issue one 2015 - fminet.com€¦ · publisher and departmental editors senior editor jerry jackson...

Quarterly issue one

2015

Strategy Rick Tison

Market Research Randy Giggard

Business Development Cynthia Paul

Operations/Project ExecutionEthan Cowles

Risk Management Terry Gray

Compensation Sal DiFonzo

Peer Groups Kevin Kilgore

Mergers and Acquisitions Chris Daum

Valuation Curt Young

Ownership Transfer Landon Funsten

Private Equity Alex Miller

Leader and Organizational Development Tom Alafat

Talent Development/Training Ken Wilson

Succession Planning Jake Appelman

CONTACT US AT:[email protected]

Board of Directors

Hank HarrisPresident and Chief Executive Officer

Stuart PhoenixChairman

Jason BaumgartenChris DaumLandon FunstenScott KimplandKel LandisCharles ThorntonScott Winstead

Copyright © 2015 FMI Corporation. All rights reserved. Published since 2003 by FMI Corporation, 5171 Glenwood Ave., Raleigh, North Carolina 27612.

Printed in the United States of America.

Departmental EditorsPublisher andSenior EditorJerry Jackson

Project ManagerSarah Avallone

Group ManagerSally Hulick

Graphic DesignerMary Humphrey

Information GraphicsDebby Dunn

Cover Photographer Bryan Regan

DEAR READER

We are making some (more) changes! 4JERRY JACKSON

QUARTERLY FEATURE

Interpreting the Future: The Value of Strategic Thinking 6PAIGE KELLY, EMILY LIVORSI AND RON MAGNUS

QUARTERLY INTERVIEW

Profitable Payback — Redeploying America’s Military Veterans to Meet Talent Needs 16MIKE CLANCY

SHORTS

Baby Boomers: It Is Time for a Sense of Urgency 28KEN ROPER

Assessing the Value of Private Equity 32ALEX MILLER

Take One: It’s Opening Night and Seats Are Available 36ANDY PATRON

Productivity Sells 40TYLER PARÉ

Big Data? Let’s Talk “Little Data” First 44MIKE DOW AND JEREMY BROWN

Redefining Field Logistics in Canada’s Oil and Gas Industry 50SABINE HOOVER

The Basic Ingredients of an Accurate Cost-to-Complete Estimate 54SCOTT KIMPLAND

Data-Driven (Business) Development 60DAVID MADISON, RICK TISON AND TYLER PARÉ

Improving Practice Effectiveness Part 2: Taking Action 66R.K. STEWART, FAIA AND STEVEN ISAACS, P.E.

Where to Profit From the Changing Electric Generation Market 71DANIEL T. SHUMATE

SOPs Don’t Make It So 76ETHAN COWLES

How to Build a Project Risk Assessment Process 81RYAN HOWSAM AND JOE POLIAFICO

CEO Insights: Part 1 — Defining the Role of the CEO 86PHIL WARNER

Establishing a “Lean” Standard 91JIM SCHUG

ZURICH FEATURE

Building Strategies to Prevent Water Intrusion 98ERIC LAMBERT

Dear Reader,

We are making some (more)changes!

2015 issue 1 FMI QUARTERLY � 5

T he FMI Quarterly is moving to a (mainly) digital format. We want tomake our journal as portable as possible so that you will always have it within reach as long as you have a tablet, smartphone, laptop or

computer terminal handy. Here are some things you should know:

• We will make this switch to (mainly) digital for the third issue of 2015.• If you still want a printed copy, we will make available a print-on-demand

version you can purchase through Amazon.• You can sign up for electronic distribution on our website:

www.fminet.com/newsletter/ • You will be able to read new articles as they become available without

waiting for the digital journal to be released by visiting our Quarterly website: www.fmiquarterly.com

• You can distribute digital copies of articles to clients and colleagues without additional charges.

The primary drivers of this decision are the growing demands to stay informed through electronic media and to support a green initiative. In addition, the design is shifting to a more streamlined look utilizing graphics and photography. Perhaps you have noticed some of our early efforts towardthis artistic change in 2014. We will continue to hone our look until we are satisfied that it supports our content in a highly professional manner.

We welcome your comments and suggestions as we continue to evolve theFMI Quarterly with our aim to provide the best possible thought leadership publication for the design and construction community.

Sincerely,

Jerry Jackson, Publisher

Leaders at all levelsfocus more of their efforts addressing the urgent issues versus important ones —the tactical ones versus the strategic ones.

e ability to think strategically in the construction

industry has become acompetitive advantage.

W hat leadership skill set is 10 times more

important in driving perceived effectiveness than

others? And what skills are almost 50 times more

important than hands-on tactical behaviors?1 Thinking strategically,

composed of a set of critical leadership skills, is differentiating the

top companies in the industry compared to others who never foster

and develop this skill set in their leaders. How do these skills impact

what happens on an annual basis in your own company? See if you

can relate to our next scenario.

Twenty of your top leaders are convening for your annual business-planningmeeting. The agenda is set, location booked and hours blocked to polish and finalize next year’s goals. Yet, when the day arrives, it feels oddly like déjá vu.The conversations focus on the same topics discussed last year and the teammoves through the motions of identifying goals for the year ahead. Somethingis missing. Absent are: insights about how your organization is faring in themarket, an understanding of your company’s market share and feedback fromthe marketplace on how you perform. Additionally, there is a dearth of ideas for innovation. The meeting continues but this need for deeper market understanding and lack of positioning for the ambiguous complexities of the industry is never addressed.

PAIGE KELLY, EMILY LIVORSI AND RON MAGNUS

Interpreting the Future: The Value of Strategic Thinking

QUARTERLY FEATURE

8 � interpreting the future: the value of strategic thinking

Across town, your competitor has leapt into action by injecting new ideas, creating targeted plans and infusing fact-based market research into itsannual business-planning meeting. The competitor has adjusted productivitypractices, entered adjacent markets based on research, and is exceeding clients’needs — all while remaining laser-focused on developing its talent and poachingyours. Its focus on why it exists and how it will live that out has inspired all

inside the company. As a result, your competitor’s market share is increasing while yours seems to havestagnated or even reduced.

Halfway through the year, you are wondering when the subtle industry movements turned intomajor trenches for which your company must dig its way out (shifts in construction methods, new technologies, resource shortages, leadership gaps). Your

clients’ increasing expectations of completing more and more complex scheduleson tighter budgets continues to press your team’s close rates, customer serviceand margins, while your competitor is faring far better despite the similaritiesin your businesses. Familiar scenario?

The ability for an organization’s leaders to think strategically about the current and future states of its operations decreases the likelihood that industrydisruptions will take you by surprise. Outside of our industry, we see numerousexamples of industry disruptions by innovative ideas and businesses. One notable example is Uber. By and large, taxi businesses failed to see Uber on thehorizon. Uber, a transportation service that connects passengers with drivers inminutes by way of a user-friendly application, has disrupted traditional taxiusage. Spotting a threat on the horizon is only the first step; strategic thinkingskills also determine how we respond to disruption.

The rapid pace of change in the construction industry is resulting in leadersfalling behind. Growth in size of projects, implications of the warming of theearth and its impact on agriculture and livestock, technology improvements,globalization, aging and pending retirement of talent, energy changes, oil andgas growth, consolidation in the A/E/C space, sustainability, maintenance andservice, and P3 have had drastic impacts on our industry. Yet, too often leadersfail to think strategically about what these trends mean for their businesses and thus, fail to respond to disruptions. Rather than continually dealing withtactical decision-making, senior leaders should stop and clarify the many differentinternal and external factors influencing their business’s success. Yet, leaders at all levels focus more of their efforts addressing the urgent issues versus

The rapid pace of changein the construction industry is resulting inleaders falling behind.


important ones — the tactical ones versus the strategic ones. The ability to thinkstrategically in the construction industry has become a competitive advantage.

If you examine our industry today versus 20 years ago, there are a number ofaspects that have not changed — many tools of the industry, the art of masonrywork and need for manpower on the job site, for example. In the same breath,we can say that a great many aspects have indeed changed — the introduction ofnew technologies influences productivity, how we track equipment and materials,along with new construction and design methods. We can have instant access to change orders with the touch of a screen in four offices scattered across thecountry (or globe). How have transformations to the industry in the last 20 yearschanged your business? As the leader at the helm, were you able to adapt andadjust or did you lag behind? Organizations led by strong strategic thinkersidentify and ride the changing tide rather than getting swept under.

Strategic Thinking vs. Strategic PlanningYou can see that strategic planning sessions would benefit greatly from

more strategic thought. These two closely related topics warrant distinctionfrom one another. At its essence, strategy translates into an organization’s abilityto transform its resources into a source of advantage and differentiation. Manyconstruction companies pursue strategic planning as a source of competitive advantage, and yet a strategic plan is only as good as the thinking behind it (Exhibit 1). Often, strategic plans involve little true strategic thinking and resultin a plan that lacks an innovative, data-driven or long-term focus approach.Strategic planning without thinking strategically is simply a plan. In the samevein, strategic planning provides a method for organizing innovative, data-drivenand long-term thought. Strategic thinking without a strategic plan lacks clearobjectives and short-term execution plans. To advance the organization’s goals,both need to be present.

1EXHIBIT STRATEGIC THINKING vs STRATEGIC PLANNING

VS

STRATEGIC

THINKINGSTRATEGIC

PLANNING

Pro ss-Ori tedrocess-Oriente

Conti ued Long TermCo tinued Long Te m

Data D iven mergent Macro T endsa-Dri Eme nt M o Tre s

Emergent and AdaptableEm Em gent a nt Adaptable Adaptable ble le

Leve f the gan z on ar nvo vAll Le vels of t he Orga nization are Inv olved

Lon - erm Su cessg-Te Succ

Product-Orientedt O

Yea arsShor T m 5 Sho rt Term 2-5 Ye

D a Dr e P du t T e dsData-D Trendiven Product

neLinear

Senior-L e ecisionS sLevel D

Short-Term SurvivalTerm Su


Intentional use of strategic thinking during planning results in a differentiated strategy — one that addresses changes in industry needs, yourcurrent market share and objectives to increase your market share in the future.Strategic thinking is a process, a way of thinking about your business in the context of the industry and global setting. Strategic planning, on the otherhand, is primarily product-driven. The end product is a set of goals and objectivesfor the next two to five years of the organization, whether that is entering amarket, targeting growth in revenue number or acquiring talent.

In planning, great strategic thinkers take a long-term outlook (10–20 years).Leaders who have this long-range skill improve strategic planning sessions bypushing their teams to develop goals aligned with enduring success instead ofquick wins. Strategic thinking emphasizes universal, macro trends — those thatoften have impacts beyond the construction industry, such as urbanization inemerging and developed markets, large-scale disruption of technology or thecolossal shift from baby boomer dominance to millennial representation. Strategic planning incorporates the analysis of the macro trends to include their immediate effects on your business — for example, decisions for current

projects, those in the pipeline or obvious hot spots in the industry.Hence, competitive advantage for anorganization comes from integrationof longer-term and short-term implications of trends, looking forimmediate wins as well as the sustainable path forward.

In the industry, we have seenmidsized firms use great strategicthinking and planning to make deliberate choices about seizing

projects. With a long-range preference and a great sense of macro trends and industry market knowledge, they choose to let their competition take lower-margin work early on, waiting for the market to become saturated. Firms likethese use strategic thinking and planning to identify the right projects to divein, ultimately capturing margins that make them the envy of their peers.

So who is involved in strategic thinking and planning? While strategic planningis typically reserved for executives and senior leaders who can leverage advancedindustry knowledge and business acumen, strategic thinking is a skill set thatcan (and should) be developed at every level of the organization. With the currentdemographic shifts in the workplace, it is critical to invest in junior talent’sthinking strategically skills. Because of significant generational gaps in availabletalent, it is likely that younger leaders will participate in strategic planning sessionsearlier in their careers than will their predecessors. While strategic thinking is a

Intentional use of strategic thinking duringplanning results in a differentiated strategy.


necessity at all levels of the organization, it may be even more critical to investin developing your high-potential junior talent’s ability to think strategically.

Strategic thinking and strategic planning are both essential to an organization’s health and future relevance. Strategic thinking is the motor thatdrives long-term success, with individuals looking out beyond the immediateneeds of an organization to determine the path forward. A constant emphasison thinking deeply, challenging assumptions and driving change benefits theimmediate and distant future. Strategic planning acts as the checkpoints alongthe path, providing structure and specific objectives and measures to guide the strategic thinking process.

The Vital Role of Strategic Thinking in Your OrganizationIn a 2013 study conducted by Management Research Group (MRG), out of

more than 10,000 senior executives, strategic leadership behaviors appeared asthe most critical behaviors to their organization’s future success 97% of the time.2

FMI describes strategic leadership as providing vision and direction for the enduringgrowth and success of an organization. It is the ability to successfully deal withchange and ambiguity through creating common purpose, buy-in and alignmentwith workgroups supported by sound strategy formulation and implementation.

FMI’s recent research also suggests that strategic leaders are more likely to be engaged in their job. Employee engagement, or being fully immersed inyour working role and aligned with your organization’s goals, is a hot topictoday across organizations. Knowing that the total cost to the U.S. workforce ofdisengaged employees is $450 billion to $550 billion,3 companies are interestedin identifying ways to foster a highly engaged workforce. Disengaged employeescost a company in productivity, are more likely to steal from the organization, and negatively impactthe workforce and lower morale. Our research suggests that when employees spend time focusing theirthought and energy on strategicthinking, they are more engaged intheir work. Higher scores on FMI’stool for assessing strategic thinking,the Think Strategically Indicator(TSI), may clue leaders into employees more vested in their work and those who need additional challengeor motivation. Organizations in the industry that truly challenge high-potentialleaders’ thinking strategically skills offer rotational assignments to get leadersthinking about the greater business system, ask leaders to participate in innovation think tanks, and join strategic initiative committees charged with

Strategic Leadership Providing vision and direction for the enduring growth and success ofan organization. To successfully dealwith change and ambiguity throughcreating common purpose, buy-inand alignment with workgroups supported by sound strategy formulation and implementation.


investigating trends and proposing what the industry will look like in 10–20 years.Strategic leaders, as the name suggests, aren’t just great thinkers; they also

lead. Think for a minute about some of the leaders you admire inside and outsideof the industry. Were they reactive? Always putting out fires? Stuck in the past?Reinventing the wheel? When you think about truly great leaders, likely the answers to these questions is a resounding “no.” Instead, the leaders we admireare often the visionaries, ahead of the curve, well aware of market complexities,thinking about the big picture and doing a great job at inspiring their teams and organizations to think in the same capacity.

Recent FMI research findings suggest that the most effective strategicthinkers are also seen as leaders and mentors. In the industry, we rely on mentoring as an effective tool for building the next generation of leaders. Mentoring, where a more senior individual provides career development andsupport to a more junior employee or “protégé,” is critical for skill-building andcareer growth. However, in order to be a truly great mentor to your employees,your people have to respect you. Based on our findings, great strategic leadersare respected by their direct reports and seen as mentors. The implication here is that junior leaders are driven to learn from people who are thinkingstrategically. A mentorship between a strategic leader and a high-potential employee could greatly benefit the latter’s own strategic thinking skills.

So what does that look like for our industry? How can we build our leaders’ thinking strategically skills in the near term? Based on our work withorganizations and research, the following tools may provide a first step in building a strategically thinking talent pool:

• Have senior estimators, project executives and directors (or other blendedteams) hold sessions every few weeks to introduce business concepts to junior leaders.

• Task a team of junior leaders to tackle an ongoing challenge at your company to come up with and execute the solution with the guidance ofsenior leadership.

• Encourage younger leaders to meet with mentors or more senior leaders to discuss industry changes and macro trends likely to affect the long-termsuccess of the organization.

While there are many more developmental assignments that can increaseyour leaders’ abilities to think strategically, offering these ongoing opportunitiesto develop and mentor high-potential leaders should stretch their skill set andstrengthen your bench of future strategic leaders.

Building strategic leaders for the future of your organization and inspiring learning at junior levels of leadership fuel continual success, but howdo you know where your leaders stand today? Before we can assess our leaders’


strategic thinking skills, it is critical to zoom in and understand the elements of great strategic thinking.

What Does Thinking Strategically Entail?So what does it mean to be a great strategic thinker? Based on extensive

research, we identified eight factors that are critical to thinking strategically: (1) Mental Flexibility, (2) Intellectual Curiosity, (3) Creativity, (4) Intuition, (5) Information Gathering, (6) Analysis, (7) Systems Thinking and (8) DecisionMaking. Combined, these factors allow leaders to maximize their ability to thinkeffectively about challenges and opportunities that their organizations face.

You may have some ideas about your leaders’ strengths and weaknesses onthese factors. Perhaps your team has always applied logic to decisions and hasexcelled at analysis but has struggled to demonstrate creativity when it comes todeveloping unique solutions to problems. For example, FMI has worked with anumber of firms that have strong analytical skills but have developed creativityskills to find work more strategically. Specifically, organizations that study economic development, immigration and demographics as a way of determiningneeded infrastructure in specific areas around the world has proven an innovativesolution to develop greater geographic reach. As leaders, we tend to build strongskills in a few of the strategic thinking areas but need additional development

The ability to shift a course of thought or action according to the changing demands of a situation

An internal drive to invest time and energy to learn and push your thinking

Generating unique approaches and solutions that add value to challenges or opportunities

The ability to recognize intuitions and use them to guide the decision-making process

The ability to identify, collect and absorb relevant data

A method of interpreting information and drawing conclusions based upon logic and fact

Enhancing awareness of how decisions, actions and people in!uence one another from a broad perspective

Using sound, timely judgment to select the best choice from alternatives

STRATEGIC THINKING: The on-going process that in!uences a broader, more anticipatory approach to strengthen your competitive advantage

Mental Flexibility

Intellectual Curiosity

Creativity

Intuition

Information Gathering

Analysis

Systems Thinking

Decision Making

2EXHIBIT THINK STRATEGICALLYFACTORS AND DEFINITIONS


in others. Where we focus our time when making a big decision generally depends on our worldview and past experiences.4

Worldview exists at the center of the Think Strategically model and influencesour personal values and attitudes, which impact how we demonstrate the skillsin the outer ring (i.e., the eight factors). If you strongly believe that all best decisions are based on logic and analysis, chances are that you willplace more value thereand focus your time tobuild your analytical skills(and that of your team’s).Without a baseline ofwhere your team excelsand where you need development relative tothinking strategically, how would you improve?

Applying the TSI: Building Individual Skills

The TSI is an onlinetool that provides a quickand relatively easy way to determine how you andyour team measure up when it comes to thinking strategically. Results from the tool create actionable steps for individuals to follow and develop their thinking strategically skills. An individual low in intellectual curiosity may lack alternative perspectives to attack a problem differently. By being versed in outside industry knowledge, your employee might apply a standard from a different industry to increase productivity at your site. For example, in 2013,Toyota partnered with the Food Bank of New York City and helped streamlineefficiencies in its food distribution processes.5

The knowledge and understanding of processes and systems outside the immediate industry provided context within an unrelated industry. To increaseintellectual curiosity and push thinking, the individual could choose two nonindustry-related news sites (that peak his/her interest) to regularly read orsubscribe to for information. Expanding and pushing the individual’s thinkingcould result in additional ideas and success for your business. These action stepswill affect pursuit of knowledge and expanding personal networks, two elementsdirectly related to intellectual curiosity.

