One of the maxims that you will hear from experienced contractors is “feast or famine.” While famine is a negative sign for a construction business, the feast can also be more challenging to handle. Famine indicates no money coming in, but feast can create project management challenges that you might not be able to take.
In this business scenario, what you need is balance, and managing construction backlog is how you’ll get it. You might need to work on growing your pipeline, but make sure you are profitable and that your clients are happy are equally just as important. This is why it is vital to keep your backlog in tip-top shape, and today we’ll dive into ways where you can achieve that.
What Is A Construction Backlog?
A construction backlog can reflect a company’s financial health, and some of the most critical players in the industry— such as potential clients— might use it to determine the risks you pose for them.
Generally, a construction backlog is the value or amount of projects that a company has in the pipeline on which the project has not yet begun. Simply speaking, future projects you won the bids for, but have not yet started on, are your backlog.
There are two approaches to represent your backlog: cash value and time. A backlog expressed in time describes how far out in the future you have work already scheduled. The cash value, on the other hand, is beneficial in determining financials and profitability.
The Importance of Managing Construction Backlog
One of the most stressful aspects of working in the construction industry is that nothing is ever certain. You’re a contractor, which means you bid on jobs. If you lose multiple bids in a row while your other jobs are wrapping up, it may feel like you’re about to have no work at all. No work translates into no income, which can give you more stress. However, if you underbid on jobs and win all of them, suddenly you’re going to have so much work and projects that you can’t get everything done as scheduled. Managing construction is key to ensuring that you always have a project working on, which means money consistently coming in.
As a contractor, it would seem like the more contracts you have in your backlog, the better it is for your company. This shows that you have revenue lined up that can grow in the future. Although, that is not always the case in the industry of construction. If you have big projects lined up, you may have to expand to complete them on time. Anyhow, what do you do with all your equipment and your large crew once the project is done? If you keep on winning big projects, you’re over-extending yourself. If you don’t expand to cover these projects, you could lose some of these contracts by not meeting the agreements. Consequently, this will lead to a tarnished reputation.
Is Backlog a Good or Bad Indicator for Contractors?
Let’s get one this straight: Your construction business needs some degree of backlog to pay the rent and keep the lights on. Having a backlog is nearly good, but whether the backlog is good or bad is another question. If your backlog is balanced, that is good for the business. If unbalanced, it can be a sign of impending troubles that you’ll need to deal with later.
a.Having No Backlogs
A short or almost non-existent backlog is terrible. It can make your business look disorganized, allowing you to take on the projects at the last minute, but it can also mean you’re barely treading water. If you’re only treading water in a progressive industry such as construction, it means you can’t grow. Or worse, you might not be able to survive.
New clients might favor when you can jump right on their projects. However, showing that you’re too eager to tackle their project might reflect your credibility or worth as a contractor. After all, great contractors are hard to find, so the ideal prospective customers might expect to wait at least a little while.
b.Having a Long Construction Backlog
While having zero backlogs can be bad for your business, having a long backlog can spell trouble too. If you’re advising your prospective clients that you can’t start their projects for months, it will be harder to win new jobs. This will usually balance itself out over time, but it’s a dangerous hole to dig your way out from.
Again, clients might also question if you have a long construction backlog. Indeed, you have clients, but a long backlog could suggest that you’re behind and can’t manage your pending projects effectively. No client wants to enter into a contract with someone who they believe can’t hold a deadline.
A lengthy backlog can be a problem for your financial health as well. Many contractors that end up with too long backlogs do so because they’re grabbing every job contract or subcontractor contract they can get their hands on. This is often a consequence of undercutting everyone else’s bids, and it usually comes at the cost of a contractor’s profitability.
Typically, contractors take a full backlog as a chance to grow and expand. Even so, biting off more than you can chew to get more projects can be bad for a company if you aren’t ready. Expanding quickly as a contractor comes with its risks and pains. Overextension and financial issues thrive during periods of growth, and many businesses struggle to recover from their consequences.
Tips for Managing Construction Backlog
1. Have clear communication with your clients
Like previously discussed, talking about your backlog negatively can throw some red flags to your clients. Explain the detailed process of getting their project’s operation, so they know you’re reliable and experienced. Only after you have gained their trust and understand the process should you discuss their project’s timeline.
2. Make team decisions that fit your backlog
Whether you have zero or have many backlogs, your crew number needs to be aligned to maintain profitability. If you have many prospective projects and financially able, you should increase the number of your workforce. But if you’re barely above water and struggling to keep your business up the float, you might have to reduce the size of your crew.
3. Know your limits, but don’t sell yourself short
Being perpetually busy may be a “positive problem” to have for other industries, but the construction industry’s progressive nature can cause significant cash flow issues if you aren’t ready. Again, it is vital never to bite off more work than you can chew.
At the same time, if business growth is your goal, never sell yourself short. Take a systematic approach with your strategies for project management for construction to avoid growing pains.
4. Feel free to say ‘no’
Contractors and project managers should not be afraid of saying ‘no’ and eliminating possible backlog ideas. Sometimes, it’s more crucial to focus on your plate’s existing projects and keep the quality and reputation that you have as a company. Quality over quantity.
5. Understand the risks of construction bids financially
When it comes to taking massive projects, sureties can make or break you. You might need to secure a performance or payment bond when taking a project. A bid bond might be a requirement to submit a bid.
Before a surety issue a bond on behalf of your company, it will most likely want to look at your financial health, works and projects in progress, and your backlog. If the risks are too high, you will be difficult to secure a bond for your project.
6. Maintain business relationships and connections
As a contractor, you should never stop working on your relationship with your current clients. The more time you spend with project managers, an engineer who does the building estimation, or other key people who run your client’s business, the more often you’ll get a job or catch a break on one where complications may arise.
You will also get advanced insights into your upcoming projects to factor the timing of these opportunities into the timeline of the bid opportunities currently on your plate.
7. Monitor the bid and mobilization schedule and delays
Another very predictable part of a construction business is the time delay between your team’s bid closing and mobilization. These time delays may vary in job size, trade, and client types (i.e., public and private). Only by accurately keeping track of your bid date, award date, and crew mobilization will you be able to control your schedule and workload in a manageable way.
All projects and leads should be tracked using project management software, such as Pro Crew Schedule, which allows you to keep control of your documents involved in the construction operations and never lose a single file. Over time, you’ll be able to notice that over time, consistent averages and statistics will reveal themselves.
Want to learn more about tracking your construction backlog more efficiently? Get a free 30 day trial of Pro Crew Schedule with all features with no credit card required.