Continuing the chapters about the tools that can be used to help you have a Successful Construction Business. This one is about the broad subject of Resource Allocation.
The next 2 paragraphs are the Wikipedia definition of Resource allocation.
Resource allocation is the assignment of available resources to various uses. In project management, resource allocation is the scheduling of activities and the resources required by those activities while taking into consideration both the resource availability and the project time.
A resource is anything that is used to satisfy human needs. Typically, resources are materials, energy, services, staff, knowledge, funds, or other assets that are transformed to produce benefit and in the process may be consumed or made unavailable. Resources have three main characteristics: utility, limited availability, and potential for depletion or consumption. Resources have been variously categorized as renewable versus non-renewable, and potential versus actual.
In our example we will be discussing funds, equipment and staffing (staffing as defined as employees or sub-contract). A project can be defined in terms its impact on of the life of the business or the life of a specific job and both aspects need be considered in each event of resource allocation because both are always affected.
In each of the previous chapters we discussed goals. Here is another place where we need to apply what we are doing to the attainment of those goals so, let’s take out those goals. The primary goal of a business is to be profitable and grow. An interim goal is to sell value instead of price. Another one is to get referrals as your primary source of business leads. All of these require a commitment to quality of work, communications, performance and capital the last one being the basic resource that drives everything.
Anyone in construction knows that the best tools help you get the best results so, when you go shopping for tools in the hardware store you look for the best bang for the buck. That statement discusses resource allocation. The tools are resources and the funds used to purchase them are also resources. When you say “the best for the buck” you are saying that the funds you have need to be spent wisely to purchase tools that will assist you and your team to perform at the best of their ability.
In the bigger picture, you must decide what type of work you want to do and what your goals are for the product of that work. So, as a company, you want to get the best bang for your buck. It is very important that you write them down There are 2 reasons.
- There is a saying that nothing is real until you write it down.
- You need to build your business plan around them.
Let’s talk about that plan. In the chapter about marketing lots of options in that chapter costs money and, in your mind, it is a matter of which came first, the marketing or the money to do it.
The same trade-off is encountered in every aspect of your business. That is why a written business plan is necessary. We need to match the resources and what better way than on a graph.
In any company the owner should know the goals and what it takes to get there and the only real way to have that information is that graph but, it is not as much having the graph as knowing what it takes to complete that graph. Going through the processes is what will teach you about your company and how you continually stay on track. Many tools exist to assist in this process.
The following are a few to look at;.
And an excel templates:
There are numerous sources for the how to of getting started on your business plan. Getting back to resource allocation, you will need to look at this from many angles.
Projecting the amount of revenue you would like to make means determining what kind of customers and what kind of work you want to do. It will take many jobs to garner enough money you may want if you are doing Handyman work. On the other side, doing good work may get the kind of referral business that gets that many jobs. On the other end of the financial spectrum, doing jobs that bring in hundreds of thousands to millions of dollars for each job can also lead to the referrals you want to keep that up. Working on residential jobs is different than commercial jobs.
You need to do some study to find the right physical and financial match.
Start with the goal and
- Determine how many jobs it would take to reach that goal.
- Determine from the number of sales – jobs,
- How many people you need to touch
- How you need to touch them to close the business.
- How much does it cost to do the marketing to get to touch that many people
- How much does the sales effort cost
On the other side, once you have the job
- What does the labor cost
- What kind of equipment is necessary and how much does that cost
- What are the hidden costs like your overhead
There are many more things to consider and, to really know the future of your business you need to not only go through this process but, know all of it intimately. That way you can adequately evaluate any changes you might want to make, whether incidental or fundamental.
This spread sheet must be handy as well as the one that shows how you are doing against it.
You need to be able to, instantaneously, plug in the numbers, whether they be for answers to what if or to how did you do. By the way, when I say spread sheet I am talking about the one you selected from the suggestions made here as well as others you might find that fit you better.
Ok, I see the look on your face that says you really want to be on the job and not in the office. If this is done right, it will not matter where you are. You will want to use it so running your business will not be guess work. As you get used to using these tools you will want to try dig deeper and try more “modeling” because it will feel good to be in charge of your future.
This is how you deal with financial resource allocation.