Construction veterans expect the global economy to
contract and expand. However, the Global
pandemic presents construction contractors with a challenge. Dr.
John Killings Worth, Construction Management Professor at Colorado State
University, who conducted extensive research on how contractors can withstand
economic recessions stated that several contractors have no option rather than
being reactive in the short term. They are not sure when the job sites will
open or close. They’re considering the forecasts from qualified statisticians
& public health officials, owing to the inadequate data availability.
Long-term Strategy for the
Contractors
It
is significant for the contractors to
dive into long-term strategies.
·
Scrutinize the Fixed Costs of
Everything
The
contractors should scrutinize the fixed costs related to everything from Personnel
to Property, Plant & Equipment. For instance, it’s natural to hold onto
one’s best people in the face of a downturn. However, the contractors must
enumerate the margin, or else their liquidity will suffer for maintaining fixed
costs at a time when revenues are falling. This is the time for taking the
benefits of analytic tools to contemplate the connections and inclinations with
all of the variables.
·
Play out ‘What If Scenarios’
It’s
important to gauge the situations like: ‘What would happen if the projects in the
backlog do not materialize in the short tenure?’ or ‘How the margins &
liquidity would be affected by retaining 100, 90 or 80% of overhead personnel?’
·
Take Straightforward
Decisions to Work-In-Progress
Take
straightforward decisions about variable costs and hire a few interns. This
will help you to work in progress. As it's easier to enhance liquidity by
adjusting to the personnel rather than fixed assets, several companies take the
easy path to resolve the immediate problem. Think about what would happen if the
projects are canceled? How would you be able to adjust your fixed costs? Will
you work to maintain your best employees irrespective of the impact on profits?
·
Make Adjustments
if the Recession is Lengthy
What
would be your long-term
adjustments if the recession is lengthy? Suppose you allocated considerable equipment for projects that, awkwardly, end up being canceled. All of a sudden,
the fixed assets cannot be related to your project revenue. So, instead of associating
the expense as a direct cost for a job, you should make it a part of your
overhead costs.
·
Be Conservative if Backlog
Revenue is Weak
If
your backlog of revenue is weak, contractors have to be more conservative in
terms of setting up fixed costs. Contractors should pay close attention to
the global economy and the trajectory of the virus. The backlog can disappear
quickly as project funding from the government dries up.
Considerations
for the Contractors
·
Go
Ahead by Making a Profit at a Lower Revenue Rate
Contractors
can make a profit at a lower revenue rate. The objective is to get ahead of the
situation. Unfortunately, when revenues decline, you cannot maintain those
fixed costs without substantial impacts on your available cash. Moreover, if
liquidity drops, you will not be able to bond projects in the same way as you
could before the recession.
·
Run
Analytic to Comprehend Fixed Cost & Profitability
You
have to
run the analytics to comprehend the relationship between maintaining fixed
costs and the impact on profitability. A good manager feels deeply personal
about their employees and recognizes a balance between maintaining profits and
decreasing personnel costs. Hence, the contractors should use analytics to take
an informed decision for knowing the true costs. Irrespective of how you
function, you should strive for some profitability. It may take a year without
profit margins for a good company to considerably weaken. Hence, a well-informed
strategy should be made before entering the recession and coming out of the
recession.
Final
Recommendation
·
Focus
as a contractor during the economic downturn
Focus
on being a construction contractor matters during economic downturns and this should
figure out in your strategy. For instance, companies that are already
recognized in diverse markets often can withstand the storm better. That’s
because they can shift resources to those sectors where they are still in
demand. Similarly, certain specialized contractors may perform better due to the
constant demand for their services. To take an instance, in the United States,
it is obvious that healthcare must
change. Every hospital administrator thinks about the technique of increasing capacity and gearing up for the
next catastrophe. This implies that making physical changes to construction
projects can translate into work for specialized
contractors in healthcare.
The Crux of the Matter
Economic
downturns fuel the demand for multifamily housing- a
robust trend due to the Millennial & Gen Z fondness for urban lifestyles.
Similarly, online delivery of groceries and other material goods is in
overdrive. Widespread speculation says that customer behavior will be
permanently changed. So, there will be continued, expansion of industrial
warehouses, distribution centers, and data centers, throughout the globe. Diverse & specialized
contractors will
pursue such opportunities, essential for safer & secure communities and
societies.
To
know about BIM Services for contractors, call the BIM Modeling Experts of Tejjy Inc. at 202-465-4830, or info@tejjy.com.
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