LATEST NEWS Building Envelope
February 11, 2013
Communication remains vital for profitable projects
Companies winning the lion's share of contracts could be making more mistakes than profits and suffering from communication problems, the leading reason why projects tank.
“We have labeled it the winner’s curse,” said Tara Landes, founder of Bellrock Benchmarking Inc. and presenter of session W26 The Winner’s Curse.
It will examine why seemingly successful companies sometimes don’t make profits.
Doug Land, of Lobstick Project Solutions Inc., also looks into the issue with seminar T07 Effective Communications in a Project Environment.
“The number one documented reason for project failure is ineffective communication,” he said.
Up to four different generations can be working on the same project.
“The generation diversity is a big issue for a lot of organizations today,” Land said.
Landes, said the communication mistakes she sees often relate to estimating, tendering, and contract issues.
“The company that is winning a lot of jobs is typically the company that is not pricing well and working harder for less money,” she said.
Contractors may not recognize communications as their most powerful tool.
“Talk to contractors about communications and their eyes start to glaze over,” she said
At her seminar, Landes will demonstrate a game based on a Monte Carlo simulation, a sampling system, where Company A has a five per cent error in its bids while Company B has only a two per cent error.
On a $100 job, Company A is either estimating $95 or $105 based on its error factor.
Company B is estimating the job at $98 or $102. Even though the first company wins more contracts, Landes said Company B makes more money.
“Company B has tighter control over their cost and the contracts they are winning are not real stinkers,” she said.
“They are not going to win projects where they are going to lose money.”
The winner’s curse is especially damaging to smaller companies or larger companies with large projects, where a costly mistake can wipe out annual gain.
There are some telltale signs of carrying the curse.
“You hear the people saying things such as ‘ it was a lot more fun when we were smaller’ or ‘we work so hard, but we don’t make as much money as we should’,” she said.
One way that companies lose control of their numbers is using outdated information.
This can include practices such as “rule of thumb” on estimating jobs.
An estimate may reflect a number of hours based upon a rule of thumb and labour skill levels.
However, if there is no communication to verify the skill level for the job, the crews may take longer.
Change orders are another area where profit erosion can occur.
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