You've Got the Job … Now What?
Why preparation is king
As seen in our May 2013 digital edition
Most seasoned construction executives learned long ago about the 80/20 rule of construction. The rule is simple—80 percent of the job costs occur before the first 20 percent of the job is completed. As the contractor, you're immediately responsible for awarding subcontracts, buying materials and doing all of the set up work. Therefore, the prudent contractor preplans his projects.
Preplanning involves the systematic strategy for achieving quality, lowest cost, safety and timely completion.
Essentially, preplanning brings the future into the present. This allows you to intervene in any situation that may cause you trouble in the future. Regardless of project size, I recommend that all contractors hold a transfer meeting where the estimating department turns over the project to field operations. This meeting—or series of meetings, depending on the size of the project—should specifically outline the nuances of the job and assumptions made by the estimating team when bidding for the job.
To ensure success, I recommend your preplanning meeting(s) include these 10 action items:
> Assign key personnel. Every job needs a team leader. Depending on the size of the job, you may also need a project manager. Others to include would be the estimator, superintendent, key foremen and subcontractors.
> Visit the jobsite. Have the operations team visit the jobsite early and often to envision the job to be built. Take notes, pictures and video of the site topography, logical traffic flow, surrounding areas and roadway access.
> Conduct a brainstorming session. Identify which tasks need to be completed under each major heading. Identify who will complete each of these tasks and by when.
> Prepare all subcontracts and purchase orders. Within a week of the apparent low bid by a contractor, all subcontracts and purchase orders should be prepared. By standardizing this practice you are able to find any errors in your bid. This is also the time when all the fine details of the bid are fresh in the estimator's mind and can be incorporated into the contract documents.
> Review the budget/estimate. The budget/estimate review helps to validate the bid and pinpoints the strengths and weaknesses of the estimate. Superintendents and foremen should be encouraged to provide feedback to validate labor and equipment estimates.
> Review project equipment and personnel requirements. Being able to accurately assess the available personnel and equipment of the project improves the efficiency and safety of the job.
> Produce the draft schedule. On larger projects a "quick and dirty" schedule should be prepared as a part of the bid process to ensure there is adequate time to complete the project in the time allotted. After award, this schedule should continue to be refined until it is agreed to by all parties to the job.
> Develop a schedule. This schedule breaks down the job into the 16 divisions of work as well as: purchasing, submittals, safety and quality and general/administrative.
> Analyze production. This process is called step level planning and it breaks down each and every task of the job into component parts. Ideally, when the job is started, the planned production is reviewed on a daily basis with the crew in a 15-minute superintendent meeting.
> Identify and purchase critical materials. Buy long lead items early to avoid unnecessary delays in the schedule.
Why conduct preplanning? Your benefits include an increase in job morale, a whole new level of understanding of the work, developing better project managers/engineers and breaking down the barrier between the office and the field.
Preplanning is probably the single most important event in the success of the project. By making this a best practice in your company, you will save time and money and the results will show up on your bottom line. BI
The Eight-Cents Savings Plan
As seen in our April 2013 digital edition
The National Center for Employee Ownership surveys continuously reveal that at any given time 8 percent of a company's profit is falling through the cracks of the business and is lost forever. This is an amazing amount of money given the average contractor in the United States is only making 3.5 percent after tax profit.
The first way to start gathering up some of the falling 8 percent profit is to educate your employees on what exactly profit is and what the value of saving a dollar means to the company.
I call it the 8-Cents Savings Plan.
As the CEO, it is imperative for you to provide basic financial training to all your employees on a regular basis. They need to understand without profit, the company does not exist. When profit does occur, and is reinvested back into the business, that is how the business grows. You would be surprised at how many employees do not understand this very basic economic concept. Further, they need to be shown that for every dollar that comes through the front door, only 3.5 cents falls to the bottom line as after tax profit. This will help them understand that when they help save the company a dollar, it will fall directly to the bottom line and everyone gains.
Why would they care about saving the company money? Because you as the CEO have taught them that reinvested profit is how the company can buy new trucks, cars, laptops, pay for health insurance, vacations, Christmas parties, etc. They need to understand the correlation between profit and financial strength.
The number of ways to save is endless. Here is a short list of internal company savings ideas:
Be sure your foremen have a clear understanding of the company policy on how to account for late arrivals and early departures of field employees on the time sheets. Do they round up or down to the near 10, 15, 30 minutes or hour when a person arrives late or leaves early? When was the last time you saw someone noted on a timesheet as arriving 10 minutes late to the jobsite? You would be astonished at the timesheet variations within small and large companies. Insist that timesheets be completed daily and if individual employees complete them, have your foreman sign off on them each day.
Many employers still pay the full cost of a family plan for their employees. This cost is projected to rise over the next several years. Analyze the cost of a single pay and have the employees pay the difference. Many employees have double coverage and will elect not to take the extra spousal coverage when forced to pay.
Sick and Vacation Days
Many companies still have liberal sick day and vacation policies. Combine the two into one Personal Time Off (PTO) category. It will make it easier on employees as they no longer have to come up with "sick day" excuses and will probably reduce the overall number of days previously granted.
Payroll Direct Deposit and Electronic pay Stubs
Once payroll is completed and exported, there is no more work to be done. Virtually everyone has an email address today to email paystubs. It saves time by not having to distribute checks and employees don't have to rush to the bank.
The cost of this monthly service has come down considerably and permits for better handling of sensitive documents and most shred companies will shred the documents at your site.
Move from Postage Meter to Stamps.com
If you are still using a postage meter, you are paying too much. A Stamps.com online accounts costs about $20 a month and allows you to buy stamps as well as supplies on account. This will connect the poster meter to your computer to print directly to cards, letters and envelopes or print a whole sheet of stamps.
