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Avoiding Project Failure in the Construction Industry
Jerry Alberti • March 11, 2024
The importance of communication, accurate estimates, and competent management in achieving repeatable project success.
"Project Failure" - These words can send shivers down the spine of any construction business owner or project manager. Avoiding project failure in the construction industry requires ambitious efforts from all departments in a construction company. The construction industry is notorious for its complex and often risky projects. While these challenges can be profitable, they also come with the potential for failure. In this article, we'll explore the common pitfalls and ways to avoiding project failure.
Communication and Planning Breakdown
Poor communication is one of the primary reasons behind project failure in the construction industry. Construction projects involve many contractors and organizations including owners, owner representatives, general contractors, subcontractors, and miscellaneous inspection agencies. Effective communication is crucial to ensure everyone is on the same page.
Effective communication begins with clear and well thought out project plans. Owners and project managers need to consistently make sure that all stakeholders involved understand their roles and responsibilities.
Regular team meetings and progress reports are also essential for keeping everyone aligned. It's extremely important to have daily morning huddles with all contractors on the project. In addition, the project manager should have 2-week, 4-week, and possibly 6-week look-ahead schedules updated weekly with the input and collaboration of ALL contractors on the project site. Everyone must have buy-in with the schedule. These are great opportunities to discuss what can be holding up a contractor from working, permit issues, inspection issues, safety issues, etc.
Teams need to be assembled early in the project. Submittals, contracts, and purchase orders need to be completed as quickly as possible. Change orders need to be fully understood and taken care of as quickly as possible to avoid any double-guessing.
Open and transparent communication is key to overcoming project challenges. Project managers and owners must adopt an environment where team crews feel comfortable sharing their concerns and insights. Regular meetings, progress reports, and digital communication tools can aid in achieving this transparency and avoiding project failure in this complicated construction industry. For more information on effective project management check out this link https://pro-accel.com/key-habits-for-successful-construction-project-management/
Inaccurate Estimates
Estimating project costs is a challenging task. In my opinion, most estimators aren’t suitable for this critical position. You need to have a great perspective and fully understand all the critical steps in achieving a profitable project. When estimates are inaccurate, projects can quickly spiral out of control, resulting in financial losses and terrible cash flow. Properly accounting for risks and their associated costs is essential, but often overlooked.
Accurate cost estimation is a skill that separates successful projects from those that run into trouble. When estimates are too low, it can result in budget shortfalls, delays, and disputes with clients. On the other hand, overestimation can lead to lost bids, as clients may view the project as too costly. If you bid low-bid public work, then you’re either too high (2nd place) or you’re the cheapest of all bidders and you won! If you’re “cheapest” you better know exactly what you bid and those budgets need to be fully transparent to the field. Although that should be the case with any kind of bidding.
To address estimation challenges, construction companies should invest in training for their estimators. Using historical data and industry benchmarks can also improve the accuracy of estimates. Knowing who is providing historical data is critical. This needs to be done by a trained professional who understands how to estimate. Additionally, it's crucial to identify potential risks and develop contingency plans with associated costs.
Before bidding on a project, conduct a thorough assessment of your team's capabilities. Are you equipped to meet the project's demands? Do you have the right mix of skills and equipment? Assessing these factors can help you make informed decisions about which projects to pursue. Pro-Accel has helped clients get clear direction on what projects are up their alley and which to stay away from. Although contractors should have a good mix of work, it is advisable to fully understand your risks before diving into a new niche.
For more information on common costs missed in bids, check out this link https://pro-accel.com/construction-estimating-important-missed-costs/
Operational Bottlenecks
Another key factor contributing to project failure is the ongoing presence of operational bottlenecks within a company. These bottlenecks are usually carried over from one project to another, causing delays and inefficiencies. The business of construction is extremely complicated and it's very easy to get caught up with the “this is how we always do it” mindset. Pro-Accel has helped clients find common bottlenecks that they didn’t realize existed.
Operational bottlenecks can be thought of as choke points in a construction company's workflow. They can occur in multiple areas, such as procurement, project scheduling, or resource allocation. These bottlenecks decrease efficiency and can and will most likely lead to project delays.
Identifying and addressing these bottlenecks is a continuous process. Regular process audits and improvement audits are necessary. By streamlining operations and removing unnecessary steps, a company can enhance its efficiency and reduce the risk of project failure.
We advise clients to perform yearly operational audits. This is a habit that all contractors must have in avoiding project failure in the construction industry.
Overambitious Bidding
Some companies bid on projects without a thorough understanding of their team's capabilities. They might take on projects that are beyond their skill set, leading to terrible results or even failure. Because you have one skilled manager in a particular niche it doesn’t mean all your labor and assistants will have the same capabilities and be brought up to speed quickly..
The appeal of securing high-paying projects can lead some companies to bid on projects beyond their capabilities. This overambitious bidding often results from a lack of self-assessment and a desire to maximize profits. Contractors also wait too long to bid for the next win, they become desperate and bid cheap work which leads to profit and cash flow loss.
Before bidding on a project, it's essential to assess the current capabilities of your team. Do you have the necessary skills, equipment, and experience to handle the project successfully? Do YOU, the construction owner, fully understand the risk and do you have the skills as well? If not, it's wiser to pass on the opportunity or collaborate with subcontractors who can fill the gaps. You can also consider a joint venture partner who does have the skills.
Lack of Competent managers and skilled trades
Hiring and retaining competent managers is a critical challenge in the construction industry. Ineffective leadership can lead to poor decision-making, lack of coordination, and ultimately, project failure. It’s been my experience that most construction leaders are terrible and have terrible soft skills and this adds to the generational gap we’re seeing.
Hiring and retaining skilled and competent managers is a significant challenge in the construction industry. Managers play a critical role in decision-making, resource allocation, and problem-solving. Inexperienced or ineffective managers can lead a project to failure very quickly.
To address this issue, construction companies should invest in leadership training and development programs. Mentorship and knowledge sharing within the organization can help groom capable managers. Competitive compensation and benefits can aid in retaining top managerial talent.
In the world of construction, "Project Failure" need not be a terrifying phrase if the right steps are taken to prevent it. Poor communication, inaccurate estimates, operational bottlenecks, overambitious bidding, and managerial incompetence are common problems behind project failure. By addressing these issues through effective pre-bid assessments, technology, transparent communication, continuous improvement, and skilled management, construction companies can do in avoiding project failure in this ever-changing construction industry.
If you're struggling to navigate the complex world of construction projects and need help in analyzing your bids and setting up your crews for success, reach out to Pro-Accel and we’ll set up a no-obligation discovery call. With the right guidance, you can build a strong foundation for your construction business.
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