Introduction to Business Planning
The best lesson in planning I ever had was not in business school. It was attending a normal weekly contractor staff meeting and listening to an experienced and knowledgeable old-time contractor teach his management team how to manage a construction business. If you want to learn how to develop a business plan in the construction industry just listen in to this conversation. Every element of strategy, tactics, and financial planning is covered by this experienced contractor as he casually questions his management team about bidding a project outside their normal type of work. In the following scene, he (CEO) meets with his Chief Financial Officer (CFO), his Chief Operating Officer (COO), and his Marketing Manager (MM). Let’s listen in:
Monday Morning Meeting – 7:00A.M.
MM – What about the big downtown hospital complex? Should we bid that one?
COO – It’s bigger than we’re used to, but it would be a great piece of business.
CEO – What’s the biggest job we could take with our current organization?
COO – Good question. I’m not sure how to figure that out.
CEO – Well, what are we good at? I mean, why have our clients awarded us work in the past? Low bid? Quality work? Nice guys? What do you guys think?
MM- I would like to think it was quality work, but probably was low bid.
CEO – Let’s ask our customers. Let’s find out. Now, do we know how to build a hospital?
COO – We can build anything.
CEO – Profitably?
CFO- Yes. Of course.
CEO – Weren’t there jobs we lost money on Henry?
CFO – Well boss, it all depends on how you look at it.
CEO – It does? How do we look at it? Don’t we add up the numbers the same way on every job? Go back and make sure our addition and subtraction are the same on every job. How can we tell if we’re making money if you change something to one job and lower the costs on another? Let’s make sure we’re not doing that. Make sure we have one standard way of accounting for every job. We need to have an accurate baseline to decide how to bid anything, including this hospital job. We can’t use accounting to make ourselves feel good. We need facts to run the business not good feelings.
CFO – We’ll get right on it, boss. We’ll make sure we are following Generally Accepted Accounting Practices (GAAP).
CEO – And what about the competition? Can they bid less than us or build it better? Do we know who the best hospital builders around are and are what kind of profit do they make?
MM- As you know, there’s two that build nothing but hospitals so I guess they know what they’re doing.
CEO – Will we be able to compete with them? Is there something about our organization that suddenly qualifies us to build hospitals better than ABC Healthcare Construction Company or XYZ Hospital Builders, Inc.?
COO – I’m not sure we’ve got the specific experience building hospitals, but we all wants to give it a try.
CEO – Did you run this past our surety? Can we finance this project? How about our bank? Will do we have the borrowing capacity to fund this project?
CFO – Not yet. Thought we’d decide whether we would bid the job first.
CEO – If our surety and bank won’t go along, we can’t bid this job. We have to consider their opinion and position in our decision making and planning – not plan and then ask them if they’ll go along. Talk to them about this if you have enough information about it. Now, why do we want this job in the first place?
MM – It’s a chance for us to break into a new market and expand our sales dramatically. It’s a great opportunity.
CEO – Why do we want to break into a new market? What’s this market look like? Do we have the know-how on our payroll to estimate and build it? Just because we have a great basketball team doesn’t mean we can win playing baseball. Are hospital projects playing baseball when we’ve been playing basketball all these years? Are ABC Healthcare Construction the New York Yankees of hospital builders? Will they beat us if we try to play their game? Do we want to be a baseball team? What are we now? What do we want to be? We have to decide that together. Everybody in this company has to know “who we are” and” where we’re going”. That’s the only way we’ll all be pulling on the same oar. I don’t know. Are we hospital builders? Let’s find out. Let’s figure out what it takes to be a hospital builder. Let’s see if we can learn some of ABC Healthcare Construction Company’s and XYZ Hospital Builders, Inc.’s. secrets and see if that’s who we are or can be or even want to be. Let’s think this thing through.
Read this scene again and you will hear everything you need to know about construction industry business planning. This old-time contractor’s common-sense intuition contains every element of sound business planning. As the construction industry becomes more complex, we need to learn how to codify and annotate this old-timer’s intuitive planning skills. Start by studying the planning materials on this site.