3EXHIBIT THINK STRATEGICALLY


Building Great TeamsGreat teams are diverse in composition, where each team member brings

unique perspectives, knowledge areas and skill sets. When it comes to strategicthinking, the same rules apply. Teams that have diverse strategic thinking skillsets are more effective compared to those where only a few skills are present.For example, perhaps you have experienced a team that relies solely on intuitionor gut feeling when it comes to making a tough decision. Though intuition has its place in decision-making, without sufficient analysis and informationgathering, the result can produce poor outcomes. If a team is weak in creativity,it may not generate adequate alternatives to solve a problem. Instead of thinkingabout different approaches, the team continuously looks to see what it has donein the past. This lack in creativity can provide gaps in advancement or addressingdisruptors in the industry.

ConclusionThinking strategically often seems ambiguous and abstract. Understanding

your leaders’ strengths and areas for development can help you better developyour employees, both next generation and senior executives alike. With focuseddevelopment and a baseline to work from, individuals can improve their abilityto think strategically. In our industry, with the tendency to gravitate towardnumbers and hard facts, learning to develop certain think strategically skills suchas being more mentally flexible or creative can be challenging. Strategic thinkingcontinues to pose a serious competitive advantage to those organizations thatdo it well, and it can benefit business activities such as strategic planning. Don’t be back in the boardroom, creating duplicate business plans year afteryear. Develop and nurture strategic thinking at all levels of your organization to catapult ahead of the competition. Q

Paige Kelly is a consultant with FMI Corporation. She can be reached at 303.398.7254 or viaemail at [email protected]. Emily Livorsi is a consultant with FMI Corporation. She can bereached at 303.398.7216 or via email at [email protected]. Ron Magnus is a managing directorwith FMI Corporation. He can be reached at 303.398.7217 or via email at [email protected].

1 Kabacoff, Robert. Harvard Business Review. Develop Strategic Thinkers Throughout Your Organization. February 7, 2014. http://blogs.hbr.org/2014/02/develop-strategic-thinkers-throughout-your-organization/

2 Kabacoff, Robert. Harvard Business Review. Develop Strategic Thinkers Throughout Your Organization. February 7, 2014. http://blogs.hbr.org/2014/02/develop-strategic-thinkers-throughout-your-organization/

3 Gallup World. State of the Global Workforce. October 8, 2013. http://www.gallup.com/strategicconsulting/164735/state-global-workplace.aspx

4 “The Key to Effective Leadership: Understanding Your Worldview” FMI Quarterly, 2014 Issue 2

5 El-Naggar, Mona. The New York Times. In Lieu of Money, Toyota Donates Efficiency to New York Charity. July 26, 2013. http://www.nytimes.com/2013/07/27/nyregion/in-lieu-of-money-toyota-donates-efficiency-to-new-york-charity.html?pagewanted=all&_r=0

T he engineering and construction industry is facing

a dramatic threat to its ongoing existence; finding

sufficient talent to meet the staffing needs of an

industry suddenly resurgent due to America’s energy renaissance.

In this interview, FMI’s Mike Clancy speaks with Col. Miguel Howe, USA,

Ret., Director of the Military Service Initiative for the George W. Bush

Institute. Col. Howe shared some of the many benefits military veterans

can provide to the construction industry, as well as his thoughts on

how industry firms can capitalize on the upcoming drawdown in the

military services to fill their talent pipelines.

Clancy: Col. Howe, thank you for making time to speak with me. What isthe Bush Institute all about, and what are some of the things you are doing onbehalf of former President Bush?

Col. Howe: The Military Service Initiative is just one of seven policy areas at the George W. Bush Institute. We are located here in Dallas alongsidethe Bush Library and Museum. We are a 501(c)(3) policy institute, which is designed to pursue the values, policies and principles that drove the Bush

MIKE CLANCY

Profitable Payback —Redeploying America’s Military Veterans to Meet Talent Needs

QUARTERLY INTERVIEW

Col.

Mig

uel H

owe

18 � profitable payback — redeploying america’s military veterans to meet talent needs

family’s decision-making and public life now that they are private citizens. Ouroverarching themes here are leadership and service in the pursuit of freedom,and so there are six areas that come from that:

• The global health initiative, which among other efforts is the primary program combating women’s cervical cancer in Africa.

• The education reform initiative, which focuses on accountability, improvingmiddle schools and developing leadership among principals.

• The economic growth program, which pursues financial policy, immigrationpolicy and North American Policy across the U.S., Canada and Mexico inorder to advance our economy.

• The human freedom program,where we provide a platform for dissidents and freedom advocates around the world.

• The women’s initiative, which Mrs. Bush is particularly passionate about, whether it is an Afghan women’s program or empowering Middle Easternwomen.

And the last program that I runis called the Military Service Initiative.We exist as a result of President andMrs. Bush’s vision to honor the serviceand sacrifice of all post 9/11 veterans and military families by facilitating a successful transition and reintegration from military service to civilian life.

Clancy: Why is the Bush Institute so focused on placing military veterans in civilian jobs?

These are the folks who will raise theirhands as volunteers toserve our nation and also serve during timesof great danger.

Colonel Miguel Howe, USA, Ret. is the Director of the Military Service Initiative

at the George W. Bush Institute. As the Director, Colonel Howe is responsible for

leading the Bush Institute’s work to honor the service and sacrifice of post-9/11

veterans, service members and their families. The Military Service Initiative will work

to unite the efforts of non-profits, businesses, universities, individual citizens and

communities to empower all post-9/11 veterans to continue to serve as national

assets after they take off the uniform.

http://www.bushcenter.org/people/colonel-ret-miguel-howe


Col. Howe: There are three main reasons. First, the moral and social imperative, in that there are 2.6 million veterans and approximately 1million to 1.5 million currently serving military members who will separate from service over the next five years. Basically, we are looking at a population of about4 million as well as about 6 million family members. These are the folks who willraise their hands as volunteers to serve our nation and also serve during timesof great danger. They are the ones who have borne the sacrifice of that.

The second reason is that this is about our national security. We have hadan all-volunteer force since 1973, not a draft, and while I have no doubt thatyoung people will always raise their hand to the nation’s call, theirpreferences to do so will be impactedby their influencers: parents, teachers, coaches, clergy, bosses,community leaders and friends whoare all watching to see what happenswhen you’re a two-time volunteer. Is your life better for your service and your sacrifice?

And then the third reason is thematter of global competitiveness.These men and women come homeafter taking off the uniform andleverage that experience, education,values, discipline, technical training,skills and education.

People are sometimes surprisedto hear that over 99% of all post 9/11 graduates have a high school diploma or equivalent. Seventy-two percenthave some college and a good chunk of those at least an associate’s degree; 32% of all vets have a four-year degree or higher. These folks come home andstart new businesses at a higher rate than nonveterans (13.4% versus 9.2%, respectively) and they succeed at a higher rate than nonveterans. They comehome and lead our existing businesses, whether those entities are Fortune 500firms or small businesses, which in turn drive our economy. They are going tofill critical skilled labor positions, 600,000 of which are unfilled right now.

They are also going to be agents for change in our community; they will come home and run nonprofits, youth sports leagues and city and local government, and help with our health care and education problems. By empowering these veterans, we then empower resourceful, determined and experienced leaders who will serve our nation and serve our communities fordecades to come.

These men and women come homeafter taking off the uniform and leverage thatexperience, education,values, discipline, technical training, skillsand education.


Clancy:What specifically does the Bush Institute do to facilitate these efforts?Col. Howe:Our specific work includes researching and developing resources

that currently don’t exist and providing presidential recognition and a spotlightto showcase organizations and leaders that have developed successful models to do this right. We are looking to unite and empower communities, businessand nonprofits, universities, colleges and technical schools and individual citizens so that they can effectively support these men and women in the areasof employment, education, health and wellness, housing, families, and women’sand veterans’ issues. So the first veteran transition area that we started working

in is this one — employment — and a big reason for that is from the veterans themselves.

Our research tells us that employment and education are themost important issues for 2.6 millionvets. For the vast majority of them,it’s about finding the right job, notjust for financial reasons, but also as a way to redefine their purposes. One of the great things the militaryprovides to the men and women whoserve is a higher calling or a sense ofpurpose that comes from serving anddefending your nation and all thatthat entails. Veterans are often looking for a similar sense of purposefrom their post-military employment.

One of the friction points for employment of vets is the stigma and negative stereotypes that comewith military service (including post-traumatic stress). A sense of purpose and meaning — and

meaningful employment — is probably one of the most powerful things there isfor those vets that do deal with issues like post-traumatic stress. The presidentwas very clear in February and he was absolutely right in that post-traumaticstress is a barrier that hiring managers, personnel managers and some supervisorshave when they think of veterans. Quite frankly, PTSD should not be any moreof a barrier than, say, diabetes. Post-traumatic stress is a natural, normal humanreaction to the horrors of war, but it occurs at a much lower rate than peoplethink. That is one of the ironies; our service members are much more resilientthan the public expects.

Our research tells usthat employment andeducation are the mostimportant issues for 2.6 million vets. For thevast majority of them, it’s about finding theright job, not just for financial reasons, butalso as a way to redefinetheir purposes.


Clancy:What do you see as the key strengths that military veterans can add to the civilian workforce?

Col. Howe: Common to most service personnel are values like loyalty, duty,respect, honor, integrity, personal courage and commitment. These valuestranslate into trust on the part of the supervisor, the employer, the companyand that particular employee. That has a huge and obvious importance both financially and productivity-wise.

The second value is work ethic — that sense of mission our service membershave, and the responsibility of accomplishing it. These are employees you cancount on because of that work ethic.

Additionally, the overall level of health and fitness of the veteran is muchhigher than your average nonveteran. It’s ironic that given the focus of themedia on things like injuries and post-traumatic stress, there is a requirementfor a level of fitness just to get in and then it’s a lifestyle that fosters that. So that is clearly going to mean less time away from work and lower health insurance costs.

Technical skills and training. All of our service members, regardless of job(military occupational specialty), have demonstrated on a daily basis technicalskills that come with the equipment that’s used, whether it be vehicles, optics,weapons, communication systems, computer systems or reporting systems, notto mention the advanced technicalskills that come with a particular job set. Those technical skills and the basic training and education that come with military service produce a strong candidate for employment, possessing technicalskills and training in followership — the ability to be a team player inorder to meet the requirements.

Now as our vets become more senior, say maybe at the first-line manager level of the noncommissioned officers, we startadding to that leadership training, including the basic warrior leadercourse formerly known as the primary leader development course.This provides the purpose, motivationand direction to get the job done — basic leadership. Part of that leadership alsoincludes situational awareness, judgment and decision-making. This results invets not having to be told what to do but knowing what needs to get done,

That sense of mission our servicemembers have, and the responsibility of accomplishing it. Theseare employees you can count on because of that work ethic.


whether on the job site or on the assembly line or supervising the transportationsection. Leadership first and foremost. The team-building that comes with our first line managers and leaders, our NCOs and even our junior enlisted provides great experience with diversity and interpersonal skills. Also, veterans learn the ability to communicate — whether it is in atime-compressed environment wheredirect communication is essential or in a situation with a bit more time available — the ability to helpthe team understand why we aredoing what we are doing, and howimportant it is.

Then, as our vets gain seniority,we add to their skills set resourcemanagement, problem-solving,strategic planning, and other skillsthat position our NCOs and officersas entrepreneurs.

Those are some of the qualitativetraits and values that the vets bringto the table, but there are also quantitative reasons to employ veterans. TheCouncil for Executives in Business (CEB) did a study of 100 of the Fortune 500companies and found that there is a much higher retention rate and performancefor veterans than nonveterans.

Clancy: So how in particular is the Bush Institute helping to push this issue forward?

Col. Howe:When it comes to employment there are really three things that we are doing. President Bush and Mrs. Bush are both pushing this issue veryhard whenever they are speaking to groups and conducting events. PresidentBush talks about it at all of his public and private speaking engagements. Mrs.Bush has talked about it as well, including recently at the Society for Human Resource Managers. President and Mrs. Bush are very consistently beating that drum.

We are also working with and convening employers and organizations thatsupport employers to help standardize best practices across the field. In July we worked with the U.S. Chamber of Commerce’s Hiring Our Heroes to host aconference here in Dallas that included not only the members of that coalitionof businesses looking to hire veterans, but also JPMorgan Chase’s 100,000 JobsCoalition, the Blackstone Group’s 72-company coalition and major independent

The team-building that comes with our first line managers andleaders, our NCOs and even our junior enlisted provides greatexperience with diversityand interpersonal skills.


companies like GE, Toyota, General Motors, Bank of America and USAA. One of the challenges in this phase is there has been a great effort and a lot of workthat’s taken place, but that work remains disconnected. Each organization hasits own website, a number of training programs and a number of databases andresources. But if you’re the young man or young woman leaving the service or asmall business owner, you’re wondering: Where do I go and where do I start?

To answer those questions, we are also working on a transition map rightnow from the perspective of both the military service member (vet and spouse)and then from the business perspective that captures the phases they go through.That way, at the end of the day, both businesses and veterans can meet their requirements. For the veteran, that is to find a meaningful career and then forthose businesses and companies to be more productive. This transition map willnot only lay out the phases and the processes but also for each of those phases,there will be links to some of the best-in-class tools, resources and practices thateither the veteran or the employer can leverage.

Clancy: Are there things that employers can do to make sure they have aveteran friendly workplace?

Col. Howe: Yes. If it were easy, and if everyone understood what value veterans bring to the table, then every veteran could integrate and transitionseamlessly, and we would not have these issues. I think there are really threecritical points for businesses that notonly want to do the right thing, butalso, as the President says, the smartthing to enhance their businesses.

The first is to recognize that finding veterans can be hard. That isone of the biggest friction points —the supply and demand gap betweengreat opportunities that are out there and these young men andwomen who separate from service. The average veteran is most likely going to return to his or her hometown or stay near the last duty station. If that’s notwhere the jobs are, there can be a disconnect. Secondly, for employers who don’t come from a military background,understanding veterans; translating the way they talk; and translating their résumés, their experiences and their training in an understanding and meaningful way can be challenging. Finally, once you find and hire the veterans,understanding them and retaining them is the third hurdle. If not handled

If everyone understoodwhat value veteransbring to the table, then every veterancould integrate and transition seamlessly.


properly, transition and integration can be hard for these men and women. As much as they look forward to the other side in transition, the process can be difficult for someone who has been recently immersed in a certain culture,language and well-defined career progression.

The good news is that businesses can take certain steps to ease these challenges. First, they have to make a plan. What does that mean? What are youlooking for? What skills, trades and characteristics are you looking for? How muchdo you have to invest? Is it something you can nest in the existing corporate infrastructure? So having a plan, knowing and understanding veterans and whatvalue they bring to a business is critical. Then training whoever is doing your recruiting and hiring as well as training early hire supervisors are keys to ensurethat the plan gets executed as you expect. Finally, you need a post-hire strategy.

Of course, that varies from businessto business and career field to careerfield. But you know that some basicexpectation management is going tobe needed. If you have veterans alreadyin your business, consider starting aveteran affinity group program as anemployee resource group. While aservice member is in the military, he or she can always go to the Armycommunity services center on post tofind out about the local community,education and training opportunities.It is one-stop shopping for information.So our colleges, universities and someof our larger businesses have found

that if they set up a similar-type program structure, then uncertainty can be reduced for the veteran. This gives veterns more sense of belonging and grounding and a commitment to the businesses that they are part of. Assign anHR or management employee to keep tabs on and handle periodic check-inswith your veteran employees. There are tools and resources out there that canhelp businesses with this. The Society of Human Resources Managers has a toolkit, as do the U.S. Chamber of Commerce Hiring Our Heroes and others.

Clancy:Well, it sounds then like the Bush Institute and the various nonprofits and businesses that are working with you have a really importantrole to play in doing what DoD isn’t, given the task that they have try to accomplish in five days of out-processing a service member.

Col. Howe: This really is a national effort. The government has a very important role in terms of responsibility and resourcing, but it cannot bridge

If we get this right, eventually we will hit a tipping point. My vision is that peopleshould be competing for these folks.


all those gaps. If we get this right, eventually we will hit a tipping point. My vision is that people should be competing for these folks.

Clancy: That is exactly right. That is my hope as well. Col. Howe: So as we sit here right now, I am looking at the August labor

stats, and there are 131,000 unemployed veterans aged 25 to 34. Constructionindustry firms that are looking for bright, dependable, hardworking young people who have a demonstrated work ethic and ability to learn have a huge opportunity in front of them. It will take a willingness to train these individualsand an openness to new ideas, but this is a resource the construction industryshould be working to figure out how to tap. Q

Mike Clancy is a principal with FMI Corporation. He can be reached at 713.936.4945 or via emailat [email protected].

Shorts

W here does the time go? When you enjoy a great meal, a terrific movie, a memorable vacation, a wonderful romance or a successful project, time flies. However, good times or bad, time passes quickly.

It seems like just yesterday I was a teenager hot-rodding around in my ‘55 Chevy and had all of the time in the world and truly did. Children and youngpeople do not understand the phrase, but as we age, it is more and more accurate.Fast-forward and I am now in my 60s. The past five years have been loaded withhighlights and low points. The births of three wonderful grandchildren are atthe top of my list of highlights. I love that part of my life. The losses of friends,clients and family members are the low points. Ugh, I never thought aboutthese losses and about how difficult losing loved ones and friends are for each of us. So why deal with the low points when I know you would all love to readabout my grandchildren?

I am realizing that I am not preparing for my future as I should be. I havemany friends, including 90-year-old friends, who have not completed their end-of-life plans either. Baby boomers are retiring at the rate of 10,000 each

Baby Boomers:It Is Time for a Sense of Urgency

KEN ROPER

CEOs are not easily replaceable and supply is lacking.


day. If you were born in 1946, the start of the baby boom, you will turn 68 yearsold this year. If you were born in 1964, the end of the baby boom, you will turn50 years old. That said, death and taxes are certainties in our lives, and we allneed to prepare for both.

When my daughters were getting married, there was a convenient website,www.The Knot.com. The website contained all the considerations for planning a wedding, which can be an enormously complicated affair. It also featured ahandy budget where you could insert the amount you were spending and havethe site conveniently allocate your budget by area of expense.

Similarly, if you Google end of life or www.mywonderfullife.com, websitescontaining extensive planning checklists are available. The checklists even includewhat (others are) to do immediately after (your) death, how to handle funeralarrangements, and how to write theobituary. Documents to locate and a list of “Passwords” are essential todealing with the details of a person’saffairs. These checklists are no substitute for attorneys and CPAs,but they can help you organize yourthoughts and highlight all of the details that require attention.

