Why pay for project management? If a project is only going to last a day or two, in most cases, I often advise against hiring a general contractor and instead act as your own general contractor. If a project is going to last longer than a week, one has to consider if they have the knowledge of construction, contacts, and time to effectively manage the project. For projects that last a month or longer, it is almost a ‘no brainer’. A professional builder will have the knowledge to keep things running smoothly and let you spend your time and energy on your own job, yourself, and your family.
The builder leads a team of workers and suppliers to bring your project to reality. It truly is a team effort and someone with the knowledge and experience of how all the parts and pieces fit together needs to lead that team. While the builder works for their client, a good builder realizes that they are also there to serve the team and ensure everybody’s individual jobs run as smoothly as possible. Someone needs to be able to effectively schedule, clearly communicate expectations, be able to answer technical questions and solve problems when they arise, as well as supervise on a daily basis. By overseeing a project from inception to completion, a builder can help reduce costs (change orders), increase efficiency (stay on schedule), and ensure that everything is constructed as designed (customer satisfaction). And yes, it is of utmost importance to have a design and specifications in place before starting, but that’s a subject for another blog.
In today’s day and age, it is relatively easy for a consumer to get a grasp on the majority of the material costs (though unless they are familiar with construction, they’ll surely be missing a good bit) and by using the old rule of thumb that material and labor costs are roughly equal (sometimes accurate and sometimes not even close), get an idea of the hard costs for a job. It can appear that the builder is making money hand over fist! So what is the builder’s fee really comprised of? I found the following numbers online, and a quick check proved them to be a fairly good approximation. 33% of cost is materials. 33% of cost is labor. 25% is overhead expenses. 9% is profit. Materials and labor is easy enough to grasp and most people are fine with paying a 9% profit. However, many people confuse the 25% for overhead and expenses as profit too. It just seems too high. What overhead could a builder possibly have that would equate to $25k on a $100k job? Workers Compensation Insurance. Vehicles. Taxes. General Liability Insurance. Office space. Storage space. Office supplies. Professional Licensing. Office Equipment. Tools. Advertising. Accountants. Umbrella Insurance. Employees Wages. Vehicle Insurance. Continuing Education. Software Subscriptions. Interest on Loans. Cell Phones. Tablets. Utilities, etc… Hopefully you get the idea. It costs a lot of money to run a professional contracting business. These costs must be covered every month, regardless of whether business is currently in a boom or bust cycle. Put in that light, the remaining $9k of profit on a job that may take 2 or 3 months seems a lot more reasonable.
So why pay for project management? It is a professional service to ensure your project runs on budget, on time, and executed to a high level of quality. Like any professional service, this comes with a cost. However, the cost of the alternative will very likely lead to more headaches, a less than perfectly executed project, and ironically, more cost.