LIAP #21: CONSTRUCTION PROFIT

 How do you achieve your desired project construction profit? That is a million dollar question. 

Let me tell you my story from my 40 years of experience as a JKR, Consulting Engineer, Project Manager and G7 Contractor. Being there and done that. As JKR engineer, my job is not to make profit. My roles are a regulator and supervisor to ensure that consultant and the contractors are doing their job as agreed in the contract. At the same time, I represent the clients from other ministries and government departments and agencies.

When I joined a property development company in 1984, I became a project engineer. The company sells houses and commercial properties. My job was to ensure the consultants and the contractor are doing their jobs as agreed.

In 1989, I became a contractor as business owner and CEO.  This was where the real learning construction begins.  It is not just to manage project but also to secure new tenders andmake money. Both were not easy.

After getting my first job, I got an experienced contractor to become my main subcon. I did only 20% and shared profit of the rest.  Slowly, I learned the rope,especially on supply chain management. This is where the money squezed from the project. In construction industry, no companies do all the work packages. We sub contract some and we work with specialist contractors like prestressing and piling contractors.

Once the contract is awarded, the first target to mahe money is procurement management. If I can rfeduce 1% of material cost , I may end up with at least 25% of increase in profit. Another point of critical importance to profit protection and generation is wastage management-materials, labour and machinery. 

Project construction delay is very common. At least 30% of government projects are behind schedules for hundred of reasons. Delay cost money arising form overhead cost and inflation from materials cost.

To protect targeted profit, the contractor must watch the cost of every work packages and material purchase. Otherwise, he has nothing to watch when he completes his project.