A Plan of Action All of your stuff and your last

wishes require a plan. There is no better time than when you arehealthy and coherent to completesuch a plan (which, by the way, doesnot require the help of an attorney).You simply need to think about thepeople who will be dealing with youraffairs and what they need to know in detail for your last requests. If you are abusiness owner, you may require assistance in planning your succession. Buttime and health are important assets to leverage, so start the process.

Your obituary is also a great starting point. Having to write one recently, mydaughter and I were discussing the difficulty of not remembering all the detailsfor the obituary and having to refer to the person’s résumé. My daughter askedabout my obituary and I laughed. I said she would have to deal with that, andthen she asked for a copy of my résumé….

I am feeling a sense of urgency around the finality of life and not in a morbid or depressing way. I just think I can do a better job of organizing my lifeso that when, not if, something happens, my family knows what I was thinking

If you are a businessowner, you may requireassistance in planningyour succession. But time and health are important assets to leverage, so start the process.

30 � baby boomers: it is time for a sense of urgency

and desiring. If you are like me, there is work that needs to be done to get things in order. We owe this to our family, friends, employees and stakeholders.I am pushing forward to create my own checklist and communicate all this tomy family.

The business affairs are not the only matters that become onerous for thesurvivors. Someone has to deal with all your belongings (stuff) and final wishes.What were your final wishes? Pick the most complicated and personal area ofyour life and imagine someone picking this up without any clue as to what youwere doing or thinking. While you may have loved all those worldly possessions,you did not take them with you. So in spite of what you thought, someone elseis now dealing with your stuff. George Carlin has a wonderful comedy routineon “our stuff.” If you are a George Carlin fan, visit YouTube and search for"George Carlin Stuff" to watch his standup routine.

What instructions should you leave for all the worldly treasures you have?In my case, I have several matters that my family may not be able to manage effectively. What should they do with all of my fishing and camping stuff? They

will happily get rid of my motorcycle,I am sure. Even if you donate yourbody to science, they will cremateyour remains and the family receivesthe ashes. Where and how would you want those ashes spread? Thereis just no good reason to leave all ofthese issues for your family without a specific plan or recommendation.Take the time to talk with your familyand write down your thoughts.

Creating a Succession PlanOur firm focuses on Ownership

Transfer and Management Succession(OTMS) for family-owned or privatelyowned construction and engineeringbusinesses. FMI believes that the

ownership and management of the construction business should have a well-planned strategy for continuity. Many loyal employees and other stakeholdersdepend on the company for their livelihood, so that continuity challenge affects them and their families too.

Accidents and illnesses are taking their toll on baby boomers at an increasing rate. Despite our best effort, we are seeing situations where theowner of a company has passed away and the spouse or children of the owner,who were not involved in the business, are suddenly leading the company. These

If you are like me, there is work that needs to be done to get things in order. Weowe this to our family,friends, employees and stakeholders.


individuals are unprepared and ill-equipped to manage the risk and complexityof a construction company, which results in difficult situations for families, employees and stakeholders.

We baby boomers believe we are going to live forever and have all the timein the world to get ready. Management succession in any construction companyis complex and requires time to execute. There is not an abundant supply ofCEOs or professional “Caretakers” for construction companies. CEOs are noteasily replaceable. CEOs also have concerns about their roles after their successoris hired. How to remain productivewhen the right person is recruited fortheir job is a valid concern. Waitinguntil the final year or two before retirement and hiring a successor is a risky proposition. What will you do if your first choice of a CEO fails?You now start over from square one.Is it time yet?

Ownership transfer is a significant challenge as well. Who will own the company, and is he orshe equipped to manage and controlthe risk of the construction business?Is someone internally financially able to make the purchase? Financing the purchase is a risky proposition that most sellers prefer not to take. In addition,FMI advocates that this is not a business for absentee owners due to the risksinvolved. Purposefully planning out the ownership transition to mitigate risk andprovide for continuity is a complex task and outside of the scope of this article.Yet many owners are in the mid- to late-60s without such a plan for ownershipcontinuity. Will a non-construction experienced executor of the estate have thecompetence to manage this difficult task? This is a very weak strategy.

All of us should have a sense of urgency around these issues now. It is time for us to wake up and deal with the reality of where we are and leave specific instructions for our desires should we meet with an untimely death orincapacitating illness. It can and does happen all too often. Q

Ken Roper is a principal with FMI Corporation. He can be reached at 303.398.7218 or via email at [email protected].

We baby boomers believe we are going to live forever and have all the time in theworld to get ready.

F or most owners in our industry, the mental image of a private equity firm does not match their idea of an ideal partner. Since the 1980s, descriptions of the broad private equity industry have included terms like “vultures,” “barbarians” and “predatory

corporate raiders.” Hollywood has often used a private equity executive in amovie in the same sort of role it would The Joker or Darth Vader. In 2012 thissame broad-stroke rhetoric even became part of the presidential election.Given this press, it is no wonder that many owners see all private equity firmsas debt-loving, job-slashing caricatures that are only interested in companieswith billions of dollars in revenue and millions of expenses they can eliminate.

The fact, however, is that of the approximate 3,300 private equity firmsbased in the U.S., there are nearly as many different and distinct investmentstrategies and cultures. Some firms rely on debt to finance deals, and some firms do not use debt at all. Some firms are generalists looking for the right opportunity, while others are sector-specific and employ executives with deepindustry experience. Some target high-performing companies, while others arelooking for financially distressed opportunities.

Assessing the Value of Private Equity

ALEX MILLER

A private equity transaction could present a“best-of-both-worlds”scenario.


Further, while the large firms get all of the attention (because business presscaters to the larger number of stakeholders of big corporations), the majority ofprivate equity firms are not focused on multibillion-dollar acquisitions. Of the2,124 private equity deals in 2013, over 60% were less than $100 million in dealsize, and slightly less than 40% wereunder $25 million in deal size. All thisis to say that not every private equityfirm fits into a traditional mold. Andwhile a private equity transaction doesnot make sense for many companiesin our industry, for the right companyin the right situation — and with the right firm — a private equitytransaction could present a “best-of-both-worlds” scenario.

Why Private Equity?So why is this relevant now?

Throughout the history of its industry, private equity seems tohave employed a “follow-the-leader”mentality when investing in businesssectors. Once large firms begin spending time or investing in a specific sector,the activity often creates a trickle-down effect, and smaller firms begin chasingsimilar opportunities as well. And while historically, private equity firms havekept E&C firms at arm’s length, we are beginning to see increased attention paidto large companies in our industry. This is especially true among engineeringfirms and specialty contractors.

In late 2013 a private equity firm acquired Brand Energy and merged thecompany with Harsco Corporation’s infrastructure business, creating a $3 billionprovider of industrial services to global energy, industrial and infrastructuremarkets. In August 2014 Pike Corp. agreed to go private in a deal with a privateequity buyer that would take the company private, valuing it at slightly less than $400 million. When Balfour Beatty was looking to divest its ownership of Parsons Brinckerhoff, it was widely reported that half of the potential buyers were private equity firms. There are even sureties now with specializedgroups focused on working with private equity firms — a concept that seemed implausible several years ago.

Why this increased attention? Unconventional energy plays have created ademand for companies with access to the oil and gas sector. For example, withinthe past two years, three of the 25 largest pipeline design firms were either acquired or received an equity investment from private equity. Additionally,

Throughout the history of its industry,private equity seems to have employed a “follow-the-leader” mentality when investingin business sectors.

34 � assessing the value of private equity

the “onshoring” of manufacturing has created renewed interest in industrial contractors and engineers. Other private equity firms believe there will be increased construction spend surrounding the country’s water infrastructure and are seeking opportunities to play that investmentthesis. Perhaps the most relevant reason is the fact that as of June2014, private equity firms are sittingon a record $1.1 trillion globally of“dry powder” (i.e., capital that theyneed to invest).

This increased attention shouldbring new opportunities for certain companies in our industry and owners should consider whether a private equity transaction would make sensefor them and their businesses. Several years ago, FMI published an article on the “Five Reasons to Consider Private Equity.” Those reasons were:

• Substantial liquidity• Growth capital• Eliminate personal guarantees and retain operational control• Obtain a strong partner with aligned goals• “Second bite at the apple”

While these considerations still hold true today, we could simplify the rationale by saying that a private equity buyer is more favorable than an industryor strategic buyer to an owner who:

• Wants to take some chips off the table while retaining a meaningful equitystake in the business

• Is committed to continue growing and operating the company • Is looking for a value-added partner to help support growth plans — either

through an infusion of capital, corporate guidance, help with strategy orother growth initiatives

Once you begin to look at a private equity transaction through that prism, one thing becomes clear: Finding the right partner can be as importantas finding the right price for your business. While maximizing value in anytransaction is vital, owners who are looking for a capital partner in order to taketheir businesses to the next level must consider that partner’s merits. Think of it the same way you would look for a new employer — you should be

Finding the right partnercan be as important asfinding the right pricefor your business.


interviewing the company as much as it is interviewing you. This is especiallytrue of owners who are rolling significant equity into the deal alongside theirnew financial partner.

Key Questions to Ask Here are several questions owners should ask when evaluating a potential

private equity partner:

1. How does the private equity firm intend to structure the transaction?Does it plan to use debt? If so, how much? Will that amount of debt hinder thegrowth initiatives you have identified? How much equity does it expect you toinvest in the deal? Who will sit on the board of directors? Is it reserving additionalcapital to invest in the business through add-ons or other growth strategies?

2. What is its track record of investing in the industry? Has it made investments in similar companies? If so, were they successful? Does it havepartners with industry experience?

3. What does it bring to the table? The right private equity firm shouldbring more than just capital to the table. Does it have resources to help improveoperations? Can it open up new customer relationships?

4.What is its growth and exit strategy? Every smart firm has an investment strategy for each new company it invests in. That strategy describeshow it plans to grow and ultimately exit its investment. Does that strategy alignwith your vision? How long does it ideally plan to hold onto its investment? In most instances, the private equity firm will have the right to trigger a sale ormake decisions regarding major capital spending, so it is imperative that you areon the same page and align interests from day one.

There are other factors owners should consider when determining whethera private equity transaction makes sense for their business and in selecting theright partner. The most successful deals occur when the selling owner and theprivate equity firm take the time to make sure they share the same goals for thebusiness and align their interests before closing the deal.

To be clear, a private equity transaction does not make sense for every company in our industry, but in the right situation — and with the right firm — a private equity transaction can be an effective way for owners to getsome liquidity, while continuing to focus on taking their business to next level. Q

Alex Miller is an associate with FMI Capital Advisors, Inc., FMI Corporation’s Investment Bankingsubsidiary. He can be reached at 919.785.9234 or via email at [email protected].

L et us set the stage. There has always been a symbiotic relationshipbetween the U.S. economy and the U.S. construction industry. As the economy goes, so goes the construction industry and vice versa. Indicators tell us that the economy is rebounding. This is good news,

but there is reason for concern. Historically, the construction industry createdjobs and people chose to do them. When this was true, young people couldchoose construction instead of college and make a good living doing it. Forsome, a career in construction may have been a second choice; however, collegewas not an entitlement for everyone. Vocational and technical programs werestill available to high school students. Unions and trade schools were able tomaintain the balance between labor supply and construction demand. This isnot the case today. Times have changed and fewer young people are choosingconstruction as a profession. High schools are preparing our kids for college, notfor work. One troubling indicator is that student loan debt is now second onlyto mortgage debt. Just Google “student loan debt crisis” and see what comes up.

In 2014 our rebounding economy is exposing a broadening concern — thegap between the number of skilled craft workers is no longer equal to or greater

Take One: It’s Opening Night and Seats Are Available

ANDY PATRON

The jobs are here, but the workers are not. It’s time to act.


than the number of skilled tradesmen we have available. On the contrary, forthe first time in recent history, we do not have enough skilled workers to growthe industry. The economy may be rebounding along with the construction industry, but it will not be sustainable if we cannot build a larger workforce. The jobs are here, but the workers are not. We need to address this gap. As theconstruction industry goes, so goes the economy. It is time to act.

What Can I Do?It’s time for acting class. First, let’s work on our line, “What can I do?” Actors

train to deliver lines in order to elicit responses from their audiences. They makeadjustments to tone and pace, so that the phrase has the intended meaning.With that in mind, how do you read this “line,” the question, “What can I do?”

One way to express this line would be to emphasize the “I,” isolated andalone. The emotion behind this delivery is that there is too much to do, and nosingle person (or company) can possibly make a difference. There is helplessnessin this expression. What can I do? If you read it this way, you are portraying avictim who is paralyzed by the enormity of the issue.

Another way to present this line, the question, is to infuse a sense of associated urgency and imperative. It sounds almost as a plea, resulting from alack of ideas or first steps and, in general, just not knowing what to do. Whatcan I do? Read this way, you are asking for some input. If you only had a fewideas to act on, then you could be more effective.

A third way comes from a position of strength, with a desire to help, like agood sister-in-law at a family gathering, looking for ways to assist with thepreparation of a large meal. In effect, she came qualified and ready to help youand is asking you to tell her which specific task she should take on. What can Ido? If you read your line this way, you are saying, “Give me something to workon and I will make it happen.”

All three of these interpretations are concurrently real. As our “play” unfolds and as our economy and industry grow, we should discover that thethird interpretation offers the most impact. Let us continue to practice our line,“What can I do?” Now, let us talk about how to act.

How to Act Now that we have our line down, it’s time for some “blocking and staging.”

How should you (and your company) position yourself so that you can fulfill therole we need you to play? FMI has done a number of research surveys over theyears, and the results have provided some valuable guidance. Other agencies andassociations have worked to provide solutions and assistance. Together, we haveprovided that “sister-in-law” support for many of you, and we remain at theready to continue in that role as we face this challenge together. To that end, theresearch on the trade/craft labor shortage is compelling. The obvious findings

38 � take one: it’s opening night and seats are available

reveal an increased demand for craftlabor in various regions and tradesacross the country with shorter supply. As a result, wages are going up,and poaching from other industries(specifically oil and gas) is in fullswing. We have not seen a lot of project delays, but the industry istelling us that it expects them.

Simply tuning up your pre-jobplanning and project execution capabilities is an important first stepto deferring the pain your companymay feel when labor becomes scarcein your future. In addition, there are anumber of other ideas for addressing

the labor gap. Many of these ideas are not new, and most of you have alreadyheard about them, but implementation is the key. Doing something is the hardpart. Just learning your line is not enough, you have to act it out. What actionsare companies taking to defer the impact of the impending labor gap? Since weare still in “acting class,” the following list offers some suggestions for “action!”

Dedicate someone to the craft side of your business (recruiting, hiring,training, retaining). Treat craft workers like all of the other professionals working for your company.

Hire them and then retain them. The hiring cycle is expensive and time-consuming. Keeping people is less of a drain on your company’s resources,especially Human Resources. Plus, the statistics show that new hires are lesssafe. Develop a strong retention initiative for craft workers. It will reduce costand risk. Here are some ideas for how to increase employee retention.

• Provide training and development opportunities.• Be strategic about your “onboarding” process. Engage employees early

in the process.• Create clear career path opportunities.

Pay more and offer more — not just a higher hourly wage, but perhaps a per diem or a housing allowance; satellite parking, including a work shuttle;mortgage assistance; or financial planning services. Attach vesting timelines to some of the benefits you offer such as 401k, tuition reimbursement or dental coverage. Make leaving your company a difficult decision for your craftlabor resources.

Many of these ideas are not new, and most of you have alreadyheard about them, butimplementation is thekey. Doing something isthe hard part.


Build your own technical talent pool, just in time or on the job. If youneed welders, dedicate someone on the job to train welders for the specific job;consider that you already do this for safety with a “site-specific” safety plan anda safety manager on the job; do the same for a craft or trade skill.

Get potential employees started early. Reach down to the high schoolsand “pay” kids to stay in school as you teach them how to build real things (science, technology, engineering, math and psychology in action). Partner withthe middle and high schools to bring support for STEM (science, technology, engineering and math) careers with jobs and internships.

Being the employer of choice is a key driver for attraction and retention.Here are some ideas you could implement to become an employer of choice:

• Provide structure and process.• Provide leadership and guidance; mentor and coach more. • Encourage self-assuredness, a "can-do" attitude, positive personal self-image

and corporate image. • Take advantage of and foster a greater comfort level with teams. • Listen to your millennial employees; invite them to “sit at the adult table”

to listen and learn.• Challenge your employees to define and manage purposeful and

meaningful change. • Most of your newer employees are multitaskers on a scale you have

never seen before. Take advantage of their computer, cell phone and electronic literacy.

• Capitalize on the social networking affinity in and outside of your company;make your website “fresh” and interesting.

• Provide a life-balanced workplace. • Provide a fun, employee-centered workplace.

Acting class is almost over. You have your lines, and the stage is set for you to act. So, the new question is, “what will you do?” Most companies have the same information you do by now, but the differentiator will be how effectiveyou are at implementing these ideas. If you do it well, you will protect your company. When you continue to see results, you become a leader in the industry. When you lead the industry, you help grow the labor pool for the restof the industry. As the construction industry goes, so goes the economy. Wecannot succeed without you. Q

Andy Patron is a principal with FMI Corporation. He can be reached at 919.785.9239 or via emailat [email protected].

A sk any general contractor and they will tell you that their best subcontractors can flat-out perform. Trade contractors that can deliver on their promises rise to the top of general contractors’ buy lists. Skeptics say the buyout process is all about the almighty

dollar. But as the construction industry emerges from the recession and as markets begin to loosen up, performance shines through as a true differentiatorfor trade contractors.

Improving labor productivity is commonly viewed with the internal focus,“How do we improve margins by being more efficient and decreasing directcosts?” After all, increasing productivity is the purest, most effective way forlabor-intensive contractors to improve profitability. However, in this article, we present the argument that a continuous focus on improving productivity is a key component to a well-rounded business development effort for subcontractors. Whether general contractors connect superior execution to the concept of productivity is a moot point. General contractors easily perceivewhen a sub is being productive; the evidence is unavoidable.

Productivity Sells

TYLER PARÉ

Differentiate your services in a sea of work-hungry bidders.


Site Logistics To effectively install work correctly and the first time out-of-the-gate,

strategic placement of materials on-site is critical. Trade contractors that lack asite logistics plan on every project expend countless labor hours searching forthe next widget to install or simply lose time trafficking from one side of the siteto another. Additionally, loosely organized material increases the exposure tomaterial loss, theft or damage. If we agree that site logistics are important to asubcontractor’s productivity, what is the value proposition to general contractors?How does it help the subcontractor sell?

The method in which subcontractors receive and store materials on-site directly impacts the ability of other trades to mobilize their materials into place.Also, haphazardly stored materials present safety issues for everyone involvedin the project. Then there is the issue of job-site cleanliness. For some clients,GCs and owners, jobsite cleanliness is paramount (particularly for those whowork in occupied space). Effective management of site logistics helps you sell future work to general contractors that value these factors.

