Skip to Content
Amplify Insights

Top Tips for Increasing Construction Profitability by Properly Managing Cost Variance

One of the most challenging aspects of running a profitable construction company isn’t generating revenue opportunities– it’s collecting the revenue predicted at the beginning of the deal. 

Less than a third of construction companies reported being within 10% of their budgets in 2015. With the pandemic and ripple effect through the economy, investors, and supply chain delays, there’s little doubt that construction companies are having a harder time than ever staying on budget. 

This may be why 80% of Canadian construction companies aren’t in business by year eight. A lack of cash flow is a top reason for business failure– which directly points to mismanaged cost variance.

The good news? Even with the impact of a global economy struggling to recover from the pandemic, you can significantly reduce your cost variance per job with the right systems.

Standardize How You Create Accurate Estimates

The first step of any healthy cost variance is a solid preliminary estimate. Sugar-coating a job to win a bid can (and often does) backfire with project delays, negotiations during the project, and loss of reputation. But even an experienced, well-intentioned construction company can easily underquote in the current economic environment. 

A great way to protect yourself and your clients is to create a standardized process for generating estimates. Model-based estimation technology allows you to create a much more objective assessment and adjust multiple factors for potential future scenarios.

Creating an estimate with a modeling system will also increase your credibility with your clients since they’ll have proof they can walk through to back your estimates. You can show them backup plans for known supply chain risks or labor shortages, proving your credibility and experience.

Have Real-Time Numbers Throughout the Project

No construction job goes according to plan, plain and simple. So the goal isn’t necessarily to stay closer to a job’s plan but to know when a job departs from the schedule as soon as possible. Then you’ll be able to determine the steps to reign in production or to talk with the client to adjust course. 

To be the best at adapting to constant change, you need accurate, real-time information about the project. But it is tedious to manually track receipts and hours in Excel– a spreadsheet system also lends itself to critical typos, accessibility problems, and getting lost in the rows.

By updating your budget systems to a solid financial stack, you’ll increase accuracy and transparency while reducing costs in time and money. You can easily manage all your crews and office expenses through receipt tracking, logging hourly rates, and monitoring schedule variance.

Automate Tasks to Stop Cash Leaks

Cash flow management is an incredibly time-consuming task for construction companies– and it massively contributes to the high mortality rate of new companies. While individual tasks aren’t that difficult to complete, the reality of managing construction projects includes hundreds of opportunities to lose money. 

Common culprits include losing track of qualified leads and missing sales, failing to meet project deadlines, using excess materials, and taking longer than necessary on jobs. Task automation kills (at least) two birds with one stone. 

First, you’ll remove task management from your workflow as the system naturally tracks due dates, gives the whole team a real-time high-level view, and sends reminders for next steps. 

Second, you’ll ensure that each task is completed the same way every time. As a result, sales reps will follow up consistently, builders will use materials correctly, and you’ll improve project communication dramatically.

Construction Management Software to Integrate All Project Information

The quality of your information dictates your ability to make good decisions. And unfortunately, many construction companies house their information in different folders and spreadsheets. So while you may have all the information you need, you may not be able to use that information meaningfully.

Instead, integrate all project timelines, budgets, and contracts into a single construction management platform like Sequence, our newly developed, cutting-edge software. You’ll be able to easily track customer quotes, job progress, and job values into a single synthesized picture. So when one small piece changes, you’ll see the effect ripple across the project and be able to make the best decisions.

Ready to Reduce Cost Variance and Increase Profitability?

So many hardworking and experienced construction companies are trying to run at full speed with the wrong systems holding them back. Think of slow, manual management systems as training wheels on a racing bike. It doesn’t make sense to hold back your potential when all you need to do is ditch the training wheels. 

That’s where we come in. At Revalate, we’re passionate about helping business owners maximize their efforts and create the business performance they know they’re capable of. And while we aren’t typical mentors, we offer hands-on support and powerful, applicable tips and tools for business success.

So whether you’re looking for a mentor, are interested in hiring a business consultant, or want to stay informed about actionable business tips, start a conversation with us today!

Let’s get your business performing up to its potential!

Back to top