The Guide to winning a high margin construction project

1. Radian Engineering Solutions The Guide To Winning A High Margin Construction Project Introduction The construction business is usually associated with high profits and lots of money. There is a common notion that people in the construction business earn good money and have higher profit margins. But the scenario seems to be a bit different. As per reports by Mc Kinsey consulting, in an analysis of 30 public engineering and construction companies, 85 percent had margins lower than 10 percent between 2005 and 2015. So, what could be the reason behind such falling profit margins? One primary reason could be the way bids are canvassed, and contracts are accorded. For most of the clients, money is the essential thing they take into account. They award the contract to the lowest bidder ignoring the qualifications, experience, and quality of the other contractors’ work. Reasons leading to low-profit margins The construction industry has the lowest profit margins as compared to any other industry. Since the recession period, there has been stiff competition and fewer opportunities for the contractors, which have forced them to bid lower than usual to survive in the market. Another reason for bidding lower is that the contractor’s bid is based on guesswork and speculation. When they do deep-diving into the project, they realize the inaccurate cost

2. Radian Engineering Solutions estimates, which lead to meager margins. Contractors spend almost three times more on bidding than the aggregate profit they can make to improve the industry’s financial status. What can be done to improve the profit margins and win a high margin construction project? Certain factors are out of control of the industry. For instance, after the recession period, there has been a shortage of labor, and to procure labor, the contractors have to pay them higher wages. Also, the cost of building materials has gone up for the past few years. All such factors and many more are not in the hands of the contractors. Instead, they can focus on aspects and think of strategies that can improve their profit margins and reduce their overall cost. Below, we will discuss some tips to increase the profit margins and win a high margin construction project. 1.Predict your cost– the first and foremost thing is to understand and analyze the project’s cost. This will include the overall cost inclusive of your overhead costs. It is an essential factor to consider to improve your profit margins. Job cost will consist of almost all the costs associated with the project from inception to completion. Such costs include labor, materials, supplies, equipment rental costs, bonding premiums, fuel, permits, etc. then we have the overhead costs required for the business’s operation. These items include support staff payroll, tools, insurance, utilities, office rental or mortgage, equipment, debt payments, owners’ salary, legal fees, IT, etc. it, therefore, becomes necessary to analyze your overhead and job cost accurately and adequately as these will be required at the time of bidding which will help you bid better and would be profitable for you in the long run. 2.Put down your profitability goals and objectives– for improving the profit margins. It is necessary to set a goal for yourself. Goals like where you want your company to be in the next five years? Whether you wish to expand your business into our states and territories. Or you want to enter the private sector after working in the public sector. All these goals will help you work efficiently towards them and achieve those goals while increasing your profit margins. This will also help the estimators to understand the markup percentage they should shoot to earn higher profit margins. 3.Analyzing realistic profits for the projects- when you are bidding for a project, you expect to win that project. When you win that project, you expect to earn well from that project. Therefore, your estimates need to be accurate so that you can improve your profits. If the estimates are low, there will be no productivity gains at any cost. A bid should be based on all the risk factors. It should not be guesswork. You have to take into account all the overhead and job costs accurately to bid the best. Another factor to be considered is your workers’ productivity level to create realistic job costs. A track of the actual vs. estimated costs needs to be kept so that the estimators can understand the accuracy and look for adjustments in your next bid. Also, just to win bids and have more work, don’t compromise on the profitability factor. Keep your profits and risks in mind and give the best bid. 4.Maximizing productivity- Productivity is directly related to profits. Maximizing productivity leads to working efficiently to control costs and keep track of the schedule. It should be seen that the projects are completed on time and within the budget, which

3. Radian Engineering Solutions will help increase productivity and improve the profit margins. Maximizing productivity means proper planning and scheduling of work and activities. The work must be done systematically and logically so that it maximizes the overall productivity of the project. It should also be ensured that the field workers should have proper training and have the required tools and equipment, increasing productivity and profit margins. 5.Keeping abreast of information related to contracts- A contractor who wants to increase his profit margins will always keep track of the opening contracts and which ones are closed. They have complete knowledge of the contracts from how well the contractor has done in the past, the price, and how it is currently doing. This will help the contractors in keeping ahead of time and improve their profit margins. 6.Thebusiness’s total worth is also necessary for the contractor to know their business’s real worth. By subtracting total liabilities from total assets, you can arrive at your net worth. It is necessary to analyze the growth and value of your business. This will help you in setting your goals and achieving them. Conclusion However, alluring the construction business might seem to be; it comes with its own set of problems. One of which is low margin profits. There are many factors and things that can go amiss and put your hard work in vain. It will require hard work and efforts to come out from low-profit margins to the state of high-profit margins. These points will guide and help you win higher profit margins the next time you take up any new construction project. See Also: The Role of an Electrical Contractor in Ensuring Safety - Radian Engineering Solutions