Planning In a world where fewer and fewer general contractors tout self-performance

capabilities, the detailed production planning onus is increasingly levied uponsubcontractors. A good schedule tells a GC client when to expect work packagesto be completed, but it does not explain how those activities will be performed.A plan, on the other hand, showcases a methodical, purposeful and reliable approach to installing work. For example, a general contractor’s superintendentcan rest easy at night knowing exactly how many of a subcontractor’s crewmembers will show up at the job site tomorrow. But good planning does not happen by accident. Trade contractors that plan well have consistent, standardized processes that ensure integrity around their planning practices. Internally, well-developed plans help subcontractors avoid resource-related delays (the No. 1 cause of productivity loss). Externally, a subcontractor thatprofessionally plans its work is a reliable partner for a general contractor in aproject endeavor. Particularly for critical path trades, excellent planning practices are greatly appreciated by general contractors who would otherwise be constrained by schedule summaries. If you can become a trade contractorthat your clients depend upon for reliable plans, you are likely to find yourselfon your client’s list of favorites.

Managing ChangeContractors that are good at planning are also good at managing change.

Without a plan, a contractor has great difficulty in knowing whether it is deviat-ing from the intended course of progress until it is too late. Subcontractors thatdon’t plan are constantly forced to go to their GC clients, hat in hand, with ex-

42 � productivity sells

cuses and empty rhetoric about project unknowns. Conversely, subs that planwell can identify changes in assumptions early and often. They are armed withdetails that foster better and more frequent communication with their clients.

Early identification of project challenges allows subcontractors to manageissues and provide solutions to their clients before those challenges become catastrophic. Left unchecked, unmanaged change can quickly throw a projectschedule into a death spiral. Subsequently, a blame game ensues, trust betweenparties is lost, and, often, relationships are irreparably damaged. There is a

difference between managing changeand documenting change. Trade contractors that plan well and whoare proactive in change managementare able to present their clients with a set of solutions rather than a bag of problems. Yes, change orders canbe a source of profit for contractors,but unmanaged change can also bedisastrous. Proving your ability toproactively manage change on yourprojects will win trust in the hearts of your clients.

Finishing Across the construction industry,

margin fade at the tail end of a jobcan be staggering when compared toother project phases. The closeout

phase is the most treacherous part of a project for subcontractor productivityand, ultimately, profitability. Untimely and inefficient closeout of projects is alsothe No. 1 source of dissatisfaction for construction owners. Driving productivityin the finishing stages of a project is a win-win for all parties of a project team.World-class trade contractors have defined processes for avoiding margin fade at the end of a job and closing out projects in a timely manner. Finishing jobs on time and under budget is what clients are striving for as well. If your team issuperior to the competition in executing the closeout phase of projects, you willstand out against the rest in the minds of your clients. A strong closeout givesyou an excellent opportunity to end the project with a positive impression.

Prove it!Great subcontractor execution easily wanes in the mind of a general

contractor, especially in a price-driven market. So how do you prevent all of thegoodwill built through superior execution from going to waste? You have to be

Trade contractors that plan well and whoare proactive in changemanagement are able to present theirclients with a set of solutions rather than abag of problems.


able to prove it through documented processes and systems that allow yourcompany to be productive on every project – not just on the last project. Otherwise, all of your productivity efforts can be passed off as episodic or justplain luck. Do not be afraid to showcase your methods for driving productivityto clients. Explain the processes and systems that you have built to:

• Ensure strategically planned site logistics• Plan efficient work installation packages• Proactively manage change• Effectively close out projects

Productivity is the key to differentiating your services in a sea of work-hungry bidders. A contractor that excels at project execution provides superiorcustomer service to its clients. Additionally, a productive work site exudes a level of competency and professionalism. Superior customer service keepsclients coming back time and again. If your business model relies heavily on repeat sales, hone your focus on improving productivity. In doing so, you willquickly rise to the top of the bid invite or qualification list, get second looks atopportunities and win more work. Productivity may live in operations, but productivity sells. Q

Tyler Paré is a consultant with FMI Corporation. He can be reached at 813.636.1266 or via emailat [email protected].

G et work. Do work. Keep score.” Those six words, as coined by FMI’s founder “Doc” Fails 60 years ago to describe the business that contractors are in, have reverberated the walls of our industry for decades.

If asked, most of our clients would tell us that the not-so-sexy “keepingscore” aspect of the business excites them the least. Until now, “keep score” hasinvoked images of accountants sitting in the windowless caverns of the officepunching away at their 10-key pads.

“Keeping score” has been manual in nature and disconnected from the operational piece of the business. Most people enter this business to build tangible structures, not spreadsheets. But in the margin-compressed and chock-full-o-risk world that you live in, being smart about improving fees andprotecting your balance sheet will require not only accurate score-keeping, butalso the ability to better predict and understand what is driving the scores.

Just as your project and field managers should know the accurate “score onthe project scoreboard,” owners and senior management should know the “scoreof the enterprise scoreboards.” We meet many owners and senior managers of

Big Data? Let’s Talk “Little Data” First

MIKE DOW AND JEREMY BROWN

Embrace progressive data strategies to drive improvement to top and bottom lines.


construction firms who do not know the score… until the game is over and it istoo late to do much about it.

Don’t take that as a cheap shot. The fact of the matter is that most of ourclients are disciplined people. They have been successful in developing strategiesaround getting work and executing work. However, to this point, there has been very little discipline in our industry around utilizing data and trends to our advantage — a concept we call data strategy. “Big data” is the buzzword used intoday’s business world, but we are first going to focus on the power of “little data.”

Harnessing Little Data “Big data” feels an awful lot like BIM did 10 years ago: a term (mostly) driven

by software vendors to describe an important evolution in the technology thatthey sold. It captured the zeitgeist of the moment by suggesting, in somewhat

aspirational terms, a concept of betterintegration, better visualization andfaster decision support for the A/E/Cmarkets. The other side of that coin,however, is that many companieswere frustrated by the fact that buying software and training the latestgraduates did not really translate intoa successful BIM strategy.

“Big data” is also largely aspirational and, as such, we are already seeing some frustration withclients about this term. The buzzwordhas become so pervasive in the popular and business press thathardly a day goes by without seeing it as a focal point of breathless, somewhat unrealistic portrayals ofthe power of data. In the same way

that we recommended that clients address BIM as a “table stakes” issue, we suggest reducing the oh-my-we-haven’t-done-anything-about-Big Data-yet anxiety with a few simple steps.

What’s the Fuss?Let’s start with a few conceptual ideas that will hopefully give you some

better perspective on what “big data” is and what it is not.Big data is often more about unconventional insights based on new and

previously unavailable data. You probably have some interesting and useful dataalready in-house. For example, email and/or Web surfing logs (being careful to

Executive Summary: This is Part 1

of a three-part series about how the

construction industry is embracing

progressive data strategies to drive

improvement to top and bottom

lines. Recent “FMI Quarterly” articles

focused on the “why” and “what”

around data management (see

“Deconstructing Data” by Madison,

Tison and Paré). Here we will focus

more on the “how” of developing

and implementing a data strategy

for your firm. For this subject,

FMI has teamed up with Tilson

Consulting, a leading IT advisor to

the construction industry.

46 � big data? let’s talk “little data” first

manage employee confidentiality) provide fascinating and useful data aboutwhat your workforce is working on and with whom they are communicating.

Ultimately, it is mostly about math. Don’t forget that, most of the time,big data is the result of simple statistical regression, skills that likely need to bebought or developed within. Once you find some data, ask someone with somemath skills to help you think about whether it means anything.

But, even with good math, an important attribute of big data is how it is visualized and communicated. This is where statistics meets art, igniting both sides of the brain and allowing for individuals who typically stay on oneside of the brain to communicate better with those who are more comfortableon the other side of brain. As Edward Tufte (recommended reading is his book“The Visual Display of Quantitative Information”) asks, “Can the same imageprompt different stories and memories in different people?” The obvious answer,is “yes, it can.” Good Data Visualization enhances the effectiveness of any datainsights. If people can’t understand the results, the work is a waste of time andmoney. What is the picture that this data could paint? What colors might callout what it means?

And, as we all think back to our first exposure to statistics, we shouldn’t forget that millions or billions of records are not necessarily required to provide value, particularly in the business side of the A/E/C space. Sometimes a few hundred or few thousand records can produce a valid result. It is all about

statistical significance and the relativeimportance of data that representsresults with a high level of confidence.This is an excellent illustration insimple terms of what we’re talkingabout: http://www.wikihow.com/Assess-Statistical-Significance

Lastly, we have a concept called “little data,” which we define as the cleanup process around data. Creating database structures, establishing QA methods and buildinggood data capture processes. Polluteddata, even with good math behind it,is of no use to anyone. Good little data

is surely better than bad big data, and it can even be useful for your customers.A simple example might be showing a customer that it would be better off with amonthly rate on a piece of equipment over the expected life of the project ratherthan a weekly rate. Or an email analysis showing that your people communicate10x more with small, less profitable customers than they do with big, importantcustomers. Clean data, when structured well and feeding a visualization, works.

Once you find somedata, ask someone withsome math skills to helpyou think about whetherit means anything.


Starting the ConversationWhen you start the discussion of data strategy at the executive level, have

some dialogue with your leadership team on the following subjects:

• How comfortable are we on how we are betting on the future of the organization with our current strategy and insights? Are there additionaldata points that would give usclarity and confidence in our decision-making process?

• How are we dealing with disruptiveforces (internal and external) onour business? Are we merelybeing reactive in trying to adjust,or do we feel like we are ahead ofthe curve for the most part?

• What’s really important to us?Could it be our people, our equipment, our customers, riskto the balance sheet, economictrends, operational excellence,etc.? How well do we actively monitor the health of these important aspectsof our business? (Think about the benefits of proactive “health care,” not reactive and expensive “sick care,” a health care industry parallel.)

• What types of insights, with the appropriate lead times, would make us morecomfortable asking the above questions? Do we think the data exists outthere (albeit scattered and in different forms) that could help us be morecomfortable with how we make decisions?

Where to BeginThis article aims to provide you with conceptual understanding that enables

you to start thinking about a data strategy for your organization, while alleviatingsome stress around having to keep up with “big data.” But as with any initiative,if you want to move the chains, you will need the right leadership team and tools.

In subsequent articles, we will speak more specifically about how to evaluatesystems and tools necessary to achieve your desired state, but first we want youto start thinking about foundational organizational elements and steps neededin order to begin implementing.

Identify your “champion.” Based on FMI’s and Tilson’s experience, the hardest part of executing on your

data strategy will be leadership. Clients often ask, “What is the best departmentto spearhead this effort; should it be business development, operations or back

Good little data is surely better than bad big data, and it can even be useful for your customers.

48 � big data? let’s talk “little data” first

office?” Our answer is that it is more about finding the right individual, not department. This person would be:

• Someone with good all-around business understanding and internal influence• Someone with the energy and reputation for follow-through• Someone who understands your data — where it is, how to get it,

and whether it requires cleaning and structuring — and navigates the internal politics

Remove the politics. Once you identify your champion, make it clear to that individual that he

or she does not work for a singular department when representing your firm’sdata strategy, rather for the greater good of the organization. Unless the role is delineated (even if it means putting that person in two places on the organizational chart), the temptation may be to act more selfishly towards hisor her department. One of the biggest impediments to success is when other departments begin to sense that the effort is one way — i.e., the others providetime and information and get little in return.

Treat it like a project. Many of the reasons why contractors can build beautiful structures but have

a hard time implementing internal change is how it is managed. Without a scope,schedule and budget to start with (even if done in small incremental phases),how can these efforts be successful?

Keep a list of those “million-dollar questions” that data canhelp you solve.

Although you may not have access to the data or it’s not structured appropriately, keeping a prioritized list of questions will help the organization stay crisp onthe “why” behind the effort.

Finding the person or team islikely the most stressful part. We continue to use the BIM metaphorhere because it is the closest phenomenon, which we can think of,that will change the industry as bigdata will change it. That said, how

Once you identify yourchampion, make it clearto that individual that heor she does not work fora singular departmentwhen representing your firm’s data strategy,rather for the greatergood of the organization.


many good candidates did you have to manage your BIM strategy and implementation 10 years ago? Was it easy to find that person? Was it (probably)a person who led the effort but brought others along?

Between now and publication of subsequent articles around specific tools,systems and case studies, be thinking about the above questions, along with the leadership and organizational elements needed to be in place to make it successful. It’s very easy to jump to decisions and discussions about the systemselements (beware of any “silver bullet” sales pitches), but there is a reason why systems implementations receive a black eye in our industry. Many of the reasons stem from root causes that we suggest you avert by thinking first aboutthe bullets above.

Of all of the disruptive forces that will shape our industry, we believe that this will be one of the forerunners. While it will take time to play out, beingan early adopter of good data practices —not necessarily big expensive systems— will only help you stand out from the others. Q

Mike Dow is vice president of consulting with Tilson IT Consulting. He can be reached at 720.370.5381 or via email at [email protected]. Jeremy Brown is a consultant with FMI Corporation. He can be reached at 303.398.7205 or via email at [email protected].

I n a recent FMI research study focused on the oil and gas and oil sands industries in western Canada, conversations with owners, EPC(Engineering, Procurement, Construction) firms and energy infrastructureconstruction companies revealed some gaping disconnects among project

stakeholders. Because of this disparity, the industry faces frequent project delays, cost overruns, low project performance and ongoing labor fluctuations.

To overcome these challenges, progressive companies have started to lookat new ways to collaborate and improve project performance. The following case study highlights an innovative partnership between two firms — JV Driverand Intelliwave Technologies Inc., one of JV Driver’s Preferred Suppliers — andshows how these two firms are dramatically improving site logistics and reducingrework through effective equipment and material tracking.

Paradigm ShiftSince 1989, JV Driver of Canada has been providing industrial construction

services to the oil and gas, energy, petrochemical, forestry and mining sectors.Over that 25-year span, the company has come to appreciate the value of

Redefining Field Logistics in Canada’s Oil and Gas Industry

SABINE HOOVER

Dramatically improve site logistics and reduce rework with effective equipment and material tracking.


innovation and technology in ways that many of its competitors have yet to recognize. “Innovation is definitely a big part of what we do,” said Dale Beard,president, Intelliwave Technologies Inc., one of JV Driver’s Preferred Suppliers.“We’re changing the way construction is done and using innovative technologiesthat have already been tested by other industries — not just in construction.”

In the construction world, approximately two-thirds of projects’ costs arespent on materials and equipment (30% each); the remaining 30% to 40% is spenton labor. Therefore, being able to manage and track these resources becomescritical in saving cost and time. “Construction has typically been very chaotic interms of handling and tracking materials just because there are long lead timeson parts,” explained Beard. “Often there are multiple contractors involved and a lot of different hands in the pot, so to speak.”

To overcome that obstacle, JV Driver turned to Bentley and IntelliwaveTechnologies to create an innovative solution that would allow it to successfullycomplete projects using fewer crew than usual. In response, the two softwarecompanies developed a revolutionary site management tool that integratesBentley’s ConstructSim workface planning software with Intelliwave SiteSense®RFID sensor technology. SiteSense collects RFID tag data thousands of timesper tag per day by installing “ ROVER” (SiteSense RFID vehicle readers) onto operational forklifts and other construction equipment, which allows SiteSenseto continuously read the RFID tags whenever ROVER drives within 1,000 feet of each tag, whenever the forklift is performing its daily duties. This groundbreaking tool enables effective tracking, managing and installation of pipeand other tagged equipment pieces and helps crew foremen lessen redundancyand rework.

W.E. (Bill) Elkington, chairman of JV Driver, stated, “As an industry, weneed to continuously improve productivity. New technology can help with thissubstantially. We find SiteSense has a significant impact on the ability of theproject to know where all of its material is at any given time and to locate thatmaterial effectively. This reduces material handling costs and improves tool time and productivity.”

Wanted: Better Site ManagementAccording to Beard, JV Driver’s innovation efforts centered mainly on

site management, although the company does begin identifying parts at the fabrication stage. For example, some of its larger fabricators pretag parts as they are made — a move that makes those parts visible to the contractor via its SiteSense Web portal. “That’s a component of our collaboration effort,” saidBeard. By utilizing SiteSense, JV Driver gains access to real-time informationand answers to questions like: Is the part in production? Has it been delivered to the job site? Was it installed? This intelligence helps the construction firmbetter schedule its human resources and work lineup while also facilitating

52 � redefining field logistics in canada’s oil and gas industry

worker-to-worker communication regarding parts availability and status.“Our clients can see within a few minutes whether they have the parts

they need to build out their packages and get the work completed,” said Beard.“That capability has dramatically decreased the planning and prep time, and theinefficiency of different crews or indirect labor looking around for their parts.”The same concept can be applied to the equipment used on the job site, wheregenerators and welding machines are often misplaced and/or sitting idle. “Workers can spend hours looking for the machines that they need on-site,” saidBeard. “Simply being able to track the equipment and know where it is at anygiven time has helped out quite a bit.”

Training the TroopsJV Driver has been using SiteSense across multiple projects and is already

seeing the benefits of improved site management. Like any new initiative, thisone has required a shift in mindset on the part of the company, its managersand its crew workers. “People aregenerally resistant to change,” saidBeard, “and some will hold off as long as they can before being forcedinto it.” In many cases, that extranudge results in an “ah-ha” momentand prompts users to think: Well,why haven’t we been using this from the beginning?

“Some crews out in the fieldwant to do work as usual,” saidBeard, “because they’ve been doingthings a certain way for 20 or 30years.” To break through that barrier,Intelliwave’s Field Engineers educateand train work crews on an ongoingbasis. “JV Driver could be onboarding 100 new workers every week due to thesize of its projects as well as to high industry turnover,” said Beard, “so we reallyhave to do this on an ongoing basis.”

As an element of that training, the engineers help workers get through the “we think this is broken” mentality and show them that in many cases thetechnology tools just aren’t being used properly. In other instances, users simply don’t understand the details behind the technology itself — or they have preconceived notions about its capabilities. “We’ve tried to develop oursystems so that they work behind the scenes and deliver on their promises,” saidBeard. “Still, aligning expectations across the owner, EPC and contractor levelscan be challenging.”

Like any new initiative,this one has required a shift in mindset on the part of the company,its managers and itscrew workers.


Measuring the BenefitsIn 2008 the Construction Industry Institute (CII) examined the number

of indirect man-hours (not related to actual tool time — such as building theplant) saved by the use of radio-frequency identification (RFID). Using boilermanagement as the reference point, the organization found that the averageworker using manual systems spent 40 minutes searching for each of the 1,000parts that are used to make a boiler. Those using RFID took just four minutes tolocate each part. “That’s a 10:1 or better ratio,” Beard pointed out. “Inefficienciesin materials management during construction can delay the start-up of a newfacility and the daily loss in production due to a slipped construction schedulecan result in mega cost overruns.”

When assessing the progress JV Driver has made by leveraging innovation,Beard said owner buy-in has served as a key ingredient in the initiative’s success. “When an owner takes it under his wing and really supports the technology as a key priority for the project, the more the EPCs and contractorsbuy into it,” said Beard. “This is important because if there’s no buy-in at thelower levels with the users, then essentially you’ve bought a technology that’sgoing to be shelved.”

Elkington added, “Leveraging SiteSense on materials and expanding thatinto personnel and equipment tracking has improved our ability to get workdone. This product will revolutionize how everything on a construction site iseventually tracked and traced. It reduces manhours, helps improve safety andimproves dollar efficiency.” Q

Sabine Hoover is a content manager with FMI Corporation. She can be reached at 303.398.7238or via email at [email protected].

