A Primer on Planning During Sub-Prime Crisis

By Leonard Toenjes

Q: My company is going into strategic planning. Like other businesses, we are worried about the effect of the sub-prime crisis on the economy. We think it will result in a slowdown in business activity. It is comparatively easy to do planning when the economy is hot, but it is less academic in a sluggish economy. Give me your suggestions: What are some things to consider in a slow-moving business climate?

A: The first step in the process of strategic planning has to be data collection.

Whether the market is hot or sluggish, the most important part of the process is a comprehensive scan of the current and potential future market conditions based on objective data collection and solid economic judgment. You can’t plan where you are going until you know where you are. You also can’t manage what you can’t measure.

In today’s construction climate, it is important to collect as much data as possible about local, regional and national conditions. Look at the recent past and projected outlook for particular market segments such as education, healthcare and transportation.

This data is available from a number of resources, various association sources, private consultants and some public governmental information services. There will be variations in growth and performance between these construction market segments that bear some review prior to planning.

You should also consider the outlook for general business conditions labor costs and availability, materials costs, credit and bonding costs and availability and regulatory issues. There are both local and national trends on these issues that everyone in the planning process should consider prior to making future planning decisions.

If you haven’t already done so, it is then good practice to also take an objective look at your current company capacity and your ability to shrink, change or grow. What is your current company composition in terms of human resources and financial resources?

Ask Questions

With this data, it’s planning and decision time. Consider the following questions:

Are you happy with the market segment you are in or do other market segments look more attractive based on data analysis? If you are going to stay focused in your current market segment and it is becoming sluggish, where can you make the most reasonable cut backs with good business sense that will help position your company for the market rebound?

Can you cut overhead, field staff, or borrow in a strategic manner to position your company in the downturn for a strong foundation for future growth? If market data shows that another market segment may have more growth potential, does it make good business sense to attempt a market shift? If so, do you have the human resources available to make the change from a slow growing market segment into a faster growing market segment? How long is it likely to take to train current field staff or attract, hire, and retain new staff? Do you have the financial capacity and management expertise to perform profitably in this new market area?

Planning of this type can minimize long term damage to your firm caused by current sluggish conditions. Strategic cutting or belt-tightening may help your company focus on your best performing customers. It may also put you in a situation of looking outside the box for other potential growth.

Do you have questions on construction human resources or safety?
E-mail them to Leonard Toenjes at ltoenjes@agcstl.org or
craig_barner@mcgraw-hill.com. (If Len picks your question, he will answer it in a future issue of Midwest Construction.)