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We Choose Our Risk Curve
Contractors are on a risk - reward curve that is much different than the general business one. (see our “Get on the Right Side of the Risk-Reward Curve”). There is little similarity of construction to most businesses. Due to its nature, its risk - reward defies some precepts that most other business people hold as fact.
Our business is:
1) Craft driven - it cannot be replicated by machine, only man. Craftsmen are hard to find and are our only means of production.
2) Variable Cost driven (not fixed cost) - we have to make a specific % of profit with little exception on each job.
3) Treated as a commodity - strangely, even though our business lives and dies on the quality of craftsmanship, the customer assumes craftsmanship is constant. Therefore, they focus on price.
4) Natural conflict - people expect a minimal price for above average quality. Add to that time pressure and safety along with uncontrollable weather, Thus, the inexperienced end use is unhappy.
5) No road test - Product samples are non-existent. People don't understand what the final product will look like.
6) High expectations - The earthmoving and structural work gets naive end-users excited and the detail work afterward makes them frustrated.
7) All projects are custom - Even though the project may a cookie cutter it still is on a different site and at a different time. You cannot be at two places at same time hence custom.
These are risk factors that cause us financial harm or reward. Remarkably, the choices we make determine the risk we take.
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Matt Stevens is a management consultant who works only with construction contractors. He has performed training and business consultation for the contracting community since 1994. Matt can be reached at mstevens@stevensci.com.
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Posted by Matt Stevens at August 10, 2005 08:09 PM