There are many more ways to save your 8 cents, such as eliminating drinks and bottled water to employees, simplifying billing procedures and providing employees with charge cards from one big-box store such as Home Depot or Lowes to save your accounting department time in reviewing and paying for material invoices.
While these savings may be small in dollar value, this is where the 8 Cents Savings culture begins and the profits start to increase. After this becomes the norm, you can begin to tackle the big savings such as field labor costs, material delivery efficiencies and preplanning each day to eliminate waiting on instructions by the tradesman.
Remember when you were a child watching your piggy bank savings grow larger each year? Why not make today the day you start again with an expanded 8 Cents Savings Plan to help your company's profit grow larger each year?
Accountability Means Action
As seen in our March 2013 digital edition
Are you a CEO who others view as "you say what you mean and mean what you say?" Can you be counted on 100 percent to fulfill your promises, or do you sometimes slide? If you are the owner or CEO of a privately held construction company, you are accountable to very few people. Most owners of construction companies believe this is a good thing, but that's a serious mistake.
Very often, CEOs will tell me in the same breath that they enjoy the lack of accountability, but are unhappy with the way their companies are performing. Oftentimes, I point out to them that their employees are simply mirroring the lack of strict accountability they see from the top. This occurs across the operations and various departments.
Turning around this culture is not easy. The only place to start is with you, the CEO. As Ghandi said, Be the change you wish to see in the world. Never underestimate how closely your employees watch and mimic you. If you are unaccountable to others, they notice.
The dictionary defines accountability as the state of being liable and answerable for one's actions. It's typical for people—and especially leaders—to think of accountability in a negative sense. Many believe it's squelching or even intimidating; however, the opposite is true. When accountability is a major focus in a company, results happen on time and with predictability. Employee performance increases, job satisfaction improves and relationships are strengthened.
It is a formula for success.
It starts from the top; if you need help in this area, find an accountability partner. This is a person who will tell you the truth and challenge you to remember your commitments. It should be someone within your company with whom you have excellent rapport. This person should be proactive in asking you questions such as, "I know you are working on the XYZ project. Have you gotten back to Jim on the change order you promised him?"
Encourage your team to speak with clarity regarding expectations and completion dates. This means being specific about details and not asking others to "do a good job" or "get right on it." Instead, be clear about what a "good job" entails. Below is the Glossary of Failure.
Avoid these terms at all costs:
> As soon as possible
> Right away
> By the next time we meet
Accountability is for fearless individuals who are not content with the status quo; it is for individuals who want to be true change agents. With accountability, you and your company will be more productive, reach higher levels of performance potential as well as achieve richer personal and professional relationships.
True accountability begins with integrity with your language and actions. Accountability activates action.
Why not make today the day that you begin to choose your words carefully? Why not speak intentionally in order to influence the kind of change you wish to see in your company and build a high performing culture of accountability? BI
Starting Off Right with New Hires
Hire slowly, fire quickly
As seen in our February 2013 digital edition
If you've been in business for any length of time, you know the wisdom of this axiom. Why then do so few organizations follow this common sense? I believe it's because they rush through orientation and do not properly "onboard" their new hires. With the cost of employee turnover at 150 percent of the annual salary, it makes sense to invest on the front end rather than to scramble on the back end.
Onboarding begins and ends with orientation. I've always believed the best orientations are given—at least in some part—by the head of the organization. It sends the message that new employees are valued enough to get the attention of the company's top employee.
In 2013, I suggest creating or honing your new employee orientation. Additionally, I suggest you mirror and complement the training with a new employee workbook as outlined below.
Chapter 1 – The Basics: This explains the company's history, mission statement, core values, purpose and products or services.
Chapter 2 – What to Expect from Us: You'll want to describe your company's work environment, and detail why your organization is such a great place to work. Underscore the many benefits—both tangible and intangible—that you provide. Introduce new employees to their mentors and non-supervisors who will help orientate them on the job for the next 90 days. Ensure their mentor provides status reports to their supervisor at least bimonthly.
Chapter 3 – What We Expect from You: Work standards and employment goals are critical. Underscore that employees can truly soar. This will generate a sense of belonging with your company—and caring about the overall success of it—rather than simply being employed by it. As part of this chapter, include a personal and professional development plan, described below.
Chapter 4 – Own Your New Job as Fast as You Can: Explain how their jobs were done in the past and how they, as new employees, can improve upon them. Ask them how they can bring the job to a whole new level.
Chapter 5 – Reach Out: Encourage new employees to work hard, but to also get out and say hello to the rest of the team. Invite them to meet your customers and suppliers. After all, they need to know the extended "family," not just the people in their own area.
Chapter 6 – Take Inventory: Invite new employees to view their job as a fresh start. Allow them to make the most of this new chapter in their lives by honestly reviewing their personal and professional strengths and weaknesses.
Chapter 7 – Join the Team: This is the time for you—the leader—to demonstrate how you are part of their team. Explain how the various areas within the company work with one another. Ensure new employees are immediately added to all appropriate distribution lists so they're "in the know." Explain when and how you will be available to them.
Chapter 8 – Prove Yourself: Remind your newest team members that they'll likely be asked to perform tasks that are below their level of expertise. Encourage them to perform these tasks cheerfully, knowing their jobs will increase in complexity as they prove themselves.
Proper onboarding pays long-term dividends. When you include an exercise to plot their personal and professional development, it pays even further. In today's workplace, goal setting is especially meaningful to Gen X and Gen Y.
Onboarding to Launch Employee Goals: One of the most valuable exercises is to ask your new employees to envision themselves in the next one, three and five years. Ask them to ponder and define both professional and personal/life goals. They don't need to share their personal goals; but if they choose to, you will play a role in getting them closer to their life dreams.
After this onboarding process, your new employees will enter the workforce with vision and enthusiasm. Always regroup in two or three months to ensure the information—and their mentor—have stuck with them. This is also a time to gather feedback and revisit personal and professional goals.
