Managing Construction 20

Question 1

Construction is a VARIABLE COST BUSINESS, meaning:

Answer 1

Most of the cost of the product or service is incurred after the sale.

Question 2

Explain a FIXED COST

business

Answer 2

Over 50% fixed cost, such as airlines, restaurants, etc. They have to drive up volume to make the economics work.

Question 3

Explain a VARIABLE

COST business:

Answer 3

Most of the cost of the product or service is CAUSED BY THE SALE.

Question 4

Construction is under

20% in FIXED COST-TO-VARIABLE COST RATIO. This places a huge premium on:

Answer 4

Taking the right kind of work, NOT CHEAP WORK.

Question 5

In the business of

contracting, we cannot use volume as:

Answer 5

a way to earn profits. We are not an airline

Question 6

How do you turn

a VARIABLE COST BUSINESS into a FIXED COST BUSINESS?

Answer 6

If you are, say, a young utility contractor and buy a backhoe (instead of renting or leasing), YOU NOW HAVE FIXED COSTS (A NUT) TO COVER.

Question 7

One of the keys to

the variable cost model is that you can break even (EARN ENOUGH PROFIT TO COVER YOUR FIXED COST) with:

Answer 7

a minimal amount of volume. You don’t need to sell to every customer, this is evidenced in that HIT RATES OF FINANCIALLY SUCCESSFUL CONTRACTORS IS LESS THAN 20%.

Question 8

Well capitalized

construction firms are not low bidders, low bidders are:

Answer 8

NOT CONSISTENTLY PROFITABLE.

Question 9

Construction is a

VARIABLE COST BUSINESS that has a lower

Answer 9

FIXED COST PERCENTAGE to cover. But if LABOR is too great for LABOR MAN HOURS to efficiently execute them, COST WILL EXCEED REVENUE.

Question 10

If you keep your

BREAK EVEN COSTS low, you have:

Answer 10

The ability to walk away from an unfair or an overly demanding negotiation.