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Associations
Navigating risk at the interface is undeniably challenging . Ethics , as a personal criterion , varies from one individual to another , and money has the power to influence and bend these ethical boundaries . The malleability of ethics further complicates matters , making it difficult to quantify and impose concrete measures . Yet , an example comes to mind — one that attempts to quantify ethics .
Returning to the realm of our industry , it is crucial to acknowledge the risks we undertake and the low margins we operate within . Supporting this notion , a study encompassing various industries in North America revealed that the engineering and construction industry shares the same box in the bottom right corner of a margin chart . With a mere 2 % net margin , our industry faces extraordinary challenges considering the risks we assume . The resulting disparity between the risks and the margins obtained underscores the demanding nature of our work .
Industries with high margins include alcohol , tobacco , banking and financial services software .
Core values play a crucial role in shaping our perspective , and they have remained steadfast since the inception of our industry . Examining the interplay between money and ethics , we encounter numerous instances where individuals ' ethical principles wavered as monetary incentives changed – a pervasive issue .
“ From an ethical standpoint , transparency and integrity should prevail .”
Furthermore , we must account for the inherent risks in our industry and devise strategies to navigate them successfully .
The following is an illustrative court case in which I served as an expert witness . It involved two individuals , one a contractor and the other a developer , who had a long history of successfully building smaller structures . They embarked on a large federal project that required adhering to specific city requirements , such as a designated footprint and expandability . The astute contractor , seeking a competitive advantage , discovered an alternative plot of land owned by the railroad , allowing them to construct a three-storey building while others were confined to building five-storey structures . This substantial advantage enabled them to secure the bid with a healthy profit margin .
However , the relationship between the contractor and developer soured when the latter discovered the margin imposed by the former after three months of work had been completed . Demanding a reduction of a quarter million dollars , the developer threatened to have the contractor expelled from the job site by the sheriff . The contractor , maintaining the sanctity of their agreement , refused to comply . Consequently , the developer filed a lawsuit , resulting in a significant loss when the contractor was removed from the project .
During the court proceedings , the developer was asked why they had taken such action . Astonishingly , the developer responded under oath , " I like Steve , but only to the extent of USD25 000 or USD50 000 . I don ' t like him enough to accept a quarter million dollars ." This stark example demonstrates how ethics can be tied to specific monetary thresholds , highlighting the intricate relationship between money and ethics .
The construction industry is fundamentally people-based , relying on long-term relationships for success : meeting the expectations of clients .
In the realm of analysing balance sheets , valuable insights can be gleaned from various sources , such as the Risk Management Association and industry-specific data . By examining operating profit margins and returns , we can identify areas for improvement and devise strategies to enhance profitability . For instance , let ' s consider the case of a mechanical contractor with USD5-million in revenue and an operating profit margin of 3.1 %. If their goal is to increase their profit from USD155 000 to USD200 000 , a logical question arises : How can they achieve this ?
Upon closer examination , it becomes evident that the most effective path to reaching the desired profit level lies in reducing direct costs by a mere 1 %. Surprisingly , this seemingly minor adjustment yields a remarkable 29 % increase in operating profit , pushing the margin to 4 %. Although it may not represent an exceptional margin , it certainly constitutes a significant improvement compared to the initial figure . Consequently , I encourage each of you to return to your respective businesses , analyse your own balance sheets , and ascertain the relationship between direct costs and operating profit . The results may astonish you , reinforcing the notion that our core value lies in reducing direct job costs by 1 % to achieve a substantial 29 % increase in the bottom line .
SCOPE GAMES , PAYMENT REQUESTS AND CHANGE ORDERS Subsequently , let us delve into three recurring issues that plague our industry : scope games , payment requests , and change orders . Regardless of one ' s position within the industry , whether as a manufacturer , architect , contractor , or engineer , these problems continually rear their heads , demanding our attention and necessitating ethical resolutions . One common ploy employed by various parties involves attempting to disconnect scope from price , effectively violating the principle which asserts that ‘ there is no such thing as a free lunch .’
Scope games manifest in a myriad of ways , such as
requesting a lower price without a change in scope , effectively seeking uncompensated work . Some may even ask you to include additional expenses or services under the original
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RACA Journal I September 2023 www . refrigerationandaircon . co . za