I n most construction firms, there are few things as misunderstood or as poorly managed as developing an accurate projection of costs tocomplete (CTC). This is particularly true when it comes to understandinghow to estimate the remaining labor costs on a labor-intensive project.

Trade contractors live and die by their ability to estimate, manage and projectlabor costs. Consequently, producing accurate CTC estimates is a fundamentaland basic project management function. However, the process is typically not well-understood by project managers, the people who manage the project managers, and, in many cases, the people who manage the people who managethe project managers.

On bid day, estimators are expected to accurately determine how much labor cost will be required to complete an entire project with less than adequate plans and specs, absolutely no history of completed work on the current project, and a limited amount of time. Why then can project managersnot produce better quality estimates after being on a project for several months,having some actual work in place and having a feel for the variables on the project? The answer to this question is relatively simple: Most project managers

The Basic Ingredients of an Accurate Cost-to-Complete Estimate

SCOTT KIMPLAND

Failing to include any of the vital ingredients produces unfortunate results.


do not understand the basic ingredients of a fundamentally sound cost-to-complete estimate.

Like any good recipe, failure to include one or more of the important ingredients will produce a less than desirable result. Since labor is the big wildcard in the cost-to-complete estimate, the following ingredients will focus on the labor portion of this process.

INGREDIENT #1 — Basic understanding of the definition of a cost-to-complete estimate and how that CTC impacts the overall financial performance of the company

At a very basic level, it is important to understand that a CTC estimate or projection is simply an estimate of direct costs required to complete the remaining work on a project. Therefore, the two basic questions that need to be answered to produce a sound CTC are:

• What specific tasks or work activities on the project still need to be completed?

• How many labor hours and dollars will be required to complete this remaining work?

These sound like simple questions, but many project managers do not understand the basic idea that the CTC is simply an estimate to complete the remaining work.

Beyond the simple definition of a CTC is the fact that the CTC ultimately determines how much revenue and gross profit can be recognized on a projectevery month. If CTCs are inaccurate, the contractor’s monthly income statement,which summarizes all work in progress, will be impacted and incorrect. The CTC helps determine how much revenue has been earned. The revenueearned is independent of the revenuebilled or collected. Inaccurate CTCsoften create significant swings in theoverall profitability of the companyfrom month to month and signal to shareholders, bankers and suretyagents that projects are not beingwell-managed. The title of projectmanager implies that the person inthis role is actually managing the financial aspects of a project as well as the logistical and physicalproject issues. For those who are not

Many project managersdo not understand the basic idea that theCTC is simply an estimate to completethe remaining work.

56 � the basic ingredients of an accurate cost-to-complete estimate

competent with this core financial skill, “project witness” may be a more appropriate job title than project manager.

INGREDIENT #2 — A logical project budget that breaks a large projectdown into multiple small projects to allow for accurate tracking

To develop a good CTC, there is specific job cost and productivity information that must be tracked from the time a project starts through

completion. Failing to set up a logicalproject budget is one of the biggestmistakes that contractors make. Ultimately, the quality of the initialbudget impacts the reliability of everyCTC completed during the life of aproject. Failure to do this correctlybefore labor is charged to a project isa serious mistake and one that cannot be fixed later.

The key here is to determine the appropriate number of laborphases and codes needed to accuratelytrack labor cost and productivity. This format for tracking labor shouldbe determined by the PM and field

manager (not the estimator), based on how the project will actually be constructed.The setup for labor tracking should meet the following requirements:

• Unless a specific work activity is extremely similar throughout the entireproject and it can be easily measured/quantified in an objective way, thereshould be no more than about 400-500 man-hours in any one labor code.

• Phases and codes should be based on definable work activities, pieces or“chunks” of work, sometimes referred to as work packages.

• A definable work activity, piece or chunk of work should typically be completed somewhere in the range of two weeks, give or take a week.

• Labor phases/codes should closely mirror the activities on the projectschedule and sequence of how the work will actually be performed.

Breaking a project down into smaller bite-sized pieces allows the PM to easily determine which activities are completed, which ones are partially completed, approximately how much work is remaining on these activities, and which activities have not yet started. This should provide a fairly objectivemeans of identifying the remaining work on the project, which is the first pieceof information that is needed to prepare a good CTC.

Ultimately, the quality of the initial budget impacts the reliability of every CTC completed during the life of a project.


INGREDIENT #3 — A process for tracking and reporting actual quantitiesor units installed in addition to man-hours reported to a cost code

Once the PM identifies the specific work remaining to complete the project,the next step is to estimate the labor to perform this work. Good estimating ispart science and part art. As for the science, the best and most logical way to estimate the remaining work is to start with real productivity data for the installedunits to date. In simple terms, this means that beyond simply reporting time to a cost code, there must be a process to track and report the actual units orquantities associated with the reported hours. Since productivity is defined asunits per man-hour, tracking installed quantities is a necessity. The idea is notto come up with perfect measurements for quantities installed, but somethingmore scientific than a pure guess as to how much of an activity is completed and how much more needs to be done. Depending on the type of work being performed, quantities can be measured in a variety of ways. A few examples are:

• Feet of pipe• Feet or pounds of duct• Linear feet of framing• Square feet of drywall• Number of fixtures, doorframes, etc.• Cubic yards of concrete

Tracking the actual production of work installed to date will provide thebest starting point to estimate the man-hours on the remaining work. However,it is not reasonable to assume that the productivity on the remaining units or quantities will be the same as the actual production to date. This is where the art of estimating the amount of labor required to complete the remaining work comes into play. Forexample, early production of a workelement and later production tend to be somewhat slower than themidrange of a work element. This isthe classic S-curve of production:slower-faster-slower.

INGREDIENT #4 — Ability to use experience and logic to determine howproject variables will likely impact productivity on the remaining work

In many cases, project managers use a straight-line formula to extrapolatethe number of man-hours to complete an activity. This assumes that the remaining units or quantities will be installed at the same productivity rate asthe work completed to date. This is a bad assumption. Applying the art of

Good estimating is partscience and part art.

58 � the basic ingredients of an accurate cost-to-complete estimate

estimating requires experience and the ability to identify variables on the projectthat may impact productivity either good or bad. A few specific productivitykillers to consider when applying the art include the following:

• Poor project scheduling and coordination by the GC or CM• Failure to complete an area before jumping to another part of the building• Minimal use of prefabrication or modularization• Unusually cold, hot, humid or wet weather• Trade stacking by GC or CM• Late start or schedule compression by GC or CM• Equipment and/or material delays• Large number of change orders on the project, especially late in the project• Large amount of “go-back” work• Slow decision-making by owner, GC or CM• Logistical impact of moving up a multistory building• Site access and logistics

While you may be able to overcome one of these variables and maintainsomething close to the average estimated productivity rate for most of the project, when multiple issues from the list above occur on a project, productivityon the remaining units typically drops at a significant rate. For example, whenseveral (two or three) of these variables are present, an activity that could typically be produced at 10 widgets per hour could quickly drop to eight widgets

per hour. When four or more of thesevariables are present, productivitycould easily drop to four widgets perhour. Couple this impact with anoriginal cost estimate that was bad tobegin with, and you have the perfectrecipe for colossal margin fade.

Accurately projecting labor on a large project that is going bad is extremely difficult because it requiresmuch more art to determine the impact of a project that is going badat an increasing rate. Rarely can youdetermine just how bad the negativenews will get until the last person isoff the project. As a result, most contractors initially underestimatethe CTC on a larger project that’s beenplagued by problems. Underestimating

Accurately projectinglabor on a large projectthat is going bad is extremely difficult because it requires muchmore art to determinethe impact of a projectthat is going bad at anincreasing rate.


the CTC, of course, overstates the current project profitability and overstatesthe anticipated profit at completion. Bad projects typically continue to get worseat an increasing rate, which is difficult to model or project using historical dataand science alone. Self-performing contractors are especially vulnerable to therisks of worsening projects. On the positive side, a good project can go nominallybetter than estimated, but on the other end of the spectrum, a bad project cango infinitely worse than the estimate.

ConclusionsBeing a self-performing contractor is risky business. Large, labor-intensive

projects won in a competitive bid situation are even riskier business. Being asuccessful project manager in this environment requires a lot of skill, hard workand the ability to identify potential cost overruns early. By using the CTC bestpractices described in these four ingredients, you will not only become a betterproject manager, but you will also identify problem projects sooner, take actionearlier and proactively impact project outcomes. Q

Scott Kimpland is a director with FMI Corporation. He can be reached at 813.636.1263 or viaemail at [email protected].

B usiness development is a very structured and intentional activity in best-in-class organizations: A strategy is developed, customersand markets are targeted, and relationships are built. While the effectiveness of some strategies may be up for debate, all firms have

one or more strategies — a charge that will guide them forward. Additionally,the construction industry relies heavily on relationships, so it comes as no surprise that most firms excel at building and leveraging relationships. Targetingremains the challenge for most. With work on the doorstep from repeat clientsand an urgency to “feed the beast,” it is easy to understand why some contractorshastily stumble through this critical step.

By considering the trickle-down impact of each sale, the importance in finding the “right” work becomes clear. Even the best estimating team canquickly be overwhelmed by the volume of estimates generated from bidding jobsthat should have never been pursued. Ideally, estimating serves as another filterto prevent undesirable jobs from slipping through, but inevitably some projectsthat don’t fit wind up in backlog because the quantity of work being bid reducesthe ability to discriminate between bad, good and best jobs. The responsibility

Data-Driven (Business) Development

DAVID MADISON, RICK TISON AND TYLER PARÉ

Decisions made with clarity and intentionare better decisions, even when conflict occurs.


of delivering the project with a profit is that of the operations team. This responsibility is difficult to execute when projects are undertaken without accurate cost estimates and appropriate margins.

Targeting and pursuing work that most closely aligns with the strategy andcompetencies of an organization is paramount. Because this is such a critical andchallenging step, it only makes sense to leverage all of the available tools to achievethis result. The expertise of a business development and executive team is an expected strength in firms, but the use of data can add valuable clarity in selectingthe “right” work and developing a comprehensive business development strategy.

Why Not Target?The first reason many contractors stumble through the targeting phase

reminds us of Alice and her trip through Wonderland. As Alice learned from the Cheshire cat, “If you don't know where you are going, any road will get youthere.” Business development without purpose or direction will produce resultsbut not necessarily those desired.One potential result is a stack of opportunities that may or may not fit the organization, tossed to estimating and operations to landand perform to achieve hoped-forprofitability.

The second stumbling block for contractors is pursuing the sameold familiar targets. As the adage“people buy from people” reminds us,relationships are a critical componentof any strong business developmentprogram. Whether they are serialbuyers or one-time buyers of construction services, owners desire a level of trust in the company they hire. They want to be comfortable knowingtheir contractor will build the project as if it were building its own.

While the importance of relationships can’t be understated, relying tooheavily on relationships to direct business development strategies is risky. Inthese situations, contractors become comfortable with current relationships and stick with them even as the markets shift or as spending changes. This canput firms behind the curve in developing the next opportunity. We generallyhear something that sounds like “we’ve made money on that client for years” or“small jobs are our bread and butter.” These sentiments are often coupled with a“gut” approach to business development, with firms abandoning the possibilitythat the data may reveal something altogether different.

Targeting and pursuingwork that most closelyaligns with the strategyand competencies of an organization isparamount.

62 � data-driven (business) development

The Role of DataIn our seminal piece, we outlined

several basic questions which can beanswered with data.

• Who are your best clients? • What type of work fits best

with your core competencies?• Are you more profitable on

large projects or small projects? • Geographically, where has your

firm enjoyed the most success?

While this list is by no means exhaustive, it does address severalcritical questions every firm shouldask while formulating a business development strategy. It is also worth pointing out that, to a large degree, thesequestions can be answered with data that is readily available. As we framed in an earlier article, every construction company tracks at least two data points per project to gauge performance — the estimated costs and the actual costs ofcompleting a project.

In the simplest form of this analysis, we are comparing the estimated figures (direct costs, contract amount, gross margins) to the actual outcomesand measuring gain or fade for each statistic. On any one individual project,those involved on the project generally know this information. And while these experiences can guide small adjustments in behavior, they don’t providecollective clarity to the organization.

By analyzing project cost and production information across all jobs, firmscan assess aggregate project performance by any number of categories. Considerthe questions above asked with this data in mind.

• Who — “With which clients do we experience the greatest margin gain?” • What (Type) — “What type of project do we consistently perform well?” • What (Size) — “We believe our small projects are our bread and butter.

Is that the case, or does the data tell us something else?”• Where — “What geographies most significantly impact our direct labor costs?”

Analyzing the DataWhen it comes down to actually crunching the numbers, there are a few

ways to get the most out of the process. For example, we recommend performingthe analysis without bias. In some cases this means having someone who may

Every construction company tracks at leasttwo data points per project to gauge performance — the estimated costs and the actual costs of completing a project.


not be directly impacted by the results or, at the least, an employee with a pragmatic mind. Like most data analysis, if the witness is led to the answer, the results are likely to be very predictable. The results will prove most valuablewhen the exercise is performed without an initial hypothesis.

Secondly, leave the “bad” jobs in the analysis. Taking them out can skew the results and cover up issues or problems that we’d like to be forgotten. Manycontractors will argue, “You can’t include that job in the analysis because it’s nota normal job for us.” The fact is, these projects are completed, whether they are normal or not. If we can’t wish away their impact to the bottom line of thebusiness, we shouldn’t exclude them from the analysis. If you want to take outyour biggest losers because you view them as outliers in your data, you have totake out your biggest winners too! We DO want to talk about the losers, whythey skew the data, and how to avoidthem in the future. Many contractorshave one or two bad jobs every yearthat turn best-in-class profitabilityinto mediocre performance. Learnhow to spot those jobs before you bidthem so you can avoid them. That’sthe whole point of the exercise.

Once the data is reviewed, the interpretation begins. Approach data interpretation as a process andnot as a single occurrence. Reviewingthe results will likely raise more questions about the information. Beprepared to run a follow-on analysisto address these questions with theinformation available.

At this point in the process, you’ll be able to review the projectcharacteristics that are currentlytracked. Very often, a data point is revealed that is not currently monitored, but would be valuable to have going forward. Now is the time tostart tracking it. The best day to plant a tree is 20 years ago; the second best day is today.

Once we’re happy with the resulting analysis, the questions begin. We outlined several basic project characteristics earlier in this article. And while thelist of questions you could ask seems never-ending, the basic idea is to try to understand if the gain or fade experienced on a category of projects was the resultof some particular aspect of estimating, operations or some external variable.

Many contractors have one or two badjobs every year that turn best-in-class profitability intomediocre performance.Learn how to spot those jobs before youbid them so you canavoid them.

64 � data-driven (business) development

As you come up with conclusions on the information, be sure to test a hypothesis and use this analysis as a data point in a decision. In promoting thevalue of analysis, we’d also like to caution against sweeping changes to your organization based solely on these results. View your findings as an indicatorthat should lead you towards further investigation and pragmatic conclusions.

With finite resources and a growing number of potential project opportunities on the horizon, the role data can play in targeting the “right”client should be clear. Use business development energy efficiently and effectively. Be purposeful and accurate in lining up the firm’s capabilities andstrengths with the needs of potential clients and projects. Better targets willprovide much better results.

External FocusWe focused on internal data in this article, but we would be remiss if we

didn’t at least mention the wealth of data available in the marketplace. Losingsight of macroeconomic trends or other forces at work in the market that willimpact client spending can leave firms holding the bag. Business developmentprofessionals must be conscious of changes in spending, adjustments in buying

practices and market growth or contraction, just to name a few. Thisinformation should be filtered back to the strategic team to ensure propercourse corrections are made along the way. Analytics in business development have direct bearing onstrategic decisions of the company.The well-informed executive teamwill ensure that good information access is available for business development purposes.

ConclusionCollecting, analyzing and

interpreting important data is understandably a big task, and thisresponsibility will consume a certainamount of bandwidth internally.

However, many firms already collect a significant amount of the information we have referenced, and a large number of firms do some level of analysis. Considering the impact the results may have on every part of the organization,the investment and additional focus should be an easy decision.

For firms that aren’t accustomed to using data to guide their business

Be purposeful and accurate in lining up the firm’s capabilitiesand strengths with theneeds of potential clientsand projects. Better targets will providemuch better results.


development strategies, there will likely be some growing pains. Additionally,some strategic decisions may be made that contradict the results of the data.Firms may pursue a client that has proven to be a challenging client in the short term, in order to position themselves for opportunities on the horizon.However, decisions made with clarity and intention are better decisions, even when conflict occurs. Over time, the investment in better business development information will result in better targeting of the projects to bepursued and the risks firms choose to accept. Used in concert with the information operations and estimating can gather, the results of this processwill most certainly lead to more efficient and profitable outcomes for any firmswilling to make the investment. Q

David Madison is a consultant with FMI Corporation. He can be reached at 919.785.9213 or via email at [email protected]. Rick Tison is a consultant with FMI Corporation. He can bereached at 919.785.9237 or via email at [email protected]. Tyler Paré is a consultant with FMICorporation. He can be reached at 813.636.1266 or via email at [email protected].

I n our first article about how to improve your design practice, we described our work with a series of offices. That article focused on theprocess of self–assessment to identify issues impairing success. This article continues with a discussion of proposed changes in office

procedures to address the issues. When approaching cultural change, it is important to consider how the proposed changes are introduced. In each workshop, participants were challenged to propose one idea of a change in each of the five areas of practice:

• Pursuit• Planning• Monitoring• Getting Paid• Lessons Learned

We took great care to solicit change ideas from the office members participating in the workshops. We did this to assure that they would own their

Improving Practice EffectivenessPart 2: Taking Action

R.K. STEWART, FAIA AND STEVEN ISAACS, P.E.

Change may be difficult, but the effort can produce amazing results.


“homegrown” ideas, thus avoiding the impression that we, as outside consultants,were imposing ideas not grounded in their particular circumstances. Once an individual idea had been introduced, we would help refine and shape the idea before the entire group chose “one thing to change” to be implemented in eachof the five areas of practice.

What Should We Change?Across the course of these engagements, we fielded more than 100 ideas

for change offered by workshop participants. Ranging from minor adjustmentsto their current processes to radical changes, the ideas showed that participantsapplied true critical thinking to the task. A selection of the “one thing to change”ideas that could lead improved effectiveness in your practice includes:

PuRsuIT PHAse:establish a standard Go/No-Go process. Use it to research and analyze

each “Go/No-Go” to understand client values. Determine an approval processfor individuals who want to override the standard process.

Invest more time and money in researching strategic clients with whomthe firm wants to develop relationships. The selection and pursuit of theseclients should be based upon the compatibility of their values with the firm’s.

