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A backlog in construction is categorized as prioritized work that needs to be completed or that has not started yet. The future projects a company has won bids for also come under the backlog category.Â
Construction backlog is an indicator of a company’s financial health. It can be measured in terms of time or cash value.
This article discusses the strategies for managing construction backlogs for contractors.
Contents:
Strategies to Manage Construction Backlogs
1. Accurate Measurement of Backlogs
Every construction company must have an accurate and trackable system to determine the backlogs effectively. This helps to know the upcoming projects for the company.
One of the easiest ways to calculate backlogs is to use a standard Work in Progress (WIP) report.
Every WIP report mentions the contract value and the upcoming awarded projects. This helps to analyze the position of the business using the Percentage of Completion Method.Â
There are several software that track WIP and reduce associated guesswork and errors. For example, PlanSwift, Clear Estimates, etc.
2. Clear Communication with Clients
In some situations, having a long backlog causes problems for the company’s financials. Many contractors end up with long backlogs because they grab every contract they win. It is very important to communicate with the clients about your backlog correctly as it helps to avoid red flags.
3. Compatibility with Workforce
The manpower of the company must be aligned based on the company’s work status. If the company deals efficiently with all the work and is financially able, then the workforce can be expanded. Or else, it is necessary to reduce the size of the staff.
4. Adjustments Based on Current Economy
Understanding the current economy helps to determine the health of the construction backlog. The Associated Builders and Contractors (ABC) has adopted new methodologies to determine commercial construction backlog.
5. Understanding the Company’s Limits
It is wise to bid for work by understanding the company’s limits. Biting more than you can chew may result in massive cash flow issues.
6. Protecting Payments
To seamlessly transition from one job to another, it is necessary to have a healthy cash flow. Mechanic’s Liens is one such tool that helps collect the receivables quickly after the project. A Mechanic's Liens is a security interest in the title to property for the benefit of those who have supplied labor or materials that improve the property.
FAQs
A backlog in construction is categorized as prioritized work that needs to be completed or that has not started yet.
In some situations, having a long backlog causes problems for the company’s financials. Many contractors end up with long backlogs because they grab every contract they win.
One of the easiest ways to calculate backlogs is to use a standard Work in Progress (WIP) report. There are several software that track WIP and reduce associated guesswork and errors. For example, PlanSwift, Clear Estimates, etc.
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