Building Industry Magazine - August 2011 - (Page 54)

BestPractices A Counterintuitive Idea: Open Your Books Why showing the numbers moves your team from “me” to “us” BY GARRETT SULLIVAN The next time you go to the jobsite, ask your employees how much they think the company makes. You will hear profits between 10 percent and 50 percent. Don’t believe me? I challenge you to try it. With this false perception, your employees are unmotivated to prevent waste because they believe you’re already making significant profits. Think of the NFL lockout. This probably could have been avoided had the owners been willing to show the books to their players. Wouldn’t you rather turn waste into profit? Imagine having an army of eyes and ears on the jobsite searching for ways to save you money. That’s exactly what happens when your employees understand what’s at stake when the company loses money. When you bring them to the table, they’ll help you plug profit leaks and identify new sources of revenue. Open book management moves your employees from a sense of entitlement to a sense of personal empowerment. Employees identify cost savings and/or new revenue sources with an agreed-upon 90-day plan to achieve them. Owners then share that new profit with employees. The simplest formula for dividing up the new pot of money is to allocate one-third for employees, one-third for the company and one-third for taxes. Undertaking this process requires strong leadership and courage. You will need to open your books and share some – but not all – of your company’s finances. At first blush, contractors tipically reject open book management because they fear employees won’t understand the numbers or may share them with competitors. These and other concerns can be mitigated with the right approach. Educate: The first step is to teach your employees about the realities of business and finance. Associate your company’s finance with your workers’ personal finances and begin to regularly speak in financial terms to your nonfinance and field employees. This teaches them how the score of the game is kept. When everyone understands how a dollar saved drops right to the bottom line (and their own paycheck), they will quickly see the wisdom of finding profit through savings versus new work that only yields an average national profit of 1.5 percent to 3.5 percent. Once you’ve taught your employees basic finance, start to forecast your numbers through the company’s front windshield instead of looking at your results in the rearview mirror. If you create an employee-funded incentive plan, your results will grow that much faster. RIP Process: • Select a profit leak or savings idea. • Determine the amount to be saved. • Identify the participants and action steps. • Divide the savings by three to slate the potential financial reward to be shared with employees. Keep score: Create and prominently display the “forecasting scoreboard.” This lists your operational and financial key performing indicators (KPIs), which have the greatest impact on your profit. Each person in the group should own two or three line items (see below) and become the expert on those metrics. They are responsible for updating the scoreboard on a monthly basis. Financial KPIs include: monthly invoice amount, revenue, cost of goods sold, gross margin, office overhead, union benefits as a percentage of overhead and profit before taxes. Operational KPIs are: number of bids per month, bid-win ratio, projected revenue from wins, backlog, job cost +/- to budget, and labor in bid estimate versus actual jobsite labor manhours to date. Just as outrigger canoe teams know the exact distance from Molokai to Oahu, as well as the wave heights and wind speeds, your employees need to know the specific metrics your company wants to achieve. In any game, you must always know the score. This is why companies that use open book management successfully create a culture of employees who think and act like owners. To view a sample scoreboard and review a recent employee-generated rapid improvements plan, go to www. BI Choose your team: Set up a small, diverse group (about seven to eight) of both office and field employees to monitor and record the numbers. Direct them to create rapid improvement plans (RIPs), which are 90-day programs that result in new profit to be shared with all employees. You’ll find that employees are more engaged and motivated when they work for a common goal and can share in the profit. Always recognize the specific employee(s) who identify the profit leak or new revenue. List his or her name on the scoreboard (see below) and include an additional financial bonus, day off or gift card for generating the idea. Garrett Sullivan is president of Sullivan & Associates, Inc. Reach him at or (808) 478-2564. 54 | BUILDING INDUSTRY | AUGUST 2011

Table of Contents for the Digital Edition of Building Industry Magazine - August 2011

Building Industry Magazine - August 2011
Catepillar Showcase
Seminars Augment PBT Expo
BIA Dedicates New Hawaiian Home
NAVFAC Awards New Contracts
Living Museum Getting $38 Million Makeover
Pearl City Street Dedicated
Contracts Awarded
Spotlight on Success: New Target Store in Hilo
Architects Corner
Best Practices
Low Bids
Concept to Completion: Grand Hyatt Kauai Resort Renovation
The House Built for Hope
News Makers
New Products

Building Industry Magazine - August 2011