Monday, November 11, 2013

WHAT MAKES A CONSTRUCTION COMPANY UNIQUE

The Indian Real Estate Scenario is likely to experience better days ahead. If research figures are to be believed, the Real Estate sector is expected to grow from lbs 7 bn in the year 2005 to an estimated lbs 58 bn by the year 2015. There is going to be a boom in the residential housing, IT and ITES, retail and hospitality sectors. This will automatically invigorate the demand for office and residential spaces for the working population. In such a growth scenario, only those companies which position themselves well in this war for market share will come out trumps.
By its very nature, the construction business is far more risky than any other business and at the same time the returns in this business are far greater. If past results of construction companies are to be believed, we could expect returns ranging from 17-25% in the construction industry. But this high ROI is at a great risk. This is one of the factors that make a construction company unique. The construction business is considered to be a tertiary business distinct from manufacturing and extraction. While other industries require a number of fixed assets like land, building, industrial machinery, etc. the construction business can theoretically run even without an office.  
A construction project is carried out in the open, exposed to the vagaries of the atmospheric conditions. This is another unique feature of the construction business and therefore the unique feature of every construction company. Every construction project is unique and has distinct requirements. Depending upon the project requirements, the required personnel and machinery can be bought on hire, the site where the project is to be constructed, can be bought using borrowed capital and the constructed units can be sold off through bookings, periodic work completion contracts, etc. This is another feature that is unique about a construction company.
Every construction project is made based on the specifications laid down in the contract documents and the customer requirements. “Customer satisfaction” which is the buzzword of every business today also rules in this business. At times, project specifications are altered in order to fulfil customer satisfaction. Moreover, a project is said to conform to customer parameters not if it meets the quality requirements and specifications of the project, but if it satisfies the customer for whom it has been constructed. Thus we can say that as in other businesses, the customer is king even in this business.
Unlike other businesses, the construction business cannot afford to keep too much inventory on its books as construction inventory is valued at a much larger value than inventory in the manufacturing business.


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