Eighty percent of construction companies fail within the first two years, with another 18% joining their ranks in another three years.

There are various reasons that lead to a construction company going in trouble, including general economic conditions, not being competitive, heavy operating expenses, poor accounting system or even high employee turnover, but none impact a construction business as significantly as lack of project managerial expertise.

The Project Management Professional (PMP) certification is for project managers with extensive experience. Qualifications and testing criteria are rigorous, making it a widely respected certification. Generally speaking, construction projects are run by contractors, not by certified Project Management Professionals (PMPs).

The contractors would say that they’re the only ones who truly understand construction, because they’ve been there and done that; but, is that viewpoint valid? Where does the need for hands-on experience end, and the need for rigorous and structured project management ability begin?

Most contractors, whether general contractors or specialists (plumbers, electricians, etc.), worked their way up in the construction business. That means they started out as an apprentice, became a journeyman, possibly were promoted to being a crew chief or jobsite superintendent by the company owner, then eventually stepped out on their own to start their own company and be a contractor.

Here are 5 basic areas in which these contractors and Professional Project Managers think differently. These areas can make or break a project, specially when it comes to maintaining the project on schedule and on budget:

1 – Bidding Strategies and Change Orders

The world of construction is highly competitive, especially in today’s economy. Each job out there has a number of contractors bidding on it, driving prices down and all but eliminating profit margins. A common strategy which many contractors are using today is to bid the job with minimal overhead and negligible profits, depending on “Change Orders” to make their profits.

While this strategy works, it may not be working quite as well as many contractors would like. The very fact of bidding a job in that manner means that there is little room for error. Even a slight error in scope management, cost estimating or scheduling can take a project from profitable to being a loss.

If the project is being provided under a contract, then some advance thinking has to go into how to deal with “Change Orders” when they occur. Project Management Professionals approach Change Orders with a different mindset, since they see this as a change to the original “Plan” and seek to integrate the change into the overall plan instead of “tacking it on top of” work that is already being done.

Approved change orders can require revised cost estimates, new schedule updates, revised activity sequencing, additional risk analysis and even calculation of cumulative impacts. Therefore setting up a “Configuration Management” process with integrated change control provides an effective way to centrally manage and document change orders, while providing opportunities for increased profit margin.

2 – Claim Management

Although this may seem the same as the change orders (mentioned above), it is actually a separate area. “Change Orders” deal with changes for which both the owner and contractor are in agreement. “Claims” deal with areas where there is disagreement. These are extra charges due to unforeseen problems on the project, which the contractor wishes to recoup from the owner at the time of project closing. What makes these claims challenging is the difference in interpretation of the project scope. The owner may feel that these unforeseen situations are part of the scope of the contractor, while the contractor may see them as extra costs he incurred, for things outside of his control.

Effective claim management requires thoroughly documenting the problem, sending on-time notifications to the owner, including estimates of cost and schedule impacts, along with creating a convincing justification for the charges. This is one of the most challenging communication problems on a construction project. Project Management Professionals are trained in dealing with claims, whereas the typical contractor is usually at the mercy of the owner.

3 – Thinking “Tasks” instead of “Processes”

Eighty percent of construction companies fail within the first two years, with another eighteen percent joining their ranks in another three years. It’s not the lack of knowledge in construction, but the lack of knowledge in how to manage their projects. This article describes how construction companies benefit from Certified Project Managers.

A contractor or construction superintendent usually becomes such because they know how to do the job. But, that isn’t the same thing as knowing how to manage the job. They see the project as a series of separate tasks; get all the tasks right and the project will come together.

However, Project Management Professionals (PMPs) are trained to think in terms of “processes.” Thinking this way creates a more global approach to the project, seeing the individual tasks as only part of the processes. This drastically changes their approach to managing a project, seeing how things fit together not so much by a “gut feeling,” but as a continuing path, filled with measurable risks and challenges, towards a specific goal. There are parts of this PMP mindset, such as Communication Management, Risk Management and Time Management which are not directly related to the ability to swing a hammer:

- Not knowing how to set up a “Communication Plan” to clearly define how to communicate the right information to the right stakeholder at the right time can cost a company that just got off the ground heavily.

- Not knowing how to create a “Risk Management Plan” or “Risk Register” for the project, including how to deal with those risks, whether by mitigating them, eliminating them or transferring them, could become fatal.

- Not knowing which tasks on your project are on the “Critical Path” could extend your schedule (hence costs) by enough to make your profits marginal or non-existent.

4 – Managing Technical Changes

Integrating, communicating and managing technical changes, such as changes to a building’s blueprints or equipment drawings requires thorough action, which is properly documented to ensure that everyone is made aware of the change. These technical changes can be as minor as a change in paint color to something major enough to cause a skyscraper to fall down in high winds. Regardless of the size of the change, each one is important to the owner, requiring proper integration and implementation.

As part of their training, Project Management Professionals learn that change requests should be subject to a thorough process that may require analyzing estimated impacts on cost, quality or schedule before the change is approved. Coordinating changes across the entire project, and documenting the complete impact or technical change should be a second nature to any project manager who seeks a successful and profitable project outcome.

5 – Managing Suppliers and Subcontractors

A major part of managing a construction project is ensuring that the work crews and supplies are on the job site when they are needed. A typical contractor deals with their suppliers at the last minute, calling in their orders and expecting delivery the same day. Their way of dealing with subcontractors bears a closer resemblance to browbeating than any accepted management philosophy.

When a construction project is properly managed, a project schedule is created before the first person shows up at the job site. This schedule is maintained and adjusted as needed, be it due to adverse weather, construction delays or other problems on the job. With an accurate project schedule, there is no reason to deal with suppliers and subcontractors on a last minute basis. Everything can be pre-planned and communicated to the proper people well in advance.

Another problem with managing sub-contractors is that when problems occur, the buyer (contractor) has little leverage for claiming the incurred costs due to seller’s (sub-contractor’s) fault. A procurement contract should include terms and conditions that contractor specifies to establish what the sub-contractor is to provide. By including the right terms and conditions into the sub-contracts, many typical problems can be avoided.

As part of the Project Management Professional training, “Procurement Management” is discussed within the perspective of buyer-seller relationship. This relationship exists at many levels, including sub-contractors performance evaluations. These processes indicate if the sub is performing the work according to plans, rate how well the work is being performed, create the basis for early termination of the sub’s contract, and application of penalties, fees or incentives.