Culture Eats Strategy for Breakfast…
As seen in our January 2012 digital edition
Recognize this quote? It's attributed to the late management guru Peter Drucker. Basically, what its saying is that regardless how brilliant a company CEO or strategic plan may be, the company will never achieve greatness if it is not supported by the organization's culture. Period.
So, how do you, as the CEO, ensure a great corporate culture in your company? In both research and practical experience, I have identified three critical characteristics of companies with great corporate cultures.
They care. They care deeply. They care about one another, they care about their products or services, and they care about their customers. In other words, they have a higher purpose. You have probably worked with or visited companies where you can feel the sense of family or love among the employees. Usually, these companies are very active in their communities. This can't be trained into an employee. It lives in the corporate culture and it's contagious.
They have fun. They recognize that employees spend a lot of time at work, so it's a good idea to let them enjoy being there. Having fun can be achieved in a variety of ways such as celebrating birthdays, having barbeques, hosting company-sponsored family events, attending charitable events together, etc. Having fun does not need to cost a lot of money; instead, it requires conscious thought about what your employees consider entertaining—and then doing it.
They have very high expectations of performance. Performance is not measured by activity, but rather by operational and financial excellence. In one company I know, they have boiled down this characteristic to the following phrase: "You don't get paid for effort, you get paid for results."
This is an interesting mix of characteristics that comprise a successful corporate culture. The reason many people struggle with it, is that from their experience at other companies, high expectations of performance often come only from management. However, what you notice at the very best companies is that high expectations permeate the company from bottom to top and across the organization. They simply have winning cultures.
It is not only possible to have an organization that cares, has fun and is financially successful—it is probably also that this kind of organization will be the most profitable, regardless of the type of work undertaken. If you've ever been part of one, you know exactly what I'm talking about.
Once employees practice these characteristics, there begins to be an organization of excellence—rather than pockets of excellence. This also creates an organization of high visibility and even higher accountability. Why? Poor performers can no longer hide in being "busy." Very often these "historically busy" employees will either rise to the turning tide or just go away.
What also begins to happen is that companies with the right corporate culture begin to attract top-notch talent because it is a market leader where the employees themselves will not tolerate poor performers as coworkers.
Once you've established this kind of corporate culture, you will have a sense that everyone is now "sharing the insomnia" of the company's day-to-day challenges. They all care, not just you. Research shows that an average of 8 percent of your profit falls through the cracks, but with the right corporate culture, your employees will now note where the profit leaks are, and will help you recover it.
As we start the new year, make your company's corporate culture more important than a clever strategic plan. Live it. Give your employees the tools they need to create the culture you've always wanted. Allow them to propel your organization into a truly great construction company.
The Role of the CEO in the New Millennium
As seen in our December 2012 digital edition
Perhaps more so than any other work in history, Adam Smith's 1776 "Wealth of Nations" has depicted the rise of the corporation and the ability to lead the corporation by the CEO. However, over time, the ability to triumph over the corporation as it became a bureaucracy has become the hallmark of the greatest CEOs of the most admired companies. We now live in an age when long-established companies such as Bear Sterns and Lehman Brothers can quickly dissolve and companies such as Google and Twitter can appear overnight.
This being said, contractors need to take notice of this rapid change and adjust accordingly. The successful CEO (and traditional contractor) of the 21st century will be required to become more of a coach rather than a leader. Furthermore, every company must recognize the need to constantly improve the effectiveness of its people, processes, strategies and tactics of execution in order to advance the organization's mission.
This has proved to be most consistently accomplished through enlightened approaches to the three different, but critically integrated skills of leadership, management and coaching of the team.
First, let me define these important skills.
• Leadership: The ability to generate and articulate an inspirational future that others see their future in.
• Management: The design and execution of an effective roadmap to realize a desired outcome which utilizes people, processes and procedures.
• Coaching: The guiding and supporting of individuals to pass the barriers to help them practice effective leadership and management. Coaching is helping people get from where they are to where they want to be in the future.
So, how do leadership, management and coaching work together? These three skills have the ability to synergistically work together in establishing a successful company. You, as the CEO, must lead by example in utilizing them and mastering them. This will allow the rest of your company to follow suit.
How do you know when to practice each of them? Let's assume you have an estimator who is tasked with estimating a minimum of $10 million worth of work per month.
In the situation where the estimator falls below the requirement of $10M per month and you are talking with him or her on a regular basis as to the actual situation and why it is happening: You are managing the employee.
When the estimator is doing what is expected and estimating $10M-plus each month and your discussions are related to strategy and pricing: You are leading.
When you and the estimator are discussing his or her role in the future of the company and his place in it: You are coaching.
The old contractor model of the past will no longer be successful if used by the CEO in the 21st century. The 21st century contractor model is already experiencing dramatic changes such as panelization, modularization, robotics and 3D. The reality is, the industry is rapidly changing and is looking more and more different with each passing month.
The new millennium CEO will need to be flexible, agile and adaptable and able to undergo market developments and be ruthless in reallocating resources to new opportunities.
Now is the time for you to acquire the appropriate coaching skills and be a successful 21st century CEO. BI
Garrett Sullivan is president of Sullivan & Associates, Inc., a management consultancy focusing on the construction industry in Hawaii. Connect with him at GSullivan@SullivanHi.com, www.SullivanHi.com or 808.478.2564.
Does Every Project Achieve Your Planned Profit?
As seen in our November 2012 digital edition
For many years, people wondered what made Big Macs™ taste so good. The McDonald's Corporation refused to reveal its secret sauce, fearing competitors would copy the recipe. Recently, a chemist reverse engineered the secret sauce recipe and revealed to the world that it's nothing more than everyday spices and oils.
