One of the most stressful parts of being in the construction industry is that work is never certain. You’re a contractor, and that means you bid on jobs. If you lose ten or more bids in a row while your other jobs are wrapping up, it may seem like you’re about to have no work at all. That translates into no income, which can be very stressful. But if you underbid on a number of jobs and win them all, suddenly you’re going to have so much work that you can’t possibly get everything done on time. Managing your backlog is key to making sure you always have projects going on and money coming in.
You may feel like the more contracts in your backlog, the better. This shows that you have a lot of revenue lined up and can grow. However, that’s not always the case. If you have huge projects lined up, you may have to expand to be able to complete them and other projects on time. But then what do you do with this large crew and all that equipment after the project is done? If you can’t keep getting large projects, you’ve over-extended yourself. If you don’t grow to cover these projects, you could lose some of those contracts by being unable to fulfill them. That leads to a tarnished reputation. If you can’t keep your backlog manageable, you’ve got a problem. Here are some tips for dealing with the risks that come with your backlog.
Risks You May Face
There are a number of different risks you may face when it comes to your backlog, but fortunately, there are also many tools that can help you deal with these risks. To make full use of these tools, you need an expert who understands how to use them to assess your risks. For construction companies, that expert is a surety bond underwriter. These professionals will be able to take a look at your income, your awarded contracts, and your schedule to determine where you stand and what risks you face. In particular, they will look at the following areas:
Your Work In Progress Schedule
The first area to examine is how much work you have in progress. This includes any project you’ve started or have done any work on. An underwriter will be able to use this to determine the percentage of your backlog that’s being worked on, its overall size, and when you should get to other projects.
In most cases, an underwriter will be able to use your WIP information to forecast your balance sheet for the upcoming 12 months which will give you an idea of what income you can expect. Although, keep in mind that the actual revenue you generate could be more or less than the forecast depending on a wide range of factors.
Assessments of Worksites
While your surety underwriter may not understand everything you’re doing on a construction site, they’re still able to look at the organization and productivity levels. They can use this to get an idea of where you are on the project and gauge your crew’s overall efficiency, which in turn will allow them to better forecast how much of your backlog you’ll be able to handle within a year and how consistent you will be.
Overall, the conclusions your underwriting will be able to draw will give you an idea if you can take on more contracts or if you’re already overextended. If your forecast is relatively low and your on-the-ground assessment was good, you can likely add a few more projects to the backlist. On the other hand, if your evaluation wasn’t the best, you may already be unable to handle the backlog, and taking on more projects won’t help your anticipated profit forecast.
Tips for Managing Your Backlog
If you’re concerned about your backlog, these tips will help you keep it under control.
- Follow up on any bid you submit, even if it was already awarded. Thank the client for their consideration and ask if there’s anything you should change in order to be more competitive the next time. Stress why you believe your company could do the work better. Even if the bid has been awarded, the project isn’t truly lost under the final contracts have been signed.
- Know what the cost of the job will be, what your profit margin is, and what you can realistically afford to negotiate. Never take on a project that you won’t make money on – it just takes up time that could be spent on a more rewarding job. Likewise, if you’re losing bids, look at where you’re pricing your services. You could be inflating your costs too much.
- Don’t expand just because you can win the bids. Approach expansion carefully and make sure you can sustain the growth.
- Know what your capacity is. Understand how many projects you can realistically work on at one time without over-extending your crew. If you’re approaching that limit, take steps to get things under control.
Having a large backlog or a few giant projects in your backlog can be risky. You may take on too much and find that you just can’t keep up, or you may underestimate your team and not have enough work. By having an expert help you analyze your projections, you can learn how to maximize your revenues and grow at a predictable and successful rate.