Know Your Costs
I grew up in South Louisiana, a region battered by Hurricane Katrina. With recovery efforts underway, a friend drove me to the job site of a company building some massive pump stations for the Army Corps of Engineers. At the end of a winding stone access road through the marsh, I saw one of the most organized projects I had ever witnessed with hundreds of construction professionals in a massive and meticulously clean work environment. There were a ton of yellow and black trucks. Kiewit had come to town.
The late Peter Kiewit began with a bricklaying company started by his grandfather. He grew Peter Kiewit and Sons into a diversified contracting behemoth. Their iconic corporate culture and humble Midwest roots later extended globally prior to his death in 1979. His legend lives on and today Kiewit’s resume speaks for itself.
One of Peter Kiewit’s mottos was “Know your costs”.
In the early 20th century, he engineered a weekly job cost monitoring system to compare actual costs to bid estimates. This information empowered the teams with actionable cost data and enabled him to forecast the company’s profitability.
After World War II, he established the following “Key Kiewit Philosophy” :
Leonardo Da Vinci said “Simplicity is the ultimate form of sophistication”. This construction philosophy from nearly a century ago makes that statement hard to argue with. A contractor’s ability to improve their skills in estimating and building work is a leading success indicator. Below are a seven Winning Habits collected from the experiences of some best in class highway contractors:
1. NSLI
Never Stop Learning and Improving. Balanced estimating scorecards and post bid analyses provide opportunities to learn, iterate, and get better. Humility, curiosity, and avoidance of “the bid is ours” thinking help set the tone.
2. Deploy great digital estimating and cost systems
Systems that enable efficient and transparent surfacing of budget to actual labor, equipment, trucking, and material cost by job by cost code on a daily, weekly, and monthly basis will drive results. Daily profit and loss reporting improves the likelihood of cost, including potential change orders, being charged to the correct code, type, and phase. Bad data from the field is a link that breaks the chain. As someone who reviewed timesheets (some even handwritten) daily for years, I was flat amazed at how often they needed fixing, despite the best intentions.
3. Analyze gain/fade and act on it
Analysis of job gain/fade on “Work-in-Progress” (WIP) reporting. Understanding the why and building a feedback loop between cost and estimates are beneficial practices. Fight the natural tendency to blur the lines: Cost is cost, and margin is margin. It is tough to select the right price on current bids while lacking confidence in the cost.
4. After action reviews
For major bids, operations, and jobs. How did it go? What did we learn? What was possible? How should we apply these learnings moving forward? These are opportunities to improve collaboration across teams.
5. Adjustable unit cost KPI’s
Labor rates, equipment rates, trucking rates, and materials all change from period to period and from job to job based upon a variety of factors. Consistent rate tables including indirect cost budget and allocation improve accuracy. Tracking and forecasting future adjustable costs (e.g., average roller operator cost per hour) are becoming more important with inflation and the unemployment environment, regardless of job specific minimum wage rates.
6. Fixed unit cost KPI’s
Average daily production rates, labor hours per unit, trucking hours per unit, and material yields are generally transferable to future work depending on the conditions. Contractors tracking these KPI’s monthly, quarterly, and annually will gain useful insight.
7. Prioritize handoffs
Some folks both bid and build the work while others have separate teams for each. For the latter, handoff processes between estimating and construction teams are critical. The pros and cons of a “bid-build-collect” model compared to separate estimating and construction functions is a debated issue. Performance depends on efficient estimating, field, and accounting workflows and communication.
These habits are not a catch all. Contractors with integrated systems and consistency can expect the best results today and in the future. Knowing your true cost involves art, science, intuition, teamwork, and honesty with oneself. This is a journey full of perpetual learning. A contracting forefather, Peter Kiewit, might have argued that it was a fundamental building block of success, and with this we would agree.
At Edgevanta, we are building a technology to help solve the project acquisition process for highway contractors. We welcome you to share your own Winning Habits as we continue our series.
Sincerely,
Tristan Wilson
CEO and Founder
Edgevanta, LLC
This is the 4-½ deep dive of a multi-part series on the project acquisition process of the construction cycle for highway contractors.
Sources:
1. Neil Swedy, Trapped Under the Sea: One Engineering Marvel, Five Men, and A Disaster 10 Miles Into The Darkness (Broadway Books, 2014)
2. https://blas.com/kiewit/
3. https://www.langan.com/portfolio/gulf-intracoastal-waterway-west-closure-complex