What does this have to do with your business making a profit? Everything. Your business—and every other business out there—follows a certain "recipe" in the way it behaves. This is your own secret sauce. How do you select and bid
new projects? How well do you handle day-to-day workflow? Are your employees motivated? Each facet of your business is an ingredient. Just like McDonald's, your success comes with the right blend of ingredients—and delivering that same, reliable product every single time.
Savvy contractors have followed the construction industry's secret recipe to make a profit on every job. Surprisingly, it is very similar to the Big Mac™ recipe—it's so simple that it can get overlooked.
There are only seven ingredients: four are lagging indicators and the rest are leading indicators. Lagging indicators are financial, historical results (e.g., last month's job costs, schedule results, billings, etc.). By the time these are reviewed, the owner and project manager (PM) usually have little or no control over the results. Leading indicators can be financial or operational (e.g., over/under billings, total cost to completion, projected cash flow, etc.) and can be projected while the owner and PM still have significant control over the results.
Combined, the most important leading and lagging indicators of a project are key performance indicators (KPIs) and should be forecasted, monitored and published by the individual who has the most influence over them, usually the PM.
The secret sauce recipe's four lagging indicators:
• Actual cost versus baseline costs. Your job costs need to be updated weekly and should be 100 percent accurate. This includes any change order work you may be proceeding with but, have yet to be approved.
• Actual schedule milestones accomplished. It is critically important that a job remains on schedule. This is a major area where profits can fade. Constantly strive to get back on schedule if you fall behind.
• Productivity to date. Do each and every one of your field workers know the amount of production required of them each day? If not, they should. Otherwise, how do you expect them to know if they're causing the job to fall behind?
• Cash flow to date. The project schedule, in combination with the budget, produces a cash flow projection. Monitor this carefully to ensure positive cash flow with a focus on profit throughout the job.
The secret sauce recipe's three leading indicators:
• Projected total cost to completion. This number helps keep the focus on where the job is going and should be an early warning sign to allow the PM to adjust as necessary.
• Projected completion date. All jobs need to finish on or before the completion date. It is very rare that a job that finishes early does not make at least the planned profit or more.
• Projected cash flow. Owners need to emphasis to PMs the importance of making sure invoices are timely and that there are zero obstacles to being paid promptly.
As with any good recipe, it is very important that you follow the directions carefully each and every time. Measurement is extremely important; what gets measured in construction gets performed. The above "ingredients" should be reported to senior management by the PM each month with a forecast for the next month. This should become a standardized process in the company, allowing you to continually monitor the profitability of each job.
How accurate are your measuring devices these days? Now is the time to recalibrate them to keep your profit margins pre-
dictable and to remain competitive well into the future.
For more reading on this subject, please visit www.SullivanHi.com. Garrett Sullivan is the president of Sullivan & Associates Inc., a management consultancy focusing on the construction industry in Hawaii. Connect with him at GSullivan@Sullivan
Hi.com, www.SullivanHi.com or (808) 478-2564.
Core Values: The Foundation for the Best Contractors
As seen in our October 2012 digital edition
Values: Important and enduring beliefs or ideals shared by the members of a culture about what is good or desirable and what is not.
There's an obvious difference between mediocre and outstanding companies. You sense it when you walk through the front doors. Oftentimes, you can tell within the first five minutes exactly which type of business you're visiting.
I continue to find one common denominator among all superior contractors: They have taken the time to lay the right foundation. What kind of foundation? They have a written set of core values, posted for all to see, which are universally understood and practiced. As a dedicated lifelong learner, a contractor for more than 30 years, a member of a national peer group of 12 business owners who share best practices, and now, as a management consultant, I have found this to be 100 percent true.
As you build a great company, you must create and regularly review your core values with your team. This develops the guiding principles that will align the "soul" of your company to the living, breathing people on your team who carry the company banner each day. If you haven't already written down your core values, start with these two important building blocks:
1. Create or revisit your mission statement. This describes exactly what you do and why you exist. It distinguishes your business from others and makes it clear to your team what you do each and every day. It should be short, easily understood (e.g., it can be understood by a 12-year-old), and simple to memorize. At your next staff meeting, ask your team to recite your mission statement. If no one can tell you what your mission statement is, there is no mission.
2. Create or revisit your vision statement. Your vision statement identifies the ideal future of the company or describes the "end game" of your organization. When Microsoft first began, its vision statement was simple – a computer on every desk. Today, the organization's vision statement is very lengthy and involves a number of worldwide initiatives, but its first vision statement made it crystal clear to every employee what they hoped to achieve. A vision statement also serves to create the future business model. It permits you to be unique among your competition.
When you have completed these two important steps and they are fully accepted and embraced by your team, it is time to develop the core values of the company.
Values: Important and enduring beliefs or ideals shared by the members of a culture about what is good or desirable and what is not.
Values exert major influence on the behavior of an individual and serve as broad guidelines in all situations. Essentially, they are your code of conduct – and the underpinnings of your organization. Core values require no external justification and are only aspirations until they are tested. It should be noted that core values are not operating practices, business strategies, competencies, etc. Core values can include many qualities and be as long or short as needed. Interestingly, I have found some of the best companies (meaning, the most profitable, best quality, measured growth and performance measured) with amazingly simple core values. For example, one company I admire has the core values of caring, fun and high expectations. The employees understand that high expectation includes a deep understanding of "positive anxiety" and "curiosity." The value of curiosity can be active or passive; it will make people more observant, open new worlds and finally they will create excitement.
Organizations that have written core values that are accepted and practiced by the whole team often use them to accomplish some of the following objectives:
• Govern personal and business relationships
• Clarifies exactly "who" your organization is
• Articulates what you stand for
• Guides you how to teach and reward good work
• Guides you in decision making
Start the process with the question, "What do we want to create?"
Are you ready to take the first step to becoming a truly great company?
Your IT System: An Achilles Heel?
