Construction Cost Cutting


How Far Should Companies Go with Cost-Cutting ?
Article by Terry Kramer

Across-the Board Cuts?
There are a lot of experienced people within the construction industry that have been advising
all companies to slash their expenses and right-size their organization for quite some time. That
would be hold true if your company worked solely within the residential sector but that is not
the best across-the-board advice for contractors focusing on non-residential work.
During these challenging economic times, it is important for Owners and Top Managers of
every construction firm to decide whether they want to sit back and let their dried-up project
pipelines dictate their company success or whether they want their company to continue their
success by creating new project pipelines or new ways of accessing old project pipelines.

The Business Cycle Bandwagon
For those that have conceded that this is a business cycle to just ride out, then those companies
will continue the slashing, cost-cutting, and personnel terminations. The formula is straight
forward for right-sizing these types of companies. You take the current, low YTD revenues and
profits and add the low backlog revenues and profits that fall within the current fiscal year, and
just like that you know what it will take to make money at lower operating levels.
For example, if you were a General Contractor company that produced $ 80 M in revenues at
6 % gross margins during the good times and now your projections show $ 50 M in revenues at
4 % gross margins by year-end during these slow times, then you know you can only afford no......

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