Create a narrative:

• Every pursuit should begin with a compelling (but brief) narrative thatframes the project from start to finish

• The narrative forms the basis of the project approach• The narrative forms the basis for fee• The narrative sets the form of the interview• The narrative frames the basis of design

PLANNING PHAse:Clearly define what content the work plan should include as well as

its documentation, distribution and communication. The work plan shouldgo far beyond schedule and budget. It must be based on goals established by the client and by the firm’s leaders. The plan should set the direction for a variety of issues, including design, risk, quality, staff development, portfolio enhancement, client relationship, etc.

Require each project to develop a work plan with broad team participationthat includes the firm’s financial, design and technical goals in addition toclients' qualitative and quantitate goals.

Define a consistent, scalable work plan that includes qualitative goals,quantitative goals and required decisions to which the project team can be heldaccountable and is required for each project.

68 � improving practice effectiveness

MoNIToRING PHAse:Develop an inclusive communication process for project kick-off with

the team. Include an agreement on goals, accountability for achieving task andmethodology for producing results. In addition, there must be a clearly definedwork plan and a mechanism for reporting statuses (positive and negative) to office leadership on a regular basis.

establish regular reviews scalable for each project. Participation in reviews must be a priority for all team members. These reviews provide perpetual oversight of progress towards the documented goals and results. Thereviews should develop adjustments in the plan to maintain progress towardgoals and profitability.

Develop a process to identify scope creep — either client- or design-firm-initiated — so it can be avoided or managed to enable securing of additionalservices compensation. The process must assign responsibility for creep identification to all team members. Managing scope creep should be in the forefront of all team members’ minds as the project progresses.

GeTTING PAID PHAse:establish a methodology for including client invoicing and payment as

part of the work planning for every project. The method should include:

• Developing a process for understanding client’s payment process at thestart of each project.

• Clearly defining the invoice process, including follow-up responsibility with client, for all projects.

• Establishing responsibility for follow-through.

Prepare a comprehensive invoicing plan for each project. This plan shouldinclude timing of invoices, frequency of contact with client, establishing expectationfor invoicing from consultants and other pertinent invoicing information.

Include administrative team members in the collection process. Considerestablishing a relationship between the firm and client’s accounting departments.Use this to align firm invoicing with the client payment process. Also, make accounting the initial contact when payment passes the due date.

LessoN LeARNeD PHAse:Develop a process and criteria to evaluate each project and capture

lessons learned. This process must include input from the client and contractor.It should schedule reviews at major milestones in addition to substantial or final completion.

Develop a system to share lessons learned on a real-time basis acrossthe office. Each project must include a schedule of milestones and final lessons


learned to be input into the system. Use electronic notifications to staff membersto inform of essential lessons learned toward the goal of reducing rework andshare best practices from teams with the office.

Taking Action Is the KeyAs we worked with these offices, we found some commonalities among

the change-related issues and stumbling blocks. As you attempt to make changesto your practice processes, take some time to analyze your firm’s culture. Workon these cultural issues may prepare your staff for additional changes that moredirectly impact the quality of yourclient’s experience working with your firm. Common process culturalissues include:

Clarity of purpose: Create aclearly defined mission that all staffmembers understand and use whenmaking decisions for the good of thefirm and its clients.

Lack of Go/No-Go rigor: Although all offices employ a decision-making process for projectpursuits, these processes lack rigorand transparency. Decisions frequently depend upon a person’s position of authority in the office rather than logical analysis. Project teams are not informedwhy a project was pursued, the office’s goals for the project, or the project delivery expectations.

Project work plans are not understood: Most project work plans tend tobe limited to definition of staff hours and fee budgets. Plans are then poorlycommunicated to project team members. Robust, meaningful work plans thatdefine both qualitative and quantitative (i.e., financial and schedule primarily)goals are rarely used, and project teams don’t factor in both the firm’s goals andthe client’s aspirations for a project.

Project work plans and BIM plans ignore each other: The concept of developing a BIM plan is commonly understood, but integrating the BIM planinto the project work plan to execute the project is considered a novel concept.

Project reviews must focus on progress: Regular project review meetingsare rare, but when they occur, the focus is on hours spent rather than progresstoward completion of tasks. Discussion of what information or decisions areneeded to complete tasks is also rare.

Mentoring and coaching are rare: Younger staff members seek empowerment, and office leaders want them to be empowered to take ownership

As you attempt to make changes to yourpractice processes, takesome time to analyzeyour firm’s culture.

70 � improving practice effectiveness

of projects. Senior office leaders rarely participate in project reviews as mentors orcoaches and instead choose to dictate actions rather than using their experienceto assist project teams to find solutions.

Invoices are client communications too: Invoices are usually just sent eachmonth without consideration for a client’s needs for information. The process ofissuing a monthly invoice and getting paid is an opportunity to understand yourclient’s satisfaction by simply asking “How are we doing?”

My time card is tied to office finances? Many staff members, some of themquite senior, are unclear how office finances work. From the building up individualpay rates to determining billable rates, to defining effective project multipliers,through the timely submittal of weekly time cards, each component’s contributionto firm profitability is not considered important to many staff members.

Non-learning organization: Despite a firms’ desire to be a “Learning Organization,” i.e., to learn form the past and not repeat errors, there is little effort to capture project information in any office. This includes the capture ofbasic project data for use marketing the firm for future projects.

Will to act: Each office’s workshop participants have said they will support each other and be accountable for the five changes they agreed upon.Firm leaders have the ability to encourage, cajole, inquire and require them to be accountable for implementation. Our greatest concern is that without a continuous encouragement and monitoring effort, this valuable program will not produce the desired results.

Design practice in the 21st century is increasingly complex, as more issuesmust be addressed in less time with higher expectations of the outcomes of ourwork. Often, improving the effectiveness of project teams and firms to becomemore profitable and personally satisfying seems impossible. In these two articles,we have described a process to evaluate where your firm is today and decide onchanges that can visibly impact the firm for greater success as your firm definesit. Change may be difficult, but the effort can produce amazing results. Embracechange and you may be surprised at the results. Q

R.K. Stewart, FAIA, is an educator and consultant collaborating with practices across the country. In 2007 he was the national president of AIA. He can be contacted at 415.250.4849 or

via email at [email protected]. Steven J. Isaacs, P.E., is the division manager forArchitecture and Engineering Services at FMI Corporation. He can be reach at 925.934.7200 or

via email at [email protected].

A s the debate continues over the impact of climate change, regulationsare already being put into place. The regulations take many forms;however, one form of electric power generation regulation manifestsin renewable portfolio standards and greenhouse gas emission

requirements imposed by federal and state legislators and the EnvironmentalProtection Agency (EPA). The area that is most interesting, due to the borderlessissue of climate change, is the transformative impact the states are playing inthe effort to improve sustainability and reduce greenhouse gas emissions.1

Sustainability regulations appear in the form of either voluntary or involuntaryRenewable Energy Portfolio Standards (RPS). Greenhouse gas emission regulationstake a more direct approach and cap the amount of emissions that can be used toproduce the electricity in a given state.

The U.S. Energy Information Administration (EIA) creates a report detailingthe number of gigawatt hours of electricity produced in the United States. Themost recent report, released in December of 2013, shows that the U.S. producesapproximately 4,047,765 gigawatt hours annually. Exhibit 1 illustrates the fivestates with the highest production and the gigawatt hours they produce.

Where to Profit From the Changing Electric Generation Market

DANIEL T. SHUMATE

Take the next step forward to drive capital spending for electric generation.

72 � where to profit from the changing electric generation market

In Exhibit 2, per the EIA report, coal is the fuel for the majority of electricity generation in the United States. Natural gas produced the secondlargest amount of electricity, and renewable energy sources comprise about 13% of the electric generation.

States have enacted RPS programs in an attempt to address the reliance onfossil fuels and uranium required for nuclear power. In all but eight states, statelegislators have established regulatory targets for renewable energy. A sample of leading states is in Exhibit 3.

These requirements create an opportunity for new construction. For example,states require that utilities source their power from renewables, and this hasgenerated an increase in spending across the construction value chain. In its mostrecent investor presentation, Quanta Services has highlighted the double-digitgrowth opportunity driven by new regulation causing increased grid investmentas well as a changing generation mix towards renewable and natural gas generation projects. These projects range from refurbishing the inner workingsof hydroelectric power plants to building wind and solar farms to creating additional transmission capacity to reach these renewable sources of power.

In addition to RPS requirements, regulation of greenhouse gas emissions in the generation of electricity will also change the generating landscape. In California, any construction or purchase of new power plants designed for baseload generation has a limit of 1,100 pounds of CO2 per MWh. Marylandhas enacted legislation to reduce greenhouse gas emission by 25% prior to 2020

1EXHIBIT TOP FIVE TOTAL ELECTRICITY GENERATION

BY STATE

CA

TX

ILPA

FL

19 99,519 99 ours Generated Gigawat tt Hou t ou t at 4.93% eneration ration ation a ation Of tota al U.S. Ge en r Ge ta

429,813 Gigawatt Hours Generated 10.62% Of total U.S. Generation

221 1 1,096 1 1 awatt Hours Generated Gigaw awa Gig Gig 5.4 46% .4 total U.S. Generation Of t t t

197,56 65 6 65 6 6 65 6 65 6 6 65 6 6 urs Generate urs Generat Gigawatt Ho o Gigawatt o u ou ed e te te Gigaw a Gigaw Gigawatt urs G t u t urs G t u urs Generat u u u e e t te 4.88 % % 8 8% Generation G Of total U.S. G G G G G

3,420 223 223 erated rs Gigawat ne ne Gen n n G n tt Hour ur att 5 52% 5.5 5 52 ion Of t t total U.S. Ge e f total er er


of which 45.6% will come from the energy sector. Three programs are now inplace to achieve this goal, including a Regional Greenhouse Gas Initiative (“RGGI”),the EmPOWER Maryland Initiative and Maryland’s RPS program. RGGI is amultistate cap and trade program for Maryland’s existing power plant facilities.EmPOWER is primarily a conservation program aimed at reducing the demandon the system, and the RPS program requires an uptick in the power generatedby solar facilities and other renewable sources.

To meet the increasingly restrictive greenhouse gas emission requirements,one must understand the amount of carbon dioxide produced through the varying fuel sources. This data is typically reported in pounds per million BTU.One billion BTUs is equal to approximately0.3 gigawatt hours. A summary of key fuelsources appears in Exhibit 4 and is derivedfrom a report by Hodgesand Rahmani from theUniversity of Florida.

Before looking to renewable generation,natural gas is an interimsolution to the emissionrequirements. Naturalgas generates 45% lesscarbon dioxide per million BTU. Through a combination of new facilities and conversionsfrom coal to natural gas, producers cansubstantially reducetheir carbon footprints. Industrial EPC companieshave been successful at taking a turnkey approach to these conversions, thusbenefitting from the current regulatory environment. For example, URS hashighlighted its ability to meet these regulatory requirements by offering cleancoal balance-of-plant systems or natural gas conversions.

Leveraging a Proactive Approach Contractors and engineers can benefit from the proactive approach by state

legislators to implement greenhouse gas emission reduction and sustainability

2EXHIBIT TOTAL ELECTRICPOWER GENERATION

IN THE UNITED STATES

Coal37%

Natural Gas30%

Nuclear19%

Hydroelectric7%

Renewable Sources6%

U.S.ElectricPower

Industry

74 � where to profit from the changing electric generation market

3EXHIBITEXAMPLES OFTARGET RPS REQUIREMENTS

AND REPORTED PROGRESS

HI

CA

CO

MA

MN

NE

DE

10% 40%

LASTREPORTED

25%

14%

2.9%

1%

12.5%

5.7%

1%

33% 26.5%

27%

25%

2 %23.5%

2 %21.5%

10.0%

5.8%

14.5%

17.6%

7.6%

1.0%

StartingRPS Target

RPS

2000 2005 2010 2015 2020 2025 2030

Note: Some states do not subject 100% of retail sales to the RPS requirements

Biomass

Coal

Natural Gas and Propane

Nuclear

Petroleum

Renewables

Agriculture Crop ByproductsLand!ll GasMunicipal Solid Waste (mixed biogenic and nonbiogenic)

Bituminous and Anthracite CoalLignite CoalSub-Bituminous Coal

Natural GasPropane

Nuclear (uranium, plutonium, thorium)

Distillate Fuel Oil (diesel and No. 1, 2 and 4 fuel oils)KeroseneResidual Fuel Oil (No. 5, 6, and Bunker C fuel oil)

Solar (photovoltaic, thermal)GeothermalWater (conventional, pumped storage)Wind

195115.1179.6

205.3215.4212.7

117.1139.2

0

161.4159.5173.9

016.6

00

FUEL GROUP ENERGY SOURCEPOUNDS/MILLION

BTU

4EXHIBIT CARBON DIOXIDE EMISSIONPER FUEL GROUP AND ENERGY SOURCE


regulations. The regulatory requirements will influence the construction of new generation facilities. For states to meet their regulatory requirements,solar, wind, geothermal and hydropower generation must be brought “online” orconnected to the state’s power grid. This has resulted in a number of interestinginterconnect projects. Minnesota Power has applied to build a 500-kilovoltGreat Northern Transmission Line to connect Minnesota to the clean hydropowergenerated by Manitoba Hydro. Five different transmission projects have beenproposed to connect New England to the hydropower generated in Canada tothe north. The projects include the Northern Pass, a $1.4 billion, 187 miletransmission connecting Hydro-Quebec to Southern New England; the NewEngland Clean Power Link, a $1.2 billion, 154-mile project connecting LakeChamplain to Vermont; the Northeast Energy Link, a 230-mile project connectingMaine and Canada; the Green Line, a 350-mile project connecting wind powerfrom Quebec to Maine; and the Grand Isle Intertie, a 60-mile project bringingwind power from Northern New York to Vermont. Substantial right-of-way,construction, interconnects and substation work will be necessary to completethese projects and bring the utilities in compliance with state regulations.

The electric power generation market has changed dramatically over the last10 years. In order to take the next step forward, new construction, conversionsand interconnects will drive capital spending for electric generation.Q

Daniel Shumate is an associate with FMI Capital Advisors, Inc., FMI Corporation’s registered Investment Banking subsidiary. He can be reached at 919.785.9266 or via email

at [email protected].

1 (Rabe, 2006)

2 Maryland Department of the Environment, Maryland’s Greenhouse Gas Reduction Plan: Executive Summary. 2013.

3 This document is FE796, one of a series of the Food and Resource Economics Department, Florida Cooperative Extension Service, Institute of Food and Agricultural Sciences, University of Florida. Original publication date March 2009. Reviewed January 2012. Visit the EDIS website at http://edis.ifas.ufl.edu.

It is a story that’s as old as time. Contractors will tell you all about theirprocesses, show you the 10-pound binder that sits on everyone's desk,and immediately ask, "Why aren’t people following them?" After seeingcountless examples of this exact situation, here are a few of the reasons

why "no one is following them" and some ideas on how to address this challenge.

In the Beginning…example scenario: In many instances, senior operations leaders create the

processes themselves. There may be several reasons for this: an overconfidencethat they alone know the one best way, including other people would take toomuch time, they are the only ones that know how to use a flow chart softwarelike Visio, they overestimate how simple it is, or believe that any process is better than no process. Inevitably, this DIY beginning leads to a lack of buy-infrom other stakeholders.

Recommendation: Capitalize on the combined experience of your people.If you stop and think about it, most organizations that employ 100-200 peoplecollectively have thousands of years of construction experience. Applying much

SOPs Don’t Make It So

ETHAN COWLES

Create buy-infor successful implementation andprocess improvement


experience to any problem will yield better solutions than any one person alone can generate. Companies need to bring together a small group of people(six to 10) to build a “proven best practice” and include representatives from alllevels of the organization who have influence on the process (estimators, projectmanagers, superintendents, foremen, equipment managers, safety, etc.). Eachperson helping to create the process brings many years of experience and a different perspective on the situation. What might make perfect sense to a project manager might be truly impossible for someone else to grasp. Getting itright takes discussions and usually some level of conflict. The combined wisdomwill lead to better processes, improved employee buy-in and faster results.Sometimes a collective, participative approach to solutions development iscalled “getting fingerprints on the murder weapon,” resulting in the participantshaving vested interest in a successful solution implementation.

Missing Piecesexample scenario: Most SOP manuals contain flow charts, descriptions

of the process, examples of documents and screenshots of key inputs or outputs.These manuals attempt to be clearly instructing a person on WHAT he or sheshould do, but rarely does an SOP manual explain WHY someone should followthe process, WHEN he or she should start/finish the process or clearly statewhen using the process is mandatory.

Recommendation: The first step in creating SOPs based on “proven bestpractice” should be a discussion of what the process is trying to accomplish —what is it trying to solve for. The group of people creating the process shouldidentify a list of objectives that clearly articulate what the results ofthe process should look like, feel likeand accomplish. Starting with thisstep ensures that everyone is workingtoward the same goal and allows theparticipants to determine whether,when the process is followed, it actually works.

Defining criteria for following the process is a good second step. Inreality, there can be good reasons whyfollowing a process is not needed orthat doing so could even be counter-productive. For example, following an elaborate pre-job planning processfor a one-day service call would notbe realistic — it would take longer to

What might make perfect sense to a project manager mightbe truly impossible forsomeone else to grasp.Getting it right takes discussions and usuallysome level of conflict.

78 � sops don’t make it so

follow the process than it would to do the project itself. Often, in the absence of clear criteria, people find excuses for why they don’t have to follow the official process. A typical comment in this situation would be, “My job is toobig/small/fast/slow for this process.” To overcome this challenge, clearly definewhen the process is mandatory. Criteria should be defined by something measurable like labor hours, revenues or schedule days. For example, criteria forfollowing the pre-job planning process might be, “All projects with 1,000 laborhours or more,” “All projects over $500K” or “All projects two weeks or longer.”Setting clear criteria helps eliminate mistakes and excuses while also allowingfor common sense and accountability.

As a third step, specify when to start the process; do not leave this to common sense. The trigger to start pre-job planning might be “Upon projectaward as determined by operations manager.” This step ensures that peopleclearly know when they are allowed/expected to begin spending time or resourceson the process. Without it, operations may not get the right people involveduntil it is too late.

Performance, Not Process, Is the Proofexample scenario: People are busy. Once a process is created, there tends

to be an urgency to get it implemented overnight. “We created this process so,from now on, follow it.” The avoidable risk here is — What if the process doesn’t

actually work? What if it doesn’t actually achieve any positive results?In this situation the unworkableprocess, the people who created it,and the managers mandating its usewill quickly lose credibility, and theprocess will go nowhere.

Recommendation: Once aprocess is created, try it out first. Follow the process on only a few projects to see if it actually achievesthe stated objectives. Gather inputfrom the “beta test” participants andsee if they have ideas that wouldmake the process faster, better ormore effective. Only after you canprove the process works, that it is the

“one best way.” should efforts be made to make it “mandatory” (for projects thatfit the criteria, of course). Incentives for following the process and disciplinaryactions for not following the process should only be applied after the process is proven to work.

Incentives for followingthe process and disciplinary actions fornot following theprocess should only beapplied after the processis proven to work.


Changing Behaviorsexample scenario: In a typical example, new SOPs are introduced to

employees too quickly. The expectation is that these employees will instantlysee the value of following the process and do so simply because their managertold them to. At best, this might work for a short period of time. Soon, people

become skeptical of the value of theprocess and/or don’t see any tangibledifference in the results.