As seen in our September 2012 digital edition
Under the hood of every car, there is an important, little-known piece of equipment called the serpentine belt. I had never heard of it until a few years ago when my car suddenly died.
My mechanic told me that my serpentine belt had snapped and needed to be replaced. I found out then just how important the serpentine belt actually is. It silently works behind the scenes. You'd never know it was there – until it suddenly isn't.
Your information technology (IT) system is your company's serpentine belt. It runs quietly in the background until something goes wrong. That's when your company grinds to a halt. How well have you maintained your IT system?
Below are some key questions to ask yourself:
• Are you prepared for a catastrophic IT event?
• Do you have redundancies in place for Internet providers, electricity, hardware and software?
• Are there any external or internal information leaks?
• External: Ensure proper firewalls are in place.
• Internal: Ensure that employees with access to sensitive date have screen locks on their computers. These require a password when the computer has been idle for a set number of minutes. If an employee leaves his/her desk, no one else can access that computer.
• Does your company have a well thought-out plan to deal with a security breach?
• Imagine that every email, file, spreadsheet, photo and/or video stored on your company's computer system has just been made accessible to the state of Hawaii. Which items would put you and your customers at most risk? At a minimum, keep those files protected with difficult passwords.
• Inform your staff of what constitutes a security breach and what protocol they are required to follow should a breach occur.
• Does your company have a solid backup system procedure that has been validated (tested) at regular intervals?
• Computer backups should be done daily and stored onsite in a fireproof box.
• Once per week, a full backup set should be made to be kept offsite in the event of a catastrophe. If a fire, flood, or explosion occurs, the most that your organization will lose is a week of work.
If you think your company is weak in any of the above areas, it's time to have an IT audit conducted by an outside professional.
To reduce your IT risk exposure, a sample IT audit should include at the least the following:
• organization chart, roles and responsibilities of those individuals in the IT supply chain
• a review and documentation of the IT polices and procedures
• testing of the policy and procedures
• testing to see if your system can be compromised
• determination to see if your company could withstand a temporary or long-term catastrophic it event.
When Hurricane Katrina hit New Orleans, every business was under water and in need of serious help. Interestingly, most people assumed the biggest contractors would be the best prepared. Not so. Sadly, many weren't set up to even accept a phone call. Many were unable to reach their employees for weeks.
Surprisingly, it was the smaller, more savvy and prepared contractors whose robust IT systems were quickly back in operation. This gained them significant financial success.
Hawaii has been fortunate enough not to have had a natural disaster since 1992 when Hurricane Iniki wreaked havoc on the island of Kauai. In essence, we're long overdue for some kind of event.
Consider tightening your "serpentine belt" by conducting an IT audit to ensure you are well positioned to face any IT challenge that comes your way. .
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Don't Give Away the Store:
Vital Steps to Negotiation
July 2012 As seen in our digital edition
Have you ever walked away from a negotiation feeling you gave away too much? If so, it's time to step up your game. One of my favorite quotes is by Chester L. Karrass:
"In business, you don't get what you deserve, you get what you negotiate." We can all name companies that have locked themselves into bad contracts and paid dearly – some even with bankruptcy.
Contractors who don't negotiate well are being taken advantage of in some way, either knowingly or unknowingly. If you sign an unfavorable contract, subcontract, change order, cost proposal, time extension, etc., you're stuck. This overlooked skill has a significant impact on your bottom line.
As tough as contractors tend to be, I often see them backing away from sharpening their negotiation skills, not because they're not capable but because they believe they're too busy. This is a mistake. They tend to underestimate its significance until they're in the heat of negotiations and then are backed into a corner.
Don't make this mistake. Negotiation requires practice and good mentorship. Listed below are some concepts to consider in any negotiation, but if you truly want to become an expert, I recommend special training.
Successful negotiation requires a platform of trust. If this is lacking, you are in for a bumpy ride. If people don't trust that you will deliver your end of the deal, they won't negotiate with you in good faith. Building trust takes time – and unfortunately, you may not have this luxury. In this case, do whatever you can to build trust prior to a negotiation. You will have a head start before the first word is spoken.
Once you have an acceptable level of trust, establish your bottom line. Give serious thought about what you really want out of the negotiation. Write down and rank every negotiable item. Then, one-by-one, cross out the items you can live without. When you reach a point where you cannot give anything else, you've reached your bottom line.
This doesn't mean that you won't strongly negotiate for the items on your "nice to have" list but, it does sharply define your "need to have" list and clarifies what you can exchange for other considerations. Your two lists comprise your "Zone of Possible Agreement" or ZOPA – starting at the bare bones minimum you'll accept and ending on your ideal agreement.
Plan: Determine how to best approach the person or group – and consider what kind of response your approach will likely elicit.
Rehearse: This is an important and often-overlooked step. Ideally, role play with a trusted advisor or mentor. Consider various scenarios and appropriate responses.
Implement: During negotiations, pick your battles and adjust requirements within your ZOPA. Don't enter into an agreement outside of your ZOPA.
Close: State your agreement on all items and immediately follow it up in writing.
Learn: Debrief with your associates afterwards. Discuss how you might improve next time.
Let them make the first offer: Attempt to let the other side establish the ballpark in which you are playing.
Don't immediately accept the first offer: Why? When you jump at the first offer, the other side will think they offered too much and look to back pedal.
When appropriate, show emotion: If their offer is insulting, don't be afraid to show it. Body language is more important in negotiations than spoken words. This is a totally separate area of study but one that is extremely important.
Don't fear silence: Understand the power of silence. It is usually to your advantage to let the other parties speak. In some situations, the other party may become so uncomfortable with the silence that they will feel the need to fill the void and inadvertently give away more than they had planned.
Postpone tough decisions: Don't be afraid to put the stickiest issues aside and come back to them later. Agreeing on easy issues first will develop momentum to tackle the bigger issues.
