Friday, November 7, 2008

Gambling on the Future

(from the November Editor's Note in AsphaltPro Magazine)

Something John Ball told me for the cost-cutting article in this month's issue got me to thinking. He suggested that owners incorporate the bonuses they anticipate achieving on a project into the project's bid. Well, yes, I've known folks to do this. If you have faith that your crew can exceed the density spec or can finish ahead of schedule garnering a smoothness or early completion bonus, why not factor that into the estimate to make sure your bid is lower than the bid from the folks down the road?

It's a gamble.

But there are aspects of this industry that aren't a gamble. When you stock up on liquid asphalt cement (AC) in the winter, you know you'll use that grade in that quantity while prices are rising in the marketplace during the regular construction season. Now, given this past year's prices, that would have been a good risk to take in December 2007.

Another good risk this year is equipment purchases. Manufacturers are willing to wheel and deal, and the economic stimulus package that went into effect back in the winter still stands—to the tune of a $200,000 deduction for some businesses.

Something I view as a bad gamble is reducing personnel. Given the safety concerns and the complexity of most jobs in quarries, at the hot mix asphalt (HMA) plant and at the paving site, firing a trained employee to save the cost of his or her salary—plus benefits—is short-sighted. You might think another employee—or two—can put on an additional hat and take on that now-missing person's responsibilities, but there's no replacing his or her experience.

Often, a veteran employee with many years of experience and knowledge is the one with the higher salary; he's the one targeted to reduce costs. How negligent is an owner who releases that employee and expects a less-skilled worker to take over at his station the next day? Does anyone think a project's quality control will improve with this business practice in place?

Eventually, the construction industry's bell curve will swing back up and you'll need to hire new workers. Who's going to show them the specific nuances of the machines and operations in your business if the folks with the inside knowledge have been released to seek employment with your competitors? By releasing skilled workers now, you not only cripple current operations, but also sabotage future projects.

How about instigating new, good business practices with less risk? Industry experts weighed in with some excellent ideas for saving money/cutting costs no matter what the size of your business and we assembled them in one massive article starting on page 10. Now, there are a few ideas that take capital upfront. Those you can put in the "gamble" category if you're living close to the edge in this turbulent economic climate, but other business practices that don't take a substantial initial investment start saving you money right away. Anything from reducing fuel costs, utility bills and equipment loss to increasing efficiency of individual pieces of equipment and office systems can help cushion the increased costs of materials these days.

If you know your costs are lowering, your systems are increasing in efficiency and your skilled employees are on board and working hard for you, then the numbers you put on the next bid aren't quite as large a gamble as they were before. You can have more faith in your operation and can bid with more confidence, less risk.

Stay safe,
Sandy Lender

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