Recommendation: If you want people to develop a new skill orbehavior, they will need some help.People usually crawl before they walkand walk before they run. In fact,count on it.

Make sure there is an internal“expert” on the process who takes the time to explain how the processwas created, what it is intended to accomplish, and why it is better thansome other way. The person trainingthem should be good at answeringquestions from new participants and

dealing with the associated skepticism. This person should “walk with them”while they try it out for the first time, making sure both the process activitiesare followed and the objectives of the process are achieved.

What Gets Measured Mattersexample scenario: In average situations, when you ask a senior manager,

“How often does the organization follow your SOPs and how do you know?” —silence usually follows. A follow-up question might be “Do the SOPs, actually work,and how do you know?” — again, followed by an uncomfortable pause. Theseare fair questions that should have answers.

Recommendation: Once a “best practice” has been established based onchosen criteria, track how often the process should be followed (how many projects meet the criteria) versus how often the process is actually followed on amonthly basis. For example, if the company mobilized on four projects that metthe criteria for pre-job planning, and if only three of them actually completedthe process, you would have a 75% completion rate for the month. Tracking thisover time will allow managers to spot trends (positive or negative ones), diagnoseproblems and reinforce successes.

By implementing best practices and using them on a regular basis, your firmcan expect better and more consistent results. Be sure to track estimated gross

As projects that followthe best practices begin to close, youshould see that theytend to outperform theprojects that did not follow the processes.

80 � sops don’t make it so

margins versus actual gross margins on closed projects every month. As projectsthat follow the best practices begin to close, you should see that they tend tooutperform the projects that did not follow the processes. It’s no mystery thathaving defined expectations and following proven processes will correlate with better results.

Keep Them Currentexample scenario: Creating an SOP manual is usually a big undertaking,

and distributing manuals companywide is expensive, less so if done electronically.Once distribution and deployment has been accomplished, there are usuallystrong organizational and financial reasons to leave it alone for a while (even ifthere are tweaks, changes and updates that should be made). After some time,what starts as a need to make small “tweaks” grows into a need to make a completeoverhaul. The SOP manual becomes an archive of “how we used to do things.”

Recommendation: It is important to look at processes as living things that can, should and will change over time. Assign responsibility for individualprocesses to the team members who created the process in the first place. Fromthe outset, make sure they understand that the process will need to be updatedanytime there is a way to make it better. At the very least, each “mandatory”process should be critically evaluated on a quarterly basis and updated as needed.Have the team update the process, the process tools, examples and training materials to reflect the improvements to the process. Q

Ethan Cowles is a principal with FMI Corporation. He can be reached at 303.398.7276 or via email at [email protected].

T he term “risk management” is not new to the design and constructionindustry. Defined as “the forecasting and evaluation of financialrisks together with the identification of procedures to avoid or minimize their impact,” risk management can’t just be mandated.

Like safety, risk management requires constant communication, education andefforts to build awareness and provide value to both employees and clients.

An employee-owned organization like Messer, for example, must be able toclearly display the value that it is providing workers not only in their jobs — butalso in the firm’s financial reports. Achieving that balance isn’t always easy, butaccording to Alex Munoz, vice president of safety and risk management, the organization has been able to strike it byusing effective risk management strategiesacross the board.

“One of the easiest ways to create a corporate culture around risk managementis by making it everyone’s job,” said Munoz.“That means moving from an ‘It’s the

How to Build a Project Risk Assessment Process

RYAN HOWSAM AND JOE POLIAFICO

Project Risk Assessment is more than just beatingthe odds — it’s a culture.

This case study is based on an interview with Alex Munoz, vice president of safety and risk management at Messer Construction Co.

82 � how to build a project risk assessment process

department’s role,’ mentality to one that says, ‘We share a job, and that’s to createa risk-aware culture.’” Because of this mindset, Munoz said risk management ispracticed at every organizational level — from the field engineer to the seniorproject executive and everyone in between.

“My department, for example, is charged with arming employees with theright information, data and competencies to be able to make the right decisionsat the point of action,” said Munoz. “In many cases, that happens right on thejob site.”

An effective risk management program must include a project risk assessment process to aid in understanding the risks inherent in a job prior tosubmitting a bid. Once the project is won, creating awareness around these project risks helps avoid potential costly pitfalls.

Avoiding Project PitfallsAt Messer, the firm’s executive team champions its corporatewide approach

to project risk management as a core value. Over the past few years, Messer’sproject risk assessment program has helped the company avoid some criticalpitfalls that could have cost the company millions of dollars.

“Recently, we were asked to perform work within an existing facility wherethe owner wanted us to take on an unlimited level of risk regarding existingproperty (namely, damage to theproperty),” said Munoz. Knowing thatowners are responsible for the propertyinsurance on their own facilities, theconstruction firm asked to be namedon the owner’s existing property policy as an additional insured andfor a waiver of subrogation for Messerand all of the subcontractors from the owner’s carrier. The waiver wasn’t granted.

“Given the relatively small size of the project fee,” Munoz said, “we simply weren’t willing to take on the millions of dollars in liability.In this particular instance, we felt confident in our firm’s ability to dothe work, but we also know that theunexpected can happen. There’s alwaysa fortuitous nature to risk, especially when working within sensitive environments.”

Looking back at some of the projects Messer has taken on, Munoz said thehighest levels of potential risk usually involve force majeure events and

Over the past few years, Messer’s projectrisk assessment programhas helped the companyavoid some critical pitfalls that could havecost the company millions of dollars.


consequential damages. To make sure it is properly assessing project opportunitiesthat could present undue levels of risk, Messer thoroughly reviews all contractsand highlights issues like force majeure events, which in most cases are not insurable. “We also look for red flags on consequential damages, extreme liquidated damages and who is taking on the risk,” Munoz added.

Once these items are identified and flagged in the contract, the constructionfirm goes back to the owner and attempts to negotiate any liability down to the insurable level. In the case of a student housing project, for example, 3,000new beds translated into 3,000 individuals who would need to be temporarilyrelocated (be it in hotel rooms or via some type of multifamily leasing arrangement) if the project was delayed due to a natural disaster. “We basicallyjust figure out the liabilities based on worst-case scenarios,” said Munoz, “and go from there.”

Of course, some things simply can’t be quantified. For example, Messerhandles a high volume of work for children’s hospitals. On these types of projects,you can’t just quantify a child’s life if, say, a toxin were to enter the air conditioningunit and be transferred to children whose immune systems were compromised.

“Because of the uncertainty,” said Munoz, “we break everything down on a case-by-case basis when assessing risk and work to figure out the various liabilities and worst-case scenarios that are involved with each.” Risk mitigationstrategies through contractual language, risk transfer via insurance or operationalcontrols are then designed for implementation on the project.

Clear Language Provides OptionsBy instituting a culture of risk awareness and management, and by

focusing on a robust project risk assessment process, Messer has been able tohead off issues that could have otherwise impacted the firm’s bottom line. Onone occasion, for example, the company was faced with a construction defect.“We had limited any liability to the completed operations period that the subcontractors were able to obtain through their insurance coverage,” Munozexplains, noting that in this particular instance, most subcontractors carried atypical two-year coverage period.

Due to a design error as a result of value engineering, some drains associatedwith the plumbing system were backing up on a frequent basis and a full sixyears after project completion. Wanting to do the right thing, Messer partneredwith the owner and resolved the issue. “We weren’t contractually obligated, butwe prioritize the customer relationship, so we helped out anyway,” said Munoz.“Due to our risk assessment program, however, we had many options whensomething went wrong.”

At the end of the day, good project risk assessment for contractors requiresstrong contractual language that protects your balance sheets and gives you options when it comes to “doing the right thing.” And while measuring the

84 � how to build a project risk assessment process

results of a project risk management strategy isn’t straightforward, Munoz saidhis firm has definitely gained the benefit of more favorable insurance terms.

“When we examine our loss runs, they’re very clean in general. Our rateshave remained flat for the past four years — a period where higher-risk firms areseeing double-digit increases,” he said, noting that the firm’s risk managementapproach has also translated into a distinct competitive advantage.

Step by StepWhen asked if owners are starting to demand a more transparent project

risk assessment program, Munoz echoed the current market’s sentiment, “Yes,certainly. You definitely see that morefrom astute owners around risk.”

To companies looking to cultivatea strong risk management culture,education is an extremely importantconsideration. At Messer, roughly 60-70 percent of employees have been onboard for 15-20 years. This can makeimplementing change challenging.Education and engagement are criticalto gaining support and buy-in.

“As an ESOP, we always talkabout the employee-owners and how we can continue training themon the fine points of embracing ourrisk management strategy, and start

thinking about it as being a part of our overall culture,” said Munoz. He alsoprompts companies to remember that, in the end, the best approach to riskmanagement is collaborative and it involves the operations teams.

“Miss these two points and the strategy just becomes another initiative,rather than a complete cultural shift,” said Munoz.

When asked about key recommendations for companies considering implementation of a risk management program utilizing a project risk assessmentprocess, Munoz provided the following insight:

• The executive team must champion the entire project risk assessmentprocess for the company.

• By identifying and taking on significant risk, contractors are much more in control of their costs and are better able to compete on projects inthe marketplace.

• Risk management can’t be mandated. It requires constant communication,education and efforts to make people’s work easier.

To companies looking to cultivate a strong risk management culture, education is anextremely importantconsideration.


• Create a dashboard and have cross-functional teams build risk managementsystems so that you get real feedback from the people who are most affectedby the project risks.

• Companies that are astute at risk management and that implement a robust project risk assessment process can really differentiate themselvesfrom the competition.

• One of the easiest ways to create a corporate culture around risk management is by making it everyone’s job.

• By instituting a project risk assessment process, companies can effectivelyhead off issues that could have otherwise severely impacted the corporatebottom line.

The foundation for building a culture around risk management starts withimplementing effective processes and procedures with built-in accountability.Contractors today find them themselves in a vastly different risk environmentthan they did five years ago. Best-in-class contractors like Messer understandthat having a robust project risk assessment process embedded in how they conduct business is vital to helping them avoid pitfalls and identify opportunitiesin the project risks they encounter every day. Q

Ryan Howsam is a consultant with FMI Corporation. He can be reached at 303.398.7275 or viaemail at [email protected]. Joe Poliafico is a senior consultant with FMI Corporation. He canbe reached at 303.398.7230 or via email at [email protected].

Help wanted ads for CEOs aren’t usually published in newspapersor on online job search sites. When companies go looking for a CEO, they either turn to professional search firms or developtheir best candidates within the organization. The company —

often the board of directors and major shareholders — is looking for a very special individual who will not only have the capabilities to perform the responsibilities listed in the article sidebar below, but will also fit the specificneeds and culture of the organization the next CEO will be hired to run. While the CEO does not — or should not — act in a vacuum, the decisions he or she makes can mean the difference between the success and failure of the organization.

The responsibilities of the CEO apply in almost any industry or type of organization; however, our focus for this paper is on construction organizations.In general, we find that many of the characteristics of the CEO are the same in any organization or industry, but there are some significant differences toconsider for the construction industry.1

CEO Insights: Part 1 —Defining the Role of the CEO

PHIL WARNER

It’s not just fulfilling responsibilities that makes a good CEO


The Self-Aware CEO“Know thyself,” the ancient maxim from the Oracle at Delphi, does not

appear on the list of CEO responsibilities. This knowledge falls under the area of job competencies; yet knowing thyself supports many of the decisions and actions taken by top leaders. The idea of self-knowledge came up repeatedly during our conversations for thispaper. Most often, it was in the sensenoted by Guzzi that, “The CEO mustknow his/her personal strengths and then have good people aroundhim/her who know what to do.” JackMascaro noted, “A future CEO can betrained and rise through the companyranks through any field of endeavor if he is self-aware and knows hisstrengths and weaknesses. The newCEO must realize how his duties have changed and not get involved in the details of his previous job. Hefirst has to worry about the financialstrength of the company.”

Having a high degree of self-knowledge is not about excessive self-contemplation; it is a matter of knowing one’s strengths and

EXECUTIVES INTERVIEWED FOR THIS STUDY:

Industry Leaders:

• Guy Gast; president, Iowa Division, Waldinger Corporation and current chairman of the

New Horizons Foundation; Des Moines, Iowa

• Anthony (Tony) J. Guzzi; president and chief executive officer, EMCOR; Norwalk, Conn.

• Jack Mascaro; chairman and founder, Mascaro Construction Company, L.P.; Pittsburgh, Pa.

FMI Senior Executives and Consultants:

• Hank Harris, president and chief executive officer, FMI Corporation

• Lee Smither, managing director, FMI Corporation

• Ron Magnus, director of FMI’s Center for Strategic Leadership

This group of industry executives and consultants was handpicked and therefore not intended

to represent a statistical cross section of organizations in the construction industry. However,

those individuals we interviewed for this paper represent more than 100 years of industry

experience, working their way up through the ranks or working with CEOs and other top

management in companies across the construction industry.

THE NEXT CEO: All in the Family?

According to Hank Harris, president

and chief executive officer of FMI,

“In the construction industry, 95% of

all companies are privately held. The

owner/CEO is often the founder or one

of the founders of the company. In most

cases in family businesses, the successor

CEO is developed from within the

company. The culture of the company

makes a huge difference in its success.

The best ownership/leadership transitions

are gradual and take place over many

years, while grooming the successor and

passing on the culture and knowledge

of the founder or previous CEO. Peter

Drucker said, ‘The final test of greatness

in a CEO is how well he chooses a

successor and whether he can step aside

and let his successor run the company.’"

88 � ceo insights: defining the role of the ceo

weaknesses and then finding the right advisors to create a team with thestrengths required to fulfill the responsibilities of the CEO. Self-awareness, orknowing one’s strengths and weaknesses, is the first step in the competency of delegation. Knowing thyself is a starting point to knowing the strengths and weaknesses of other team members, using their strengths where needed,and perhaps getting mentoring or coaching to help build up areas of weakness.As Hank Harris points out:

There are probably many different views of what makes a good CEO. At the CEOlevel in a large company, it is more of a “social job.” This is different from other levelsof the company where the focus is often on specific team performance. The CEO mustfocus on the whole company. There are many more things to juggle. The CEO needs to have good people skills, socialization and political savvy. The CEO needs to knowhow to get things done with many different people.

The CEO who feels lonely at the top is likely having difficulty fulfilling theresponsibilities of the role and needs help with some social competencies. Theseskills or characteristics can be seen as prerequisites for the successful CEO. It isgood to have them before one takes the position, but they are learnable for theCEO or for the candidate who first understands what he or she needs to learn.However, there is much more to the role of the CEO. For instance, as Mascaronoted, the CEO needs to be self-aware, but also must “worry about the financialstrength of the company.” According to Mascaro, the CEO’s job can be brokendown into these three key areas:

• He/She has to make his or her numbers every year. • He/She has business development responsibilities.• He/She has at least some operational involvement and concerns.

Most of the executives interviewed for this paper would agree with thisshort list, but there are some differences and elaborations needed to better define the role and how these items are accomplished. As Guy Gast notes, “theCEO and those who hire the CEO need to know the responsibilities, but moreimportantly, they must know or be able to learn the competencies required tofulfill the responsibilities of the position.”

CEO Responsibilities: A Closer LookFrom the individuals interviewed, we found more areas of agreement

and no real disagreement on a range of topics concerning the role of the CEO.The differences are more a matter of style, experience and opinion; however, all agreed that the list of responsibilities presented at the beginning of this article is a thorough list of CEO responsibilities. On the other hand, Guy Gast


noted that he would rather think of the “responsibilities of the CEO in terms of competencies.” In part, this is because he thinks from the perspective ofchoosing a CEO and asks:

[W]hat competencies should he/she possess? This is not necessarily the same asjust having responsibilities. For instance, in a job description, a CEO candidate musthave, and be able to demonstrate, the competencies associated with the responsibilities.The question then becomes how to evaluate a candidate for those competencies. Selection must be based on a more objective analysis of skills. Notably, some of thoseskills are more ambiguous, but the attempt should be to demonstrate competenciesthat match responsibilities.

Ron Magnus and the team at FMI’s Center for Strategic Leadership lookedat the list and presented a more compact version that will accommodate the listof responsibilities as well as competencies required by top executive leaders:

We combine all of the things on the list presented at the outset of our discussion into four major buckets. We focus on the four roles of a “VUCA”2 leader:

• Alliance builder• Master strategist• Talent developer• Change leader

According to Magnus, “The CEO role is to assure that the culture of the company doesn’t stop good ideas. The CEO must remove obstacles and encourage ideas that capitalize on and align with the company’s purpose. The CEO must be actively involved in this process.In my experience, 90% of construction company CEOs don’t do this very well.”

While there may be a large percentage of CEOs in the industry that “don’tdo this very well,” the short list of top executives interviewed for this articleagree the CEO must “align new ideas and company strategy with the company’spurpose.” The CEO must carry the torch for the company’s culture, purpose,strategy and beliefs. All those interviewed concur and say this is as important asmaking money. Rather, this torch-bearing is an important part in the success ofthe company that also includes being profitable and achieving an organizationthat is “Built to Last,” as Jim Collins described in his book by that title. (It is

The CEO must carry thetorch for the company’sculture, purpose, strategyand beliefs. All those interviewed concur andsay this is as importantas making money.

90 � ceo insights: defining the role of the ceo

notable that each of the executives we spoke with is a reader familiar with awide range of business literature. Even though we did not ask about specificreading habits, a number of quotes and references to leading business authorscame up frequently in our conversations.)

The list of responsibilities that a CEO must carry out is long, but we discovered in our interviews that although responsibilities are important, havingthe skills and competencies to carry out those responsibilities is critical to thesuccess of the CEO and the company he or she leads. In practice, it is rare to findall of those competencies in one person. That is why one of the most criticalskills for a leader is the ability to understand his or her competencies and find a core group of trusted advisors and supporters to provide those competenciesthat the CEO doesn’t naturally exhibit. In Parts 2 and 3 of this report, we willtouch on the importance of the CEO in forming a culture of success and additional characteristics of a successful CEO. We will also comment upon some characteristics of those who might not become successful CEOs. Q

Phil Warner is a research consultant with FMI Corporation. He can be reached at 919.785.9357 orvia email at [email protected].

1 This research paper was developed for the New Horizons Foundation. While we focus more on CEO responsibilities for HVAC/sheet metal firms, we also look at other construction industry firms. Generally, we found few differences in the overall responsibilities or skills of the CEO within the industry, but more differences in companies of different sizes and organizational structures.

2 Note: “Experiences over the last decade suggest that operating environments will become increasingly Volatile, Uncertain, Complex and Ambiguous in the years ahead — the future will be defined by VUCA.”

