Background.
Charlie ran engineering and constructions company that specialized in road and tunnel work. They worked over a broad geographic area with most of their contracts coming from state and county governments. Because road building requires good weather, most of their work was designed and bid during the winter, with actual construction taking place in late spring, summer and early fall.
The Problem.
One year his firm won a state contract to improve, widen and repave 25 miles of state highway over two years - two building seasons. Charlie and his staff thought they had bid it carefully. But soon after work commenced Charlie discovered they had significantly underestimated the costs of working in certain terrains. The contract was heading for a loss of several hundred thousand dollars and would severely impact profits in not one, but two years. And it looked like a long two years. .
The Solution.
Charlie and I carefully reviewed the contract and the subcontracts. We contacted all the subcontractors and asked their help to speed up the work and get the job finished in one season rather than two. Charlie explained the financial bind and asked their forbearance in holding costs to the original bid even though it would be more costly to do the work faster. Most agreed and the rest were compensated for additional costs. The state agreed to the speed-up and the job was pushed into high gear. .
The Result.
The work was completed in one building season. There was still a loss, but it was less than anticipated because the sense of urgency to finish in one season resulted in many innovations, efficiencies and cost savings. The subcontractors all made money by speeding-up their projects. They also earned the gratitude of Charlie and his team. .
What was equally significant is that the team faced the problem and put it behind them rather than spending two years in frustration. They had to explain only one year of bad results to the bank rather than two. What's more, the team freed up the second year for more profitable work. At the end of the job, Charlie hosted a dinner party at a local restaurant to thank the team and subcontractors for their extraordinary effort. .
Commentary.
"Throughput" is measured by the time it takes from "order" to "money in the bank." Shortening throughput is a measure of efficiency and waste reduction in a good business plan. Charlie and his team used this crisis to energize a major improvement in throughput and Working Capital Generation Improvement. However you don't need a crisis to implement a program of "constant and never ending improvement," with a constant reduction in throughput. But a crisis can be the catalyst for such an initiative. As Charlie and his team found, when a major problem is confronted and made an object of attention, interesting things happen. People perform extraordinary feats under pressure. A sense of urgency causes everyone to work smarter as well as harder. Waste is eliminated. And the immediate future is cleared to pursue new challenges rather than spent cleaning up the mistakes of the past. When there's a crisis, and bad medicine to take, gulp it down quickly. It can be the impetus for major long-term improvement.
About the Author:
Author Bio
Don Morrison of The ProfitProcess consults small business owners on making a business more profitable,
Business Valuation Resources,Valuation of Small Business,
Small business development,Small business value development, Leadership Development of Small Business, Working Capital Generation Improvement.
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620
Date Published :
Jan 16 2009