Create a red herring: Based on your ZOPA, you've already indentified items that you're willing to trade away. If the other party feels they have made concessions and wants you to do the same, exchange one of these items, but don't give the impression that you were always willing to give it away.
In closing, strong negotiation skills do pay big dividends. They'll far exceed your investment of time and earn you respect, success and favorable business arrangements.
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Lawsuits : Prepare for the Worst,
Hope for the Best
June 2012 As seen in our digital edition
It's late afternoon. You and your staff are celebrating your long-awaited "big job" contract. Champagne corks (or beer caps) are popping. You're looking forward to the new job, prestige, and financial rewards ahead.
Unfortunately, this jubilation is short lived. Why? A great job is akin to a cluster of stars lining up in perfect fashion. It's easy to lose alignment because they all depend on one another. A successful job requires each of the following "stars" to be positioned exactly right – the owner, estimate, field superintendent, subcontractors, inspector and even the weather. When aligned, you've got a homerun. When misaligned, your dream job can become a lawsuit – an all-too-often scenario in our industry.
Most claims are tied to your administration – schedule, delay, impact disruption, or acceleration issues. As a general contractor (GC) working for an owner, or subcontractor by a GC, never underestimate the importance of your contract administration. Everyone must fully understand the terms and conditions of your agreement – and be able to identify and document when asked to deviate from it. This is a pivotal first ingredient to avoiding a lawsuit. Give an unannounced pop quiz to your team at your next meeting. Call out scenarios and ask them if they constitute a significant change to the contract – and how they should be managed.
While you should always maintain a healthy working relationship with the owner or GC, don't be overly accommodating and thus end up being responsible for cost overruns and delays. Focus on notice and documentation.
When changes are requested, I recommend the following documentation methods:
• superintendent journals
• written daily reports
• pictures and videos
• e-mail correspondence; and, most effectively
• requests for information (or "RFIs")
RFIs are extremely effective. They document the owner's response (and clarify timeframe for them to respond) as well as cost/schedule impacts. Pictures also can be attached. In your RFI, ask the owner to respond in writing with a clear directive. Most importantly, if necessary, begin the change order negotiation. This shows that you're serious about the ultimate cost and schedule of the job.
Another underused method is to supplement the project meeting with a schedule narrative. This is useful, even if you're only reviewing a three to four-week schedule look ahead. It's a convenient place for the GC to document delays or interferences that are beyond the GC's (or subcontractor's) control and have not been addressed by the owner (and affect the schedule). It also helps pave the way for additional compensation, especially when there is construction acceleration to the completion date (should the owner refuse to alter it).
Bearing in mind that your team is doing all it can to maintain a positive and clear line of communication with the owner, always document changes, especially when you feel the owner is not hearing you. Key words can include interference, late approvals, no access, discrepancies in the plans and specifications, idle labor and equipment, labor inefficiencies, wage and material escalations, extended field and job supervision costs and home office overhead.
As you well know, contractors are oftentimes forced to adhere to the set completion date without receiving a deserved time extension and/or cost adjustment when changes are directed. In these situations – which are more common than not – your written documentation will literally save you. When you use phrases such as overtime, longer day/work week, schedule changes, denial of time extensions and/or early completion date, you are sending the right message.
Occasionally, a contractor will be involved in constructive change(s) that need to be documented vigilantly in order to be fairly paid. In these circumstances, key words should include unwritten requests, additional work, exceptional or rigid inspections, change in method or sequence of work, and interference.
While prevention is the best cure for lawsuits, prudent contractors have systems and procedures to document work and ensure compliance. As they say in football, "the best defense is a good offense." Accordingly, your best offense is to earnestly attempt in good faith to mediate or arbitrate the claim. If you fail, and it comes to a lawsuit, you will be fully prepared to go out and "shoot bear" in order to win your case.
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From Good to World-Class
Where Are You on the Contractor's Life Cycle?
May 2012 As seen in our digital edition
You've worked hard and you're running a good company, but that's the problem. It's good but not excellent. It's meeting all of the minimum criteria but not hitting home runs. How do you move the needle of your company from good to world-class? I recently attended the annual convention of the Associated General Contractors of America (AGC) where we discussed just that. A contractor who successfully made the quantum leap presented an outstanding class.
It was during this class that I began to think about the contractor's life cycle and the progressions company owners must make in order to reach the summit of true excellence. In my experience, successful contractors need to wear two hats, one of a technician and one of a businessman. If you lack one of these hats, you must recognize it – and hire someone to wear that hat.
Additionally, to achieve world-class contractor status, you must be an extraordinary change-agent, someone who directly or indirectly causes positive transformation. There are three recognizable traits of every change agent:
• The ability to see a future no one else can see – this vision won't let the change agent rest until it has been accomplished.
• The courage to bet one's career on the vision – change agents take bold actions and aren't afraid to suffer the consequences.
• The "X Factor" – Change agents galvanize teams and cause others to take action they never thought possible.
As an owner, are you fulfilling your role as a change agent? If you understand where your organization is in the contractor's life cycle (posted at www.SullivanHi.com), it will be easier to create change and to navigate the unexpected hurdles associated with that change. A brief description of the three levels is below:
Level 1: Nearly 95 percent of new contracting businesses go bankrupt within the first five years. The Level 1 contractor is usually the former superintendent or foreman of a construction company that ventures off on his own. This business is similar to "Joe the Plumber." He starts a company with one truck and stays that way forever. For some, this arrangement works well. However, it is not a true business. Instead, it's a person working for wages.
Very often, a Level 1 business is undercapitalized and lacks a deep understanding of accounting/finance. The company may enjoy some early success, but in reality, it's in a race against bankruptcy. If Level 1 contractors hope to grow, they must hire true expertise in accounting and other critical business functions. Without that, it will be – at best – a Level 1 contractor.
