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Track Profitability with Construction Close-Out Meetings

Posted by Concannon Miller on Tue, Dec 14, 2021

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Track Profitability with Construction Close-Out MeetingsThey say hindsight is 20/20. You can take advantage of that hindsight by holding regular project closeout meetings to find nuggets of truth about how the project went and learn from them.

Not every project makes money for your construction firm. You can find ways to improve project and accounting management if you set a tone of openness to genuine feedback that will filter down to your project managers and other key employees.

Here are some guidelines for success in this endeavor:

Distribute relevant reports weekly: No one likes extra paperwork, but your project managers will appreciate your weekly financial reports if you include the information in a way that is useful, relevant and on point. How do you format the reports? What to include? Well, what not to include is just as important a question.

READ MORE: Construction Profitability Tip: Using Cost Codes to Track Project Costs

Hold closeout meetings on all but the smallest projects: Even when jobs are extremely profitable, there is much to be gained from a 30-minute review after the project's final numbers come in. The meeting should include you, the chief executive, the chief financial officer, the project executive, project manager, project accountant, and the office manager who prepares and distributes the reports.

Bring the following specialized reports with you to ignite discussions and keep them on point:

  • All construction costs incurred that were not assigned to any of the jobs. This will give the project manager a chance to claim any of his or her costs that would otherwise go to formless overhead.
  • Itemized list by vendor of all the materials and supply purchases on this job. This will put the project manager on the spot to justify any expenditures you deem excessive.
  • Weekly labor utilization showing the number of men by pay grade and the number of hours worked — for the entire lifespan of this project. If the project took longer than a few months, then a well-designed chart or graph may be easier to read and discuss than a report.
  • Job profitability report showing more than contract revenues minus expenses.
  • Timing of cash flows - weekly net cash inflows pitted against weekly net cash outflows, with a net overall weekly and project-to-date cash in- or outflow.

Let your finance, accounting or tax advisor who specializes in construction configure these reports for you. Don't let your bookkeeper waste time reinventing the wheel.

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The Discussion Format

Project closeout meetings should be brief and productive. Set the tone and state the goal upfront. The primary purpose is to extract and develop insight from the financial results of this project for two purposes:

  • So the project manager can better manage future projects; and
  • To help senior management train and guide rookie project managers.

Open every project closeout meeting by having the project accountant narrate the rest of the group through the above reports. He or she should not only explain what every column means, but also point out significant events that affected cash flows, job costs and profits.

Then, use these questions as a guide. Pose them to the project manager one by one, and be sure that the manager answers them completely in front of everyone present:

  • What did you make (for example, 47% profit, 3% profit or a 33% loss) on this project?
  • What were your biggest costs and why were those specific items the biggest costs?
  • Looking at this complete list of materials supply costs by vendor on this project, what is the first thing that comes to your mind?
  • How could you have saved money on this project?
  • What kept your labor costs so high over the course of this project?
  • Why did (or didn't) this project hold its own with timing and net size of incoming and outgoing cash flows? How could cash flows have been improved?
  • Does anything on any of these reports surprise you? What surprised you and why? How does that realization change your frame of reference?

READ MORE: Key Tips to Prevent Profit Fade On Construction Projects

The Wrap-Up

Once the project has been put under the microscope and all cost, revenue, and cash flow matters have been brought out in the open, turn the meeting over to your CFO to hammer home any points that executive wants to make and to create takeaways for the project manager and project accountant to leave with.

The project manager should come out of the meeting knowing his or her real value. The project accountant should come away scribbling down notes for improving communication by getting more of the relevant information to the project manager more effectively, while removing information that is not beaming with intelligence.

© 2021

Topics: Construction & Real Estate Development

Concannon Miller’s unique, holistic and intimate approach to financial health sets us apart from smaller CPA firms with more limited resources as well as mega firms where mid-sized clients struggle for attention. Contact us here to talk about improving your business.

This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

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