BBI: Want to boost your margins? Cost-cutting doesn’t work

Mark Worrall, CEO of BBI Services, explains why common approaches to cutting costs on construction projects are often counterproductive.

“Business, even when conducted with the best of intentions, is ultimately about making money. 

You can be passionate, driven, dedicated to quality, and committed to providing your customers with the very best customer service, but if you’re not turning a profit, then you very quickly find yourself in trouble.

That’s why so many firms up and down the construction supply chain are so fixated on the cost rather than the value it brings. Lower costs equal higher margins, which means more profit, and a healthier, more successful business.

So, on the surface, at least, it’s a no-brainer – why wouldn’t you strive to minimise cost in every aspect of what you do?

The real trick is being able to identify and eliminate anything that doesn’t add value.  But in reality, more often than not, an excessive focus on cost-cutting can often lead to the opposite effect. 

For instance, research has identified that productivity in the construction sector has flatlined for 20 years even though other sectors have dramatically improved [1].

While another investigation has identified that more than a fifth (21%) of project costs are wasted because of poor quality [2].

Therefore, tackling both productivity and quality will have a dramatic impact on costs, but also programme and client satisfaction. 

Following a productive and right-first-time process will create a safer site. This is supported by research which highlights 39% of safety issues were quality related, with injury more likely to occur when performing rework [3].

Focus on what adds value

Most companies focus their cost-cutting efforts at the start of the project – on cutting or squeezing the money spent on materials, hiring of contractors and so on.

But much of the cash that’s wasted is often found during the build process, when errors and delays created by poor planning, productivity, quality or implementation have been affected and need to be remedied. 

So, if your cost-cutting attempts are solely focused on reducing the initial outlay earlier on in the project – getting materials more cheaply, hiring cheaper contractors etc – you actually run the risk of increasing these costs, not cutting them.

If you get material that’s of a lower quality, delivered by less reputable suppliers, and fitted by tradespeople with less experience and professionalism all because your overriding objective has been to cut costs, the quality of the finished project is going to suffer – which means cancelling out any savings you might have made when costly rework is required.

Let cost take care of itself

At BBI Services, we believe that a totally different approach is required. It’s not about obsessively focusing on cost. It’s about rigorously tackling issues around quality, productivity, value, and safety – which, if you solve them, mean that cost will take care of itself.

When it comes to thinking about cost, we drive the businesses we work with to not just think about the money they spend up front, but really explore, challenge, and streamline all operations to remove waste and embed value right first time, every time.

So, when you think about it, it’s quite simple – do you ask procurement to find the cheapest quote? Or would you rather pay slightly more for a better company that gives you a trouble-free process, products and who engage with you collaboratively?

A common response we receive to this line of argument is ‘if we can’t competitively tender, then how can we get a competitive price?’

Is it that simple?

But it’s not as black and white as that. It’s perfectly possible to work with a supplier to collaboratively improve productivity, streamline processes, drive quality, and optimise logistics. 

In doing so, you will drive value up and remove unnecessary wastes, which in turn cuts costs and allows you to reap the benefits of working with more reputable and professional organisations. 

If you really want to cut costs, think of productivity, quality and health and safety as a triangle, with cost in the middle. Work to get the tangible three aspects right, and costs will automatically be reduced.

And don’t forget to implement lessons you’ve learned on previous projects to maximise performance on the next one. All too often, we see businesses who’ve been doing things the same way for twenty years, missing vital opportunities to streamline their processes – but the truth is we need to make small steps everyday to create real change.

We can help you

At BBI, we help some of the construction sector’s biggest and most established businesses do better.

By rigorously honing their processes, driving sweeping cultural change, and ensuring that best practise is common practise in every sphere, BBI supports world-leading organisations become more streamlined and effective.

We can do the same for you – and ensure you become more sustainable than ever before.

Interested in learning more? Call 01608 664589 today.” 

To find out more about how you can make a real difference to how your business and team operates visit: www.bbiservices.com   

Sources

1: Quality report GIRI: http://consig.org/wp-content/uploads/2019/01/GIRI-strategy-for-change.pdf

2: Construction Productivity Taskforce: https://www.bethebusiness.com/construction-productivity-taskforce/

3: Unearthing the Nature and Interplay of Quality and Safety in Construction Projects: An Empirical Study