Article
Business operations, labor costs and innovation are leading construction topics
Jan. 18, 2024 · Authored by Brian J. Kassalen
In the face of today’s economic landscape, the construction industry is facing a variety of business issues and challenges. These issues are not uncommon as far as business dynamics go, but there are certain characteristics that make them uniquely taxing and require specialized strategies to provide impactful outcomes.
The issues affecting virtually all construction businesses according to their unique circumstances or nuances include:
- maximizing business operations as expenses rise and profits narrow
- controlling labor issues and costs at a time when wage inflation still exists, and
- identifying and leveraging the benefits of technology without investing too heavily with human or financial capital.
Maximizing business operations and profitability
With the volume of construction projects slowing because of the economic climate, there likely will be increasing competition for projects which may put pressure on companies to sharpen their pencils to win. With other expenses including materials, labor and insurance increasing, profit margins already are being squeezed.
This makes efficient operations and a focus on profitability even more critical.
Profitability can vary significantly among general contractors, subcontractors, and specialty trades, depending on size, sophistication, and management practices. According to the Construction Financial Management Association’s 2023 benchmarking study, in 2022 the top quartile performing construction firms averaged a 9.9% net profitability level. The overall average was a net 4.9%.
The difference between “best of class” and “average” likely can be attributed to greater efficiencies, more accurate estimating, better managing of overhead expenses, and quicker responsiveness to challenging business issues and market conditions.
Monitoring and paying close attention to cash flow trends and benchmarking profitability are among the best solutions for construction and related companies of any size to mitigate certain pressures associated with improving business and financial operations.
