projections were.

It takes time to get accurate at estimating job costs. The better you get at documenting everything, the better you get at creating accurate estimates.

Job costing software is a helpful tool for this job. This software tracks job costs at all levels of specificity so you can see what expenses match the individual phases of a project, or what expenses line up with specific cost codes.

How Do Your Rework Costs Compare to Industry Averages?

Because rework is such a big part of what eats into a trade contractor’s profits, it’s worth digging a little deeper into.

Peter Ukstins and Russell Klapperich at SDI Construction Risk Engineering note that rework accounts for 4 to 6 percent of most projects’ budgets. If you are documenting your costs thoroughly, you should be able to find this number for your own projects.

Are you coming in closer to 8 percent, 10 percent or even higher? Then that’s a signal to investigate where things are breaking down. 

As the team at The Constructor notes, rework is typically needed for one of the following reasons:

• There has been an error in the design process that then becomes a problem later on, whether in procurement or on the work site.
• There was a change made somewhere along the way. “Design-related rework in the form of change orders is the main source of rework in construction projects,” they write.
• There has been procedural strain in organizing the work. “Some of the reasons are time constraints, understaffing, fatigue, and inexperience, manifesting in unworkable relationships and procedures contributing to rework.”

You can use your own internal documentation to identify fail points that regularly require rework. Doing this now can help you nip that cost in the bud on future projects.

Are You at Risk of Overextending Your Business?

Growth can be a double-edged sword for trade contractors. 

While growth is necessary for the success of your business, too much growth too quickly can be trouble. 

“When construction companies pick up too many projects, they run the risk of spreading themselves too thin,” Michael Heidrick and Tim Holicky at The Hartford say. “Projects either get delayed or don’t start on time. Or the workmanship suffers as a contractor tries to move from one project to the next.”

You can get a sense of your own company’s capacity for growth by checking your documentation. A major red flag that you’re at risk of overextension is when your hit ratio is too high, says Jesse Weissburg, cofounder and chief commercial officer at Billd.

“If you’re getting 50% of the projects you’re bidding, you’re bidding too low, and won’t be able to accommodate the work you’re being awarded,” Weissburg writes. “Not to mention, you’ll burn out your cash too fast.

“Don’t bid low to indiscriminately win as many projects as possible. Bid with smart margins in mind … then focus on solid delivery of what you’ve been rewarded.”

Do Change Orders Send Your Projects Off the Rails?

One of the best ways to lose money on a change order is to never create one. 

It can be tempting to rush through a small change order without documenting it or strategically prioritizing resources around that change order. It feels more productive to do that sometimes. 

But that’s a habit that brings chaos to a work site.

Here’s how to document change orders and keep your systems running smoothly:

• Create a process for handling change orders. This will define explicitly who is in charge of what duties. Also, put in place guidelines for submitting change orders, reviewing them and approving change order requests. This makes your decision-making so much smoother.
• When writing change orders, be sure those documents always detail what change is needed; the scope of work, materials and methods necessary to do this; a justification for the change; revised estimates and project timelines; and signatures from all parties.
• In your own contracts, ensure you have provisions for dealing with changes in the scope, budget or schedule of a project. Also, outline how the parties will resolve any disputes.

Learn More

Your project documentation does so much more than record work for the sake of billing or compliance. It gives you a big-picture view of your entire company’s performance.

To see how eSUB Cloud 2.0 can help you get your construction project documents in order, then translate their data into business insights, schedule a demo today.

Images used under license from Shutterstock.com.