Help Wanted—CEO:

Must have the skills and characteristics required to carry out the following responsibilities:

• Director: Set direction for the company

• Decision-maker: Make high-level, critical policy decisions

• Leader: Provide vision for the future of the organization

• Motivator: Motivate employees and shareholders

• Driver of change within the organization

• Promoter and head salesperson for the company

• Manager and facilitator of operations: Presides over the organization's day-to-day,

month-to-month and year-to-year operations

• Advisor to the board of directors

• Communicator: Within the company and with the rest of the outside world as needed

• Visionary: Lead strategic planning efforts and oversee the plan’s execution

• Listener: Surround himself or herself with the best people for advice

• Recruiter/mentor: Select and nurture his or her successor

• Fiduciary: “A CEO's legal responsibilities to his company's shareholders are broken

down into three distinct fiduciary duties: the duty of care, the duty of loyalty and the duty

of disclosure.”

• Ethical leader for the organization

T he construction industry has changed significantly over the last 10 years, with the most successful firms adapting with the expansion and contraction of the marketplace. Just 15 years ago,while interviewing for a position with a civil contractor, I asked

my potential new boss, “How do you guys keep on top of all of the industry innovation and keep up with technology and its benefits?” The division presidentlaughed as we drove past a grader and suggested that nothing had changed forhundreds of years in this industry and that he didn’t expect any changes in the future. After attending the latest NUCA annual conference, I realized justhow flawed his perspective was. Contractors have a host of adaptations and enhancements to add to their operations and fleet. These knowledge-rich systems provide instant access to costs, and information, along with endless distractions. Despite this fact, equipment- and labor-intensive contractors havebeen “pinched in the middle.” Costs to maintain and operate (fuel) equipmenthave increased, and most trade-based contractors are caught on the losing sideof the war for talent. Labor prices are increasing as a result, and while work appears to be increasing, in most markets, profits are smaller than ever.

Establishing a “Lean” Standard

JIM SCHUG

Forget the conventionalwisdom about how the industry used to operate

92 � establishing a “lean” standard

Now is the time to forget the conventional wisdom about how the industryused to operate. If you are running a company that performs highly complexprojects without clarity in your structure, it could be costing you big money onproject results. A small utility contractor that lacks a clear strategy — for example,trying to perform private work, public work and residential work — is a greatrecipe for end-of-year losses. Each type of work mentioned requires specific systems and processes as well as clearly defined roles to be successful.

Introducing Lean PrinciplesThe Lean Enterprise Institute defines lean as “Maximizing customer value

while minimizing waste.” (www.lean.org) Starting the definition with the conceptof customer value emphasizes the need for a clear strategy. In the quest to keepup with (and get ahead of) the dynamic and evolving market, some companieshave turned to Lean principles. Some of these principles were first employed byHenry Ford with an integrated assembly of automobiles. Made most popular by the Toyota Production System, Lean originated in the manufacturing field.James Womack co-authored the book documenting this system in “The Machinethat Changed the World,” highlighting critical principles that made the systemsuccessful. Lean concepts entered the construction industry on several levels.

In some ways, the industry has adapted these three Lean options:

• A Lean program is often supported by an owner and involves an architect,engineer, contractor and the owner promoting the value of Lean and focusingon removing waste from an overall project.

• A Lean project centers on removing waste from a project across all companysystems and processes.

• A Lean firm is tightly focused on providing and delivering value to the customer at the lowest cost.

Lean isn’t a magic pill taken that helps achieve incredible productivity without effort. In many instances, companies adopt one or two Lean processes(typically a variety of the last planner process and fail to engage their employeesin the bigger, goal-oriented picture. First introduced to the construction industrywith Lean tools, Lean management can be a great advantage when adopted effectively. The Lean standard is not about just applying a set of tools — it isabout creating a lasting culture.

Establishing Customer ValueLean starts with knowing customer value. Many companies fail because they

don’t understand client needs. Others assume they know what their companiesvalue, especially when shifting into different markets or customer types with littleor no market research to support strategic plans. For example, companies built


to support only “low cost” may not excel at schedule-oriented projects (incentivebonus-associated) with high safety standards (no room for safety violations at all).

Lean firms can be recognized through their use of:

• Measurement• Continuous improvement• Identification and reduction of waste • Engaging people

Another hallmark of Lean companies is cultural in nature. Companies positioned on the front end of the adoption curve will gain distinct advantageimplementing enabling technologies. Many of these tools provide clear andtimely measurement and feedback, which, in turn, assist in identification and

subsequent reduction of waste. Thismay include equipment use (GPS andtelematics), labor management (on-the-job remote clocks embedded onsmartphones), material managementwith RFID, integrated project management and accounting software,and 3-D model integration.

Solution to Skilled Worker Challenges?

Adopting the Lean standard can help organizations overcome the skilled worker shortage. With engaged employees across the company, strong training programsand a mandate to “think” at the frontlines, we can onboard new employeesfaster and more readily promote current employees. As it impacts how

we train and learn our best practices, a Lean culture is immersed in constantstudy of “how” we do things and “how” we can make it better. This all leads to a cultural reinforcement that, in turn, adds up to much greater gains.

Continuous improvement is a buzzword bantered about in some companies and embedded in the culture of other organizations. Those whofocus on continuous improvement become very good at measuring the itemsthat truly matter. They conduct frequent internal and external evaluations tosee themselves as accurately as possible. From there, they can expend just theright amount of effort in order to see improvement.

A Lean culture is immersed in constantstudy of “how” we dothings and “how” we canmake it better. This allleads to a cultural reinforcement that, inturn, adds up to muchgreater gains.


This improvement triage is vital to the continuous improvement concept.The majority of companies that conduct self-evaluations don’t do it well enough. Also, most companies in the industry don’t have an abundance of timeor energy to constantly improve everything. Too many office meetings, for example, tend to pull everyone out of the field. This is counterproductive. Done correctly, evaluations and measurements point to the critical focus areas.Efforts are made and results measured to quickly determine if the right gainswere achieved. Consider the Lean definition above. Given the resources we have,how can we maximize the value?

Previous studies have revealed that almost 32% of labor spent in the fielddoes not support productivity. This recoverable lost time is spent waiting for the right materials (superintendent ran to Home Depot again!). Sometimes timeis spent working less efficiently, using the wrong piece of equipment to do a job (JD 410 rather than a dozer). Sometimes time is spent installing somethingincorrectly due to a lack of correct (or complete) information. This leads to rework, which only adds to frustration.

Crew-Centric IssuesA cultural dimension of profitable contractors is that the office (PMs,

estimators, admin, accounting, shop, etc.) recognizes that the field makes thecompany money. If asked, “Who is your customer?” the office folks are clear onthe fact that “the crew inthe field is one of my mostimportant customers.”The diagram below depicts a typical crew’ssupport requirements.We could argue that thearrows would flow bothways. It is clear that thelack of support from anyone of these supportscould cause the field tolose production and wait for the resources (or information) it needs.

Exhibit 1 shows theview of one crew, but the challenges faced bythe company staff (officesupport as identifiedabove) are significant

1EXHIBIT CREW-CENTRICSUPPORT MODEL

TYPICAL CREW SUPPORT REQUIREMENTS

Crew #1

O"ce Support

Communication

Tools Manpower Support

MotivationMaterial needs (request and

deliver)

InformationEquipment Support


when you have 11 crews on various projects. Stacking 11 separate crew-centricmodels may reveal the true difficulty that a company faces when attempting to“coordinate chaos.”

Consistent, yet variable support requires integrated communication across several key functions and positions in the company. Often the general superintendent is involved with manpower assignment and has input intoequipment moves. This is often refined by the equipment shop manager andforemen out in the field.Effective equipmentmanagement, materialmanagement and manpower alignment arecritical to a successfuljob. Companies mustbuild these systems to include effective two-waycoordination through the duration of the jobnot only at the beginning.(See Exhibit 2)

Full implementationof Lean principles is noth-ing less than a corporatetransformation. It isabout making changestick. By that measure,less than one-third ofcorporate transforma-tions succeed. Many companies spend significant money on software, only to find that the real challenge was effective implementation. Similar to that, implementing the lean standard requires strong leaders. Walking the fine linebetween creating systems (mentioned above) and ensuring they are simple touse is a challenge. Getting buy-in requires mature leaders to help companiesovercome the normal resistance to change. Sharing positive results from systems developed becomes paramount to getting support to continue the initiative. Seldom does brute force across the company yield the culture in which Lean flourishes.

Learning and Adaptable Creating a learning organization is critical to success in this changing mar-

ket. Piloting or beta-testing new ideas gives managers the room to test thingsout, to feel comfortable experimenting. The ideas can be successful in yielding

2EXHIBIT COMPANY-LEVELSUPPORT MODEL

COORDINATING CHAOS

• HWY 80 project x 3 crews• TPA Air�eld x 4 crews• Twin Span bridge x 1 crew• Pearl River Levee x 3 crews

Materials

• HWY 80 project x 3 crews • TPA Air�eld x 4 crews • Twin Span bridge x 1 crew • Pearl River Levee x 3 crews

• HWY 80 project x 3 crews • TPA Air�eld x 4 crews • Twin Span bridge x 1 crew • Pearl River Levee x 3 crews

Equipm

ent

Manpower

11Crews


an advantage or may be one of several “bad ideas.” Sharing theseideas across the company gets newideas flowing and creates a focus onimprovement. Another value to alearning organization is to rapidlyadapt the company based on onecrew’s learning experience. Not everyone in the company has to learnthat the ’stove is hot.” This ongoinglearning environment is preferred,rather than happening only at the end of jobs. Some firms wait until the end of the project to share ideaswith the project team and then hopethese lessons are shared on successiveprojects. Learning organizations feelcomfortable sharing ideas and have a culture where it is commonplace toshare mistakes with peers withoutwaiting for the project’s end. Lessons learned libraries exist, and ideas are shared atgroup meetings, staff meetings and project meetings. More advanced companieshave developed online libraries made easily searchable. (See Exhibit 3)

Moving Beyond ProjectsConstruction companies can significantly benefit from Lean concepts as

they shift to Lean management principles. Tailoring company operations to deliberately deliver only what is needed for a successful strategy is key to minimizing waste. To do this effectively, employees need to be engaged in thestrategy at all levels. Garnered by a clear vision and purpose, managers lead andcontribute their ideas from the boardroom to the site trailer. This involvementallows for a continued refinement of the strategy as the market evolves.Q

Jim Schug is a principal with FMI Corporation. He can be reached at 813.636.1254 or via email at [email protected].

3EXHIBITEstimate

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LEARNINGORGANIZATION

Lessons learned meeting to share innovations and update sta�. Project team con�rms results and improvements for next project.

Taking the proper time to put

simple and often inexpensive water mitigation processes

in place during

pre-construction,

construction and

post construction

can help save contractorsfrom the headache and expense of rework and replacements after an event.

A n improperly installed soap dispenser fell onto

a lever-style faucet causing water to run over the

weekend, flooding the three floors below and

resulting in $350,000 in damage.

Rainwater entered an 11-story building through a broken roof

drainpipe and unprotected window openings. The water ran throughout

the building via elevator shafts, causing $217,000 in damage.

Workers carrying a large ladder inadvertently knocked sprinkler

heads that were already hooked up and a shut-off wasn’t available,

causing thousands of dollars of damage.

Avoid the “water, water everywhere!” call during construction.

Water damage events like these during construction are one of the top risksfor contractors according to Zurich loss data for general liability and propertylosses. They can be expensive, difficult to fix and result in weeks or even monthsof construction delays.

The good news is that strategies to prevent water intrusion from either exterior precipitation or interior plumbing systems are not necessarily expensive, and more a matter of careful planning and regular weekend and off-hours, job-site inspections.

Taking the proper time to put simple and often inexpensive water mitigation

ERIC LAMBERT

Building Strategies to Prevent Water Intrusion

ZURICH FEATURE

100 � building strategies to prevent water intrusion

processes in place during pre-construction, construction and post constructioncan help save contractors from the headache and expense of rework and replacements after an event.

The War on WaterAny construction project requires waging a “war on water” — creating

effective strategies and tactics to keep away sources of wetness, includinggroundwater, water table, floodwater,seepage, storm water, utilities, sewers, snow/ice melt and runoff ordischarge from adjacent properties.

To minimize damage, international construction servicesfirm Turner Construction develops amoisture control plan in conjunctionwith its site logistics and storm waterplan for each company project, saidMichael Blackburn, Turner’s safetydirector for the Great Lakes Region.

He said the plans focus on addressing the exterior envelope

detail, particularly during the project constructability review; incorporatingtemporary protection into the scope and estimate for the project; closing in thebuilding prior to starting drywall; starting up permanent air handling systemsas soon as possible to aid with climate control while installing interior finishes;and quickly responding to water incursions, should they occur.

“Turner’s proactive moisture control plan helps reduce the risks of water intrusion into the building and aids in controlling moisture in the building andsurrounding areas,” Blackburn said.He added that any water intrusionplan should address a project’s entirelife cycle — before, during and afterconstruction — and requires a greatdeal of coordination.

Make Planning a Priority —Before, During and After

During pre-construction, members of the project team should work together to uncover the potential sources of water intrusion.One focus should be on identifying

During pre-construction,members of the projectteam should work together to uncover the potential sources of water intrusion.

Any water intrusion plan should address aproject’s entire life cycle— before, during andafter construction.


the likely rainfall frequency and volume for the location in order to schedulework around these periods.

That team should also identify water sources on or around the site, like sewers, its water table and utilities, and develop plans or practices to controleach source during building. Contractors should work closely with architects, designers and engineers during this phase to avoid building a structure thatcould have inherent water infiltration problems.

“It is important for the designer, contractor and owner to collaboratively establish a plan to guide development of solutions to minimize the risk of waterintrusion on a project. Collaboration early in the project is important so that all team members have an understanding of the project scope and establishmethods to manage the risk of moisture on a project,” Blackburn said.

The designer should provide a construction document with adequate details

The most effective way to combat water intrusion at a construction site is to be proactive, taking

measures prior to construction and during the building process to minimize water damage.

Pre-construction

• Schedule construction around peak periods of expected rainfall

• Identify water sources and develop plans to control each one

• Consider hiring a hydrologist to evaluate the local water table

• Determine how to direct flow away from the structure using perimeter drains

• Create a daily inspection report to check for damage, leaks or intrusion

• Immediately alert architect/owner of design features that may allow water intrusion

• Develop the project schedule with completion of the building envelope prior to

installation of finishes

• Schedule the completion of site drainage, paving and landscaping as early as possible

During Construction

• Assign responsibility for daily inspection to specific personnel

• Inspect and test all water services (including fire sprinklers) and waste lines before

closing up walls and installing ceilings and floors

• Ensure that certain temporary water lines, hoses and accessories are adequate and can

handle the required pressure

• Ensure pressurized sprinkler head protection is in place, including temporary sprinkler head

protectors, emergency sprinkler flow stoppers, warning signs and emergency collection barrels

• Check that temporary water sources are properly shut off when not in use

• Never rely on a hose for the containment of water pressure

• Properly install all building penetrations and check for leakage

• If needed, provide temporary coverings at any exterior openings

• Make certain all roof drains are installed as early as possible and regularly maintained

• Direct temporary and permanent roof drains and downspouts away from the structure

• Slope all grades away from foundation

• Inform the security services of higher-risk locations throughout the building

• Create an Emergency Tool Box that contains wet/dry vacuums, squeegees, mops, etc.

102 � building strategies to prevent water intrusion

related to potential water damage; the contractor should use best practices incontrolling the impact of water during construction; and the owner should recognize the importance of protecting the building envelope through rigorousinspections and testing.

Beyond the project lead team, construction managers and workers shouldbe trained on the importance and methods of preventing water intrusion. They should continually seek out ways to direct water away from the buildingduring construction, such as installing temporary gutters and downspouts, if necessary.

Construction defects and workmanship problems may begin to manifestthemselves during the first few post-construction months. Beyond the damageto the physical property, the safetyand lives of the occupants could be at risk should a breach in the buildingenvelope or faulty interior plumbingcause a rapid incursion of water.

Lessons Learned #1:

Construction was substantially completed

on a 122,000-square-foot, three-story

building attached to a hospital. A clamp

failure on a water supply line to some

equipment resulted in a foot and a half

of water covering 15,000 square feet of

the first floor. The financial loss was

$400,000, and the project completion

was delayed by four months.

What could have been done differently?

An effective water intrusion strategy

pre-construction would have included:

• A flow meter to notify a change in

water usage

• A documented contractor installation

inspection by a professional other

than the installer

• Testing the water supply to the

equipment after the installation

• Waiting to turn on water supply to unit

until testing could be completed

• Hiring for after-hours inspection of the

property, which would have reduced

the amount of water flow from 12

hours to about four

Lessons Learned #2:

Two new buildings were under

construction on a university campus by

a general contractor who had a 20-plus-

year relationship with the university. The

project was designed to be LEED Silver

Certified and designed with ISO Class

6-Fire Restrictive construction. A heavy

spring rainstorm overwhelmed the sump

pump that burned out shortly after the

storm began. PVC piping was used as a

temporary interior roof drain leader and

was overwhelmed at various connections

due to the high volume of water. In

addition, a roof hatch was left ajar.

These envelope breaches resulted in two

feet of water in the subgrade floors and

sheetrock/drywall damage to the upper-

most floors. The damage? $500,000.

Although no one can control Mother

Nature’s fury, additional planning from

this experienced contractor could

have included:

• Securing roof hatch with the first

threat of coming of severe weather

• Checking proper pitch, support and

connections for temporary piping of

roof drains

• Provide back-up pumps or design

alternate drainage systems to allow

water to be diverted from the building


To minimize the risk of water intrusion post-construction, contractors shouldconsider providing instructions to property owners and managers on propermaintenance and operation of the structure. Be sure to also ask manufacturersto inspect installations for warranty purposes.

When Prevention Goes AmokNo matter how attentive a project team is, the unexpected may occur.

Turner’s best practice for planning a response to water intrusion is to have necessary material easily accessible. Turner keeps emergency water kits in gondolas staged on floors where work is underway, Blackburn said. The responsekit includes electrical cord, multihead GFCI, a wet/dry pump vacuum, puddlepump, role of poly, rubber boots, hose, squeegee, pipe wrench to close valves,broom, bucket and, in some kits, a fire sprinkler shut-off device.

Developing plans that are focused on discovering and addressing damagesooner rather than later is critical. The later the discovery of a water intrusion,the greater the impact on the construction schedule, and the greater the likelihood that repair costs will incur. Q

Eric Lambert is the national customer solutions director with Zurich North America. He can bereached at 508.987.6793 or via email at [email protected].

The information in this publication was compiled from sources believed to be reliable for informational purposes only. All sample policies and procedures herein should serve as a guideline, which you can use to create your own policies and procedures. We trust that you will customize these samples to reflect your own operations and believe that these samples may serve as a helpful platform for this endeavor. Any and all information contained herein is not intended to constitute legal advice and accordingly, you should consult withyour own attorneys when developing programs and policies. We do not guarantee the accuracy of this information or any results and further assume no liability in connection with this publication and sample policies and procedures, including any information, methods or safety suggestions contained herein. Moreover, Zurich reminds you that this cannot be assumed to contain every acceptable safety and compliance procedure or that additional procedures might not be appropriate under the circumstances. The subject matter of thispublication is not tied to any specific insurance product nor will adopting these policies and procedures ensure coverage under any insurance policy.

© 2014 Zurich American Insurance Company

104 � contact us

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