Construction: Protecting Job Margins and Improving Cash Flow
- Net profit margin improvement
- 2%-3% → 8%-9%Net profit margin improvement
- Timeframe for reported improvement
- 14 monthsTimeframe for reported improvement
- Annual company revenue
- $65MAnnual company revenue
The Business Challenge
The company operated with net profit margins of approximately 2–3% and lacked a consistent view of job profitability and cash needs. Labor overruns, outdated cost-to-complete estimates, and disconnected estimating and accounting reports made margin erosion difficult to identify early. Management needed reliable job costing, clearer WIP reporting, and better coordination between bidding, billing, and cash planning.
The Recommended Approach
Connected job budgets, actual costs, updated estimates to complete, work in progress (WIP) schedules, and billing activity to give management a clearer view of project performance. Reviewed labor productivity, cost overruns, and projected margins to identify jobs needing attention. Compared bid results by project type, customer, and pricing to guide future estimates. Management dashboards brought backlog, billing, and cash requirements together to support scheduling and spending decisions.
Financial Impact
Identify margin erosion earlier, make better-informed bidding decisions, improve WIP reporting, and anticipate the cash needed to deliver contracted work.
Steps in the Approach
- 01Strengthened job costing: Compared budgeted and actual labor, material, and subcontractor costs to identify overruns and focus management attention on jobs needing action.
- 02Updated projected job margins: Reviewed remaining project costs and refreshed estimates to complete so management could address emerging margin pressure.
- 03Improved WIP reporting: Brought job costs, estimated costs to complete, earned revenue, and billings into a consistent monthly schedule to explain project performance and billing positions.
- 04Refined bid evaluation: Used actual job performance and bid outcomes to guide pricing, estimating assumptions, and project selection.
- 05Connected backlog and cash planning: Compared upcoming project spending with expected billings and collections to identify potential cash shortfalls.
- 06Established a consistent management review: Presented job margins, cost variances, backlog, and cash requirements together so leadership could prioritize corrective action.