Level 2: Level 2 contractors have survived where most others have failed. They have endured 60-70 hour work weeks that include bidding the work, managing the work, doing the work, subcontracting the work and holding down the bookkeeping/administrative functions. These contractors have accumulated equity in the business and are hiring expertise to help shoulder the day-to-day business functions and establish procedures. This level typically takes a minimum of two to three years before Level 2 contractors are stable, adequately capitalized organizations that have obtained a line of credit and a bond program.
Level 3: Level 3 contractors are firmly established in the community, region, and/or country, but remain extremely vulnerable. A quick review of Hawaii's top 25 contractors from 10 years ago confirms how easy it is to slip from this position. Some of those contractors are now out of business. The biggest hurdle for these organizations is complacency. If this sets in, Level 3 contractors typically have a few bad jobs and slide back down to a Level 1 or 2 – or simply go bankrupt.
Why? They do not – or will not – recognize the significance of being a Level 3 contractor. The organization's change agent, who was so instrumental in bringing the organization to its current level, no longer feels driven by the "fire" and vision.
In short, there is no rest for anyone in the contracting business, regardless of its level. At each iteration, contractors must reinvent themselves. They must be change-agents who have developed employee "bench strength," reliable systems/procedures and a smart succession plan. Contractors who are cognizant of these factors will become – and remain – world-class. top of page
Emerging Leaders: Why Taking Care of the "Next Gen" Takes Care of You
April 2012, As seen in our digital edition
As I approach the deadline for this article (February 2012), Warren Buffet has just announced that he is grooming his successor who will make a "seamless" transition into power. With nearly 78 million baby boomers in the United States nearing retirement, I wonder what will become of the companies they're leaving behind. Are they all preparing like Mr. Buffet?
Will the next generation be ready to step into the shoes of their former leaders? It depends on the current leadership's ability to train emerging leaders and invite them to the decision-making table. Do a quick scan of your staff and press a mental "fast forward" button. Now, envision them a year after you've departed. What you see is more of a reflection of you than it is of them.
In my opinion, leadership training is an often-overlooked investment in a company's future. Consider the return on this investment. Last year, my daughter Susannah, a high school senior at the time, was invited to join the Center for Tomorrow's Leaders, a program that focuses on developing the skills of emerging leaders. As Susannah progressed through the year, she shared with me the many ways she was being trained – as well as seeing first-hand examples of how to successfully lead others. I found that when she completed the yearlong program she had new confidence and abilities as an emerging leader.
How well are we, in the construction industry, preparing our own emerging leaders? Although our industry is presently in a downturn, it will rebound. When it does, we will need a tremendous number of new, highly engaged leaders to replace the baby boomers. This new generation of leaders has been dubbed "the buster generation."
What steps are you taking to ensure your emerging leaders are being recognized and developed? Does your organization have the deep "bench strength" it will need to compete in our risky, ever-evolving, competitive business?
Listed below is a five-step model to develop your own buster generation. It was developed by two highly regarded leadership researchers Jim Kouzes and Barry Posner. Why not take the up-and-coming leaders of your company under your wing and begin to model these behaviors for them?
Model the Way:
As the president or CEO of your company, you must be credible at all times. This means you are willing to take a stand based on the values that are your organization's enduring beliefs. We all know that a great leader "says what he means and does what he says." Great leaders bring people together around shared values and connect beliefs with action/practice.
Inspire a Shared Vision:
A great leader will always have a vision of where the organization is going. This is a unique image for the common good, which is compelled by and fueled by a true passion for the business and for high ethical standards. It is not "the boss' vision" but "everyone's vision." Leaders forge unity of purpose by showing employees how the company's shared vision benefits everyone. Belief in the vision and enthusiasm for it are the sparks that ignite the flame of inspiration.
Challenge the Process:
Change is inevitable and leaders are change agents. You must keep changing. When you are through changing, you are through in business. Leaders learn from failure, confront the brutal facts, take risks and make tough decisions and by doing so, generate small wins. A strong leader sees things with new eyes and asks the question "what would it look like if…?"
Enable Others to Act:
Leaders build teams based on collaboration, trust and strong relationships. They make people feel strong and build capacity in everyone – not just certain people. A leader shares authority, discretion and information. They grow other leaders.
Encourage the Heart:
Leaders express appreciation and recognize contributions. They celebrate values and victories. Leaders sustain team members by providing descriptive and timely feedback. Stated differently, they supply the water for the marathon. Leaders recognize that celebrating people and achievement strengthens the spirit of the community.
Developing emerging leaders takes time, patience and a conscious effort. As the boomers are leaving, the busters are coming. Your company's long-term success will depend on how well you demonstrate and cultivate your future leaders.
Gentlemen, start your busters!
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Staying Competitive Without Working 80-Hour Weeks
March 2012 As seen in our digital edition
Do you find yourself at the end of a week wondering why you ever became a contractor in the first place? Are you constantly stressed about your company even when you're not physically there? Are your personal relationships strained by the amount of time and attention you devote to your business?
If you're like most hardworking contractors, you've answered yes to at least one of these questions. As a result, I have news for you – your life is out of balance.
Contractors often work around the clock without ever stopping to consider why. For some, it's a fear of failure. For others, it's the desire to earn money. Wanting to be successful is a good thing, but society has blown it out of proportion. Modern society tells us that anyone with a lot of money is wealthy. I disagree.
Wealth is not solely about money. Instead, it's about having a balanced life. It's having financial resources as well as a healthy mind and body. It's the ability to decide what you want to do each day – not doing what you have to do.
Ready for a change? Follow the steps below and you will live a better life within six months.
• Create a Five-Year Vision
Imagine you've just awakened. The calendar reads March 15, 2017. Now, tell me this: What is your life like? What is your company's total revenue and net profit? How many employees do you have? What kinds of jobs are you building? Are you the general contractor for the biggest project on Oahu or are you languishing along trying to stay in business?
