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Blog/July 27, 2012

Money Builder: Developing a World Championship Team (Statistically Speaking)

In 2002 the Oakland Athletics were confronted with a conundrum. Player salaries had ballooned to astronomical levels and large market franchises with a seemingly endless fan base, lucrative television rights and merchandise outlets such as the New York Yankees, New York Mets and the Boston Red Sox possessed the ability to gobble up signature players. Smaller-market teams were forced to be more frugal with their expenses and balance their payroll against lower income. In many cases, talented players that developed quickly and became media darlings in these small markets moved to the mega franchises for their payday. Oakland qualified as one of these small markets. Lacking the financial means of the New York Yankees, the Athletics were required to use a nontraditional means of evaluating talent. Enter Billy Beane.

Beane’s previous teams witnessed a mass exodus of talent, victims of baseball’s free agency system. Players found the glitz of big cities more attractive than Beane’s Oakland community. As a result, Beane enlisted the services of Peter Brand, an economics graduate from Yale. Economics? Yes. Baseball scouts had typically relied on intuition and baseball acumen to grade talent as it entered the major leagues from high school or college. In most cases, these talented ball players commanded higher salaries for an unproven product. Beane, himself a mediocre ball player in a previous life, was keenly aware of how scouts gauged talent and how qualitative metrics (how a player looks on the field) received higher marks than quantitative metrics (on-base percentage). Finding undervalued players through a statistical mechanism known as saber metrics – a specialized analysis of objective, empirical data gathered through in-game activity – became Beane’s hallmark. Scouts and baseball pundits scoffed at Beane’s process, calling it a media gimmick. However, in finding unorthodox players that excelled largely in previously unheard of statistical categories, Beane created franchise gold – winners on the field and on the income statement.

The construction industry today is incredibly competitive in two areas. The supply of contractors greatly exceeds the demand of construction projects. Market sectors are saturated with contractors of all talent levels and emerging markets rarely remain a secret for long. More importantly, even in a recessionary market, contractors struggle to find capable estimators, managers, superintendents and foremen to enhance margins, reduce risk and preserve the bottom line. “We’re looking for strong estimators and managers.” “We need managers that can make money.” “We need field managers that have a can-do attitude.” While these are notable characteristics, this is a little like a general manager looking for a shortstop with “hustle” and a right fielder with a “gun.” Is there a way to evaluate construction professionals based on specific criteria that correlates to enhancing margin, improving productivity and hedging construction risk?

Statistics surround the construction industry. There is no shortage of data in the plethora of financial information that comprise the construction business. However, in an industry predicated on a lean operating model (not be confused with lean construction model), finding and evaluating the right data proves elusive. Much like the 2002 Oakland Athletics, construction firms are confronted with finding the right variables to the successful profitability equation.

Metrics permeate throughout the construction industry. Whether it is measuring the slump of a concrete yield or the recordable safety incidents annually, managers, executives and business leaders are inundated with numbers. With the saturation of data, it is easy to become numb and fail to recognize patterns and the true indicators of performance. Billy Beane revolutionized the game of baseball and revitalized a franchise up against insurmountable odds, on and off the ball field. The construction industry’s context is ever shifting and building a profitable franchise requires executives to measure the right things, make the right decisions and keep their eye on the ball.

How is your company keeping its eye on the ball?

To read this article in its entirety, please go to: http://hale.sg-host.com/media/pdf/quarterly/2012_2_money_builder.pdf

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