100 ways contractors can cut costs

Mar 11, 2009 10:13 AM, BY GLENN H. MATTESON FMI Management Consultants

Taxes – payroll
87. Defer hiring employees until after January 1 to reduce FICA.
88. Police unemployment claims to keep experience rate low.
89. File termination form with employment commission if employee quits or you fire with good cause.
90. Make sure you take what’s called the Section 199, Domestic Production Activities Deduction — 6% of all W2s for production labor deduction in 2007-2009 and 9% in 2010.

Warranty/callbacks
91. Institute quality-control program.
92. Require employees who caused mistake to make repairs.
93. Reduce warranty period.
94. Process warranty claims promptly.

Warehouse and yard
95. Consider reduction in personnel by letting field employees work in warehouse or yard when not on job.
96. Cut inventories or equipment to absolutely necessary items to reduce handling plus insurance, interest, etc.
97. Use graduate students in industrial engineering to evaluate space needs.
98. Investigate high-density stacking and storage systems.
99. Check with vendors about value and utilization of material.
100. Set up checkout system; positive control.

Conclusion
When you set cost-cutting objectives, consider long-term factors, such as your company’s anticipated growth. Set challenging, but realistic, goals that take into account both your internal and external limitations. For example, consider the capability of your personnel, space and equipment limitations, and the timing of anticipated work.

Remember that effective cost reduction must be part of your company’s culture. Reducing cost is everyone’s responsibility every day. Consider establishing cost-cutting teams and reward those teams for cost savings.

Lastly, keep in mind that everything that you do communicates your attitude toward cost reduction. You can’t sell these cost-cutting strategies to your staff if you don’t serve as a role model.

As an FMI senior consultant, Glenn Matteson works with contractors to develop business plans and profit strategies. He also conducts audits of overall operations, focusing on project controls, financial management and equipment management.

FMI is the largest provider of Management Consulting and Investment Banking to the worldwide construction industry. Founded in 1953 by Dr. Emol A. Fails, FMI delivers customized solutions to contractors; architects and engineers; construction materials producers; manufacturers and suppliers of building materials and construction equipment; private owners, managers, and developers; residential builders; utility companies; surety companies and industry trade associations.

The list below consists of income and expenses that should be line items in your budget. Calculate what percentage of your budget the income and expenses were last year, what you want them to be this year, and who is responsible for controlling these costs. You can do this cost reduction exercise for departments or the whole company.