Controlling overhead costs is critical for all construction managers. Increased competition and slim profit margins have forced contractors to take a hard look at overhead cost management.
Budgeting and variance analysis
Technological changes have made budgeting systems, planning, and control techniques available to all contractors. Budgeting allows contractors to evaluate current operations, assess future costs, and provide a proactive approach to controlling overhead costs.
Overhead costs are either variable or fixed. Managers can use these cost relationships along with historical trends to forecast overhead expenses. A flexible budget can then be used to evaluate significant variances between actual costs incurred and projected amounts. This analysis also highlights problems and weaknesses in a contractor's organizational structure.
Budgets can be used as a quantitative action plan to change employee behavior and decision-making processes. By prompting managers to emphasize cost control and extend planning horizons, employees adopt the supervisor's values, and often a cost-conscious attitude begins to permeate the company.
Advances in technology and the availability of Internet access have allowed contractors to join with owners, architects, financiers, and subcontractors to work through all aspects of a project, from the initial conceptualization to its final completion. This cooperation eliminates many of the problems that arose previously because the parties involved weren't communicating.
For instance, if an architect working on plans for a client shows those plans to the contractor who will be doing the building, they may discover that the plans will be too expensive or impractical to execute.
Thanks to technology, this can happen even when the architect and the contractor aren't in the same city. Video conferencing can allow people hundreds or thousands of miles apart to work on the same documents simultaneously.
Computer programs are now available that will help builders plan and manage jobs more efficiently. For instance, with the help of a computer, contractors can now more accurately plan crew sizes and production schedules and manage the flow of materials and the scheduling of subcontractors. These programs let contractors make better decisions that help ensure that jobs are completed with fewer problems and according to budget.
It is important to be able to track job information under a number of different subject headings, which is an additional feature found in updated contracting software. Materials, labor, subcontractors, overhead, and equipment are all subject categories that information can be referenced by.
It is even possible to use the system to anticipate changes in job orders. When changes are actually made, it is beneficial to have a system that can incorporate these changes and appropriately adjust cost estimates. The flexibility of these new database functions allows a tighter grip on expenses.
In the area of employment, it is equally important to be able to access and evaluate different types of information. Due to the varying requirements of different unions and insurance plans, payroll systems now need to be adaptable to various situations. Some computer systems will enable managers to set up an automated pay rate formula, eliminating the potential for over-payment.
Tax rates, deductions, fringe benefits, and garnishments can all be calculated in one database. Different time schedules of payment can also be incorporated into the system. These preset methods are a reliable way to keep closer track of payroll and to keep your processing time down.
Technology saves time and money
With so many customized contracting options available, now is a good time to pursue an updated office system. Although it may seem like a short-term financial setback, the initial investment in more sophisticated office technology can lead to the elimination of many unnecessary expenditures. Organizing records and working from customized programs can make management of jobs and related finances substantially easier.