The Cost of Poor Management

The Cost of Poor Management

Exploring the Cost of Poor Management in Construction

The construction industry is a complex and dynamic sector that requires skill and expertise in order to successfully navigate. Management experience can be gained at various levels through formal/non formal education or over time through innate organisational learning and on the job experience. However, poor organisational management is still one of the leading causes of business failure in the industry.  

Business can completely fail based solely on deficient management processes. The problem with this is many businesses (especially in Construction) rely on additional employees to provide their goods and services. If you’re reading this, the chances are you’re already an active employer or are considering employing staff in the near future, and thus it’s not just the business owner that’s affected by the closing or overall failure of a business, but the employees of those businesses and potentially their families as well.

What will it take to ensure your business thrives? It’s important to take an initial step back and understand the bigger picture. By identifying potential risks and taking action to mitigate them, you can end cyclical pattern of business failures. Some issues are common and can be easily prevented with the right approach. If you take the information in this post away with you, consider, and apply it, together we can help to disrupt the industry’s cyclical nature of business failures. Many management issues are common and can be easily prevented.

Significant Factors and Determinants

1 - Inability to manage the scope of projects

The big one – an inability to manage the scope of projects. This occurs when you take on a project that’s too large for its current resources and capabilities or when you underestimate the complexity of a project. Either way, the result is often a project that goes over budget, runs behind schedule, and is usually of poor quality. This not only harms the company’s reputation, but will lead to a cash crunch.

  • Have a clear understanding of the project scope and objectives by carefully reviewing project plans, specifications, and contracts in addition to understanding your own capabilities and identifying any areas that may need improvement in order to fulfil projects before these are taken on.
  • Implement a project management system that allows for better control and oversight of project scope. This can be managed in house or outsourced to competent third-party project managers.
  • Invest in effective training and development for your management teams and other employees to ensure they have the necessary knowledge and skills to effectively manage projects.
2 - Lack of requisite expertise for a particular project

Another issue sitting under poor management is a lack of requisite expertise for a specific project or projects of a particular nature. This can happen when you take on a project that is outside of your area of expertise, or when you lack the necessary knowledge and skills to oversee the project. This can lead to costly mistakes, delays, non-compliance with finance and safety regulations and fines or other financial losses.  

The Millennium Dome in London was a well-documented example of a project that was managed by people beyond their expertise for the project. The project was plagued with management issues from the beginning, with a lack of clear direction and poor communication between the various stakeholders. It became apparent that although the project’s management team were experienced, they lacked the necessary expertise and experience to oversee a project of this scale and complexity. As a result, the project was plagued with delays, cost overruns and ultimately a lack of public interest ensued. The project was considered by the press to be a failure. This example serves as a cautionary tale for the construction industry, highlighting the importance of proper management and expertise in ensuring the success of projects.

It is important to understand that business failure isn’t solely dependent on a single project, although there are plenty of stories I can recount where it was only one project, but rather the result of multiple projects and the problems that may have occurred within them. This can be seen as a pattern of poor management practices and decision-making that ultimately leads to the downfall of the company. It is essential you review past projects and identify any areas of concern, thus improving the service you provide to future clients.

3 - Poor financial management skills

Poor financial management skills is another area that can lead to business failure. This can include issues such as inadequate cash flow management, poor budgeting, and a lack of financial oversight. These issues can quickly spiral out of control, leaving a company in a precarious financial position.

  • Inadequate cash flow management can lead to a lack of funds to cover operational expenses, resulting in the company being unable to pay its bills and meet its financial obligations. This can also cause delays in project completion as well as penalties and fines.
  • Poor budgeting can lead to a lack of financial predictability and an inability to identify areas where cost-cutting measures need to be taken. This can result in a company overspending and becoming financially overextended.
  • Lack of financial oversight can result in a company taking on too much debt or investing in projects that are not financially viable.

Imagine for a moment, you’ve just landed a big contract to construct a bespoke luxury housing development. Excited by the opportunity, you jump in head-first and start making all the necessary arrangements to begin construction. But as the project progresses, you start to realise that you didn’t fully understand the scope of the project, or complexity of the work and the resources that would be required to complete it. Despite your best efforts, you find yourself struggling to keep up with the project’s demands, and before you know it, you’re running out of capital. The bills are piling up, and you’re unable to pay your suppliers and subcontractors on time. Contractors are refusing to work, you’re behind schedule and your high-profile client isn’t happy. As word gets out that you aren’t handling business, your reputation begins to suffer.  

Similar real-life scenarios are common in the industry, and many small home builders find themselves in financial difficulty, I want you to be consciously aware of how poor financial management can quickly spiral out of control and lead to failures across the board. With proper planning, budgeting, and financial oversight, the above scenario could have been avoided. As always, the key is to take a step back and take a look at the bigger picture, then take appropriate action to mitigate any risks to your business.

4 - Poor operational management

This is the silent killer.  It can be attributed to the fact that many construction operators are owned and run by individuals who have limited experience in the industry. These individuals may lack the necessary knowledge and skills to effectively manage and run a business once this grows beyond a certain point, ultimately leading to poor decision making, lack of strategic planning, and inability to manage industry and economic challenges.

Operational management failures aren’t limited to this area though and poor supply chain management, inadequate staffing, along with poor communication are all determinants to poor operational management and can really hurt your business.

Poor strategic management can include issues such as a lack of clear and defined goals, poor market research, and a lack of strategic planning.

As you can probably tell by now, investing in training and development programs for employees, managers, and decision-makers is crucial. By building their knowledge and skills, you can help them grow along with your company. Additionally, consider hiring experienced professionals with a proven track record in the industry to lead your company. This might mean bringing in an advisor or consultant to provide support and guidance to your business leaders. By acquiring the necessary expertise and experience, your company can not only perform well, but also outshine competitors and exceed client expectations. This combination of strategies will lead to growth and success, as the data clearly shows.

Remember, you can buy, build or borrow.

To conclude, and to address the question of what is ‘The Cost of Poor Management in the Construction Industry’? Potentially the difference between the growth and success or decline and failure of your business and possibly the jobs and livelihoods of many.

Business failures in the construction industry can be attributed to a combination of internal and external factors. Internal factors, such as poor financial management skills and inadequate operational management, can be controlled and prevented through proper planning and the implementation of sound policies and processes. External factors, such as changes in market conditions and economic downturns, are typically out of a company’s control. However, by understanding the potential risks and implementing strategies to mitigate them, you can increase your chances of success in this highly lucrative industry and minimise your likelihood of failure.


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