How many workers do you envision when you visit your 2017 jobsite? What do your financial statements say, line by line? Are you a best-in-class contractor? Are you planning any travels with your family? Remember, if you don't specifically decide upon – and record in writing – your vision, you'll awaken in 2017 in exactly the same place you are now.
Be specific in your vision and don't stop at your business. Envision your family, your home, your car, and your post-work activities. Write out what your day will look like. The more you write, the better.
• Identify Your Goals
Identify five to six business objectives to accomplish in 2012 that will bring you closer to this vision. They should be clear, concise, quantifiable and regularly reviewed. You may not achieve all of them, but you will constantly be reviewing your road map to bring you to your vision. These objectives serve as the basis for your one-year business plan. Each year, you update that plan.
• Prepare a Strategic Plan
A strategic plan spells out the long-term actions needed to achieve your vision. Where do you begin? Honestly assess yourself and your team's strengths and weaknesses as well as any external threats to your company. There are many templates out there for strategic plans, but the important thing is to clearly identify what you're trying to achieve and your strategy for getting there.
• Review and Make Adjustments
Your objectives may change slightly over the years, so take time each month to review and adjust them accordingly. Have your employees join you for the company-specific goals and let them set their own visions as well.
• Stay Healthy
This is an often-overlooked component of a successful life vision. You play a big role in your health by the choices you make. Are you eating properly, exercising, limiting alcohol and getting proper rest? A good plan includes a personal section for you to benchmark your health and other pursuits.
Make a conscious effort to downsize. Do you really need that next job, new gadget, tee time, Vegas trip, etc.? Carefully weigh whether to commit to taking on new endeavors – even if it's bidding a job. Be deliberate and scale back your commitments so you can focus on the activities you most enjoy while giving yourself regular down time. When you're not rushing around, you think more clearly and creatively.
• Be Patient
Yesterday is gone, but you still have the present. Life often throws curveballs, but have patience with yourself and others. Don't sweat the
small irritations. As they say, live to- day (within reason) as though it were your last. One day, it surely will be.
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Preparing for Disaster: What Happens When TV Crews Show Up
February 2012 As seen in our digital edition
Why establishing crisis protocols will save your company and reputatio
We've all seen the news stories. A flustered contractor tries to fend off reporters at his jobsite after a worker is injured. He's nervous and unprepared. Rumors about poor safety begin to fly. Within 24 hours, this contractor's reputation and livelihood is in serious jeopardy. In this day of cell phone cameras and social media, a negative event can take on a life of its own in the blink of an eye.
It's no wonder that contractors shudder at the thought of a crisis. While many savvy contractors have crisis plans in place, most are simply outdated ideas in old three-ring binders buried somewhere no one can find them.
Construction is a risky business and calamity does strike. The problem is, failing to prepare for a crisis is like failing to buy insurance – you might get away with it in the short term, but sooner or later you'll be glad it's there. This "pay me now or pay me later" truism applies to far more scenarios than worksite accidents. Below are some very real image-damaging situations that every Hawaii contractor should consider.
To gauge your company's current competency, surprise your managers by starting your next meeting by throwing the following scenarios at them. That's how a crisis will occur – by surprise. If you have a crisis plan, take out your stopwatch and see how long it takes them to find it. Then, ask them what their roles and responsibilities should be in these scenarios. Their responses may be a real wake-up call.
• community concern — strong com- munity opposition to your project, picketing by environmental or other groups, uncovering iwi at a jobsite, noise/dust complaints or lawsuits
• safety — severe injury or death, juveniles sneaking onto the jobsite, cell phone video of workers being unsafe
• workmanship — structural collapse/instability, dangerous or sub-par materials used.
• finances — significant layoffs, inability to complete project, inability to pay employees/vendors
• security — computer breach releasing employee/customer data, workplace violence
• scandal — overbilling for work, sexual harassment/scandal, illegal dumping, bribing politicians; remember, you may have ethical integrity, but good companies can hire bad people.
During the past few years there has been a growing trend in risk management toward "Zero Dis-
ruptions." This is where contractors prepare a list of plausible disruptions and establish proactive measures to mitigate them. Similar to how firefighters have moved from fire-fighting to fire prevention, best-in-class contractors are progressing from crisis management to prevention. Many in the insurance industry refer to this as "crisis readiness" or "sleep insurance."
At a minimum, every contractor should take the following steps:
1. Create or update a crisis plan in which your management team agrees to "Zero Disruptions" protocols. Ensure that every manager has a copy and create an online repository (a password-protected portion of your website is recommended) where the plan can be accessed from anywhere in the world, 24/7.
2. Best-of-class contractors will invest in media training for their company spokesperson (I do not recommend using an outsider as your spokesperson). Short of that, every contractor should vet communication experts upon whom they can immediately call should a crisis arise. Look for firms or consultants who have a track record of success in crisis management (and have earned awards in this area). Inquire about fees, ensure they would have no conflict of interest in taking you as a client, and ask how long it would take for them to go on the clock for you. At least three options should be included in your crisis plan. It will save you the time and aggravation of searching for an expert in the middle of a situation.
3. Establish criteria in which to enact a "communication lockdown," which requires employees not only to refer all questions (not just from the media) to the company spokes-person, but prohibits them from discussing the issue with outsiders. Why? Many small incidents get blown out of proportion because someone carelessly or unknowingly leaks information (regardless if it's true). For instance, employees discussing the issue at a local restaurant can be overheard and/or misunderstood by others (who can tell others, post comments on social media, etc.). This launches a game of "telephone" in the community and puts you on the defensive.
As I close, I remind you of the image at the very start of this article – the unprepared contractor being interviewed on television. Don't let that be you. Regardless of whether you've made preparations in the past, now is the time to review and update your crisis plan. Revise and rehearse at least annually – a move that you will never live to regret.
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