Solving the measurement puzzle

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    Solving the measurement puzzle

    By Randy Cleary

    Special to Ontario Construction Report

                I figure I have about 10 seconds to capture your attention and have wasted half of it already so the rest better be good. Everything on this list is what you could do over the next 20 years with the ‘extra $1,200,000’ that a current $500,000 investment would earn if it averaged just three per cent more per year (9% vs. 6%).

    • Take your family on 20 Caribbean vacations;
    • Buy four half ton trucks;
    • Put two children through university;
    • Send your best employee on 20 annual Vegas weekends;
    • Buy 300 new hammers and 300 new shovels;
    • Give 100k to your favourite charity;
    • Take your spouse on 80 get-away weekends;
    • Send your best customers to 200 NHL games;
    • Annual membership at the best private healthcare clinic in Toronto;
    • Host your own annual company golf tournament .

                The construction industry is famous for its dedication to measurement. No such thing as a  tradesman without a measuring tape. Never met an estimator that didn’t know all costs for labour, materials, or rentals. And you won’t find an owner that can’t immediately tell you what their profit margin is. The length of a cable run, the cost of inventory, the proper amount of depreciation – they are well known and well measured.

                So I was not surprised when I attended the 2012 Construct Canada conference. All exhibitors could explain the return-on-investment of their products and services very well.  Whether it was heavy equipment, building renovations, property management or energy saving devices, they all had done their ROI homework. But when the topic shifted to ROI on their own investments everything changed. Nobody knew much about the real return on their money outside of their company. The most troubling aspect of all was that they didn’t seem to care.

                This lack of interest in performance on non-core investments never ceases to amaze me. There is a Jekyll-Hyde transformation that takes place here. These same business owners who know to the nickel what their sales, costs and returns are inside of their company know very little about the performance of their external investments. They don’t ask and their advisors don’t tell.  We all should stay up to date on the ROI for our investments for each of the last one, three and five year periods.

                Perhaps this is because the information that you should receive is not always forthcoming. Calculating real returns can be complicated and a good software program is required. Another factor is that there are plenty of hidden costs which are not readily shared. These include true management costs, transaction costs and the never-ending array of administration fees.  But most often the reason is simply poor performance, and nobody wants to relay that message.

                However, it is your job to find out. You can’t manage what you can’t measure, and you have already seen what a 3 per cent difference can make. You see, it is never about the money. It is what you do with the money. It is about your employees and customers. It is about family. It is about making the world a better place. It is about memories. I call this Return-on-Life (ROL) and it is a calculation that is far more important than return-on-investment.

                Randy Cleary is the owner of MatRx Financial, a Kingston, Ontario-based investment advisory service specializing in small business owners and entrepreneurs. Contact: rcleary@matrxfinancial.com or 613-547-9300.

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