This is the first post in a series by Ian Schwandt on understanding the business basics of a residential build. Find the links to the articles in the series in “Related Links” at the bottom of the article. 

Much is written about design, the craft of building homes, and remodeling, while less is written about the business-end of construction in a way that is accessible to tradespeople, clients of tradespeople, and DIYers alike. In the same way that a few simple carpentry tips, when clearly explained, can give a novice the confidence to build a stud wall, a basic understanding of cost structures and construction-business models creates better tradespeople and consumers alike.

My first exposure to the inner workings of a construction company office came in 2005 during the second year of my carpentry apprenticeship. My employer encouraged his employees to take the AGC’s Supervisor Training Program offered as night classes at our Carpenter’s Union Training Center. I took him up on it and learned about a variety of topics—subcontractor and vendor relations, estimating, contract writing, and general project management. Learning about these topics helped me move up the carpentry ranks in the commercial construction world, and post-2010 these skills helped me get established in residential construction.

Through this blog series, my goal is to lift the curtain dividing the work that takes place in the office from what happens in the field. Creating an environment where all parties to a construction project can speak openly and intelligently about cost is just as important as laying out a stud wall when it comes to keeping craft alive. As consumers, we are familiar with goods and services that we use regularly. That familiarity gives us peace of mind that we have spent our money wisely on things like groceries, vehicles, home electronics, or even travel. Many consumers only remodel once or twice in their lives, if they do at all, and it is difficult for them to know if they have spent their money well. By writing about my experience on the business-side of construction, I hope to give others easy access to the things that I have learned over 20 years in the construction industry. In this post and in others, we’ll look at:

• The anatomy of a project’s price
• Overhead, profit, and gross margin
• Construction-company business models
• The role vendors play in a construction project

Becoming an operations manager

In 2017, after five years of self-employment in residential construction, I took a lead carpenter position with Hudson Valley Preservation (HVP). HVP holds continuing education in high regard and encouraged me attend construction trade shows and any other learning opportunity that I could find. During this time, I had two experiences that caused my career path to pivot from tradesperson to estimator to project developer and now to operations manager.

The first was attending JLC Live and meeting builder and author David Gerstel. I had just finished reading David’s book, Know Your Numbers, and was beginning to do some of the estimating work at HVP. David has been kind enough to mentor me along this journey from the job site to the office and show me how to use the skills of a tradesperson to understand and predict construction costs.

Once I began estimating part time for HVP, the owners invited me to join them at the NESEA Plan Bygg Bottom Lines peer-review group. It was through this group, and its facilitator Paul Eldrenkamp, that I learned about bookkeeping, project accounting, profit-and-loss statements, and work in progress (WIP) documents. This exposure to the inner financial workings of construction companies gave me the confidence to take the project developer position with TDS Custom Construction. After a year and a half with TDS, my role was expanded to that of operations manager. This new role encompasses the project developer role and adds to it full financial and administrative responsibility for the production department at TDS.

In project-focused part of this position, I work with sales to develop preliminary budgets for all the projects for which we offer design agreements. Throughout the design process, I work with TDS’s team of in-house designers to create budgets for concept design options, write trade-partner requests for proposals, hold site visits for trade partners, and finally provide the client with a fixed-price cost for the project. After the construction contract is signed, I issue purchase orders and put together the job package that goes out to our lead carpenters and project managers via Buildertrend. My work on a project continues into construction as I analyze estimated to actual costs on a weekly basis and collaborate with project managers on staffing and subcontracting parts of the project—all culminating with the final financials of the project that I use to inform my estimating work on future projects. I also hold the final job postmortems, called “Feedback Loop Meetings,” at TDS.

My employer that sent me to the supervisor training program knew that the knowledge gained would be beneficial to me as a carpenter regardless of whether or not I moved up to a supervisor position. A carpenter or helper who has an understanding of what their supervisor means when they say “we have two days to install these cabinets” is a valuable asset to the company because they’re tuned into how their day-to-day work impacts the bottom line. Financial knowledge can make or break that same supervisor who strikes out on their own and needs to produce a P&L in order to receive bank funding to expand. Finally, for the consumer who often goes down the road of a project blind, understanding the inner-workings of project financials can provide the peace of mind that most find elusive during a home remodel.

RELATED LINKS

• The Anatomy of a Building Project’s Price
• Will the Costs of Residential Building Go Back Down?
• A Better Way to Budget in Residential Construction