What is clear after 50 years of research into the business of construction is that construction professionals make business decisions based on their beliefs.
Beliefs are firmly held convictions that go largely unexamined but nonetheless strongly influence our decision making without us being aware of them in the background of our thinking. If these beliefs are inaccurate the decision-making process will lead to error.
Commonly Held Beliefs
- Believing that your beautiful or handsome fiancé is nothing like their mother or father is an unexamined belief that will give you pause down the line.
- Believing your home team will "beat the odds" although bookies are rich because no team ever "beats the odds" will cost you money.
- Believing that your teenager would never try drugs, even though 85% of high school seniors have tried drugs, is a belief that will expose you to risk.
- Purchasing a stock because your favorite brother-in-law recommended it is not sound investing.
Commonly Held Construction Industry Beliefs
- I'm too smart to fail.
- Only incompetent competitors fail without warning.
- The bigger the better.
- Growth is good.
- Construction services are similar from one contractor to another.
- Low bid is the best way to ensure efficiency and honesty.
- Cash is king.
- Win some / Lose some.
- Cutting overhead is an admission of failure.
- The more long-term fixed assets you own the more successful you are.
- Contractors sell completed projects to end users.
Examining Contracting Beliefs
The purpose of this entire message series is to examine commonly held construction industry beliefs. While it is not normal to examine "unexamined" beliefs, I contend that the key to success in contracting is to recognize commonly held counter-productive beliefs and to adjust intuitive decision making accordingly.
Management decisions are the most critical determinant of the success or failure of a construction business. However, many construction professionals believe their company loses money or fails because of other reasons such as labor problems, weather conditions, inflation, interest rates, cost of equipment, tightening or shrinking of the market, or simply bad luck. None of these alone are primary causes of contractor failure. Leadership decision making is responsible for structuring a company that is flexible and can withstand fluctuations in labor and market conditions, equipment and financing cost, and so on. Faulty decision making is the culprit
The purpose of all business is to make a profit. However, as business has become more complex and human wants have become more detached from human needs, the profit motive has become less self-evident.
- Take the movie business, for example. 95% of all movie projects lose big money, yet well-heeled investors still flock to participate in movie projects. Clearly, profit is not their primary purpose for going into the movie business. Rubbing elbows with famous people, attending public galas, traveling to exotic locations, and being part of the Hollywood scene clearly trump monetary profit for movie investors. In this example, the definition of profit becomes murkier and refers more to emotional rewards rather than strictly monetary ones.
- In construction, monetary profit is the essential and dominant purpose. However, as construction companies grow and become more complex, some marginally unprofitable contracts are signed to maintain company size, momentum, and cash flow. The concept of "profit" becomes a little murky. I have heard many contractors accept that some of their projects will not be profitable but are necessary to support the overhead in place. So, the purpose of all business may be to make a profit, but the exact definition of what profit is migrates along with the construction professional's belief system.
- Why would anyone sign a contract they suspected might lose money? That depends on their belief system. They might believe that the losing project in question presents less of a loss for their company than not taking any project at all. Less loss is profit in their mind. Not so simple, is it? That's why we must learn to examine our beliefs as we make management decisions along the way. No management decision should be based on a previously held unexamined belief.
This message series is designed to examine construction industry beliefs. Every decision construction professionals make is informed by a belief they already hold. If you look back over the seven years of these messages, you will recognize individual beliefs as we go along and have an opportunity to evaluate the impact of each belief on your own work. Decoupling a decision from its belief and examining the belief for accuracy and efficacy is an ongoing task for the thoughtful construction professional. Together we will continue this examination of beliefs weekly throughout 2024.