What Is Backlog in Construction: Key Insights & Management

June 12, 2024

In the construction industry, a backlog refers to the amount of work, measured in dollars, that construction companies are contracted to do in the future. Unlike the negative connotations of backlog in other fields, in construction, a backlog indicates a company’s economic stability and future workload.

Definition and Importance of Backlog in Construction

A construction backlog is a key performance indicator (KPI) that signifies future workload and potential revenue. While a large backlog indicates financial health and economic stability for contractors, a small backlog suggests that contractors may soon run out of work.

"Construction Update - 2011" by Loozrboy is licensed under CC BY-SA 2.0. To view a copy of this license, visit https://creativecommons.org/licenses/by-sa/2.0/.

Why Backlog Size Matters

A large backlog offers economic stability and comfort about near-term economic circumstances, whereas a small backlog indicates a need for contractors to secure new revenue sources. This balance is crucial for maintaining a steady flow of work and ensuring financial health.

Balancing the Construction Backlog

Risks of a Long Backlog

A long backlog can deter prospective clients if they are told their project cannot start for several months. This perception may make it harder to win new jobs, suggesting that the company is behind schedule or struggling with project management.

Strategic Balance

"Backlog (13 of 23)" by chris.peplin is licensed under CC BY-NC-ND 2.0. To view a copy of this license, visit https://creativecommons.org/licenses/by-nc-nd/2.0/.

Maintaining a moderate backlog is essential. Too little backlog risks running out of work, while too much can hinder new business acquisition and damage the company’s reputation. A balanced backlog ensures ongoing work and the ability to take on new projects.

Calculating Construction Backlog

Work in Progress (WIP) Report

A WIP report tracks the total costs of a construction project, including labor, raw materials, and overheads at different stages. Including the contract value and details of upcoming projects in the WIP report helps in accurately determining the backlog's value and understanding the financial health of the company.

Percentage of Completion Method

"Backlog (14 of 23)" by chris.peplin is licensed under CC BY-NC-ND 2.0. To view a copy of this license, visit https://creativecommons.org/licenses/by-nc-nd/2.0/.

This method recognizes the revenues and expenses of a project proportionally to its completion. Applying this method in the WIP report helps assess the backlog value accurately.

Managing Construction Backlog

Accurate Measurement

Start with an accurate measurement of the backlog to understand the company’s current standing. Precise calculations help in assessing the workload and ensuring balanced operations.

Client Communication

Regular and transparent communication with clients is crucial. It reassures clients about the firm’s ability to deliver projects on time and within budget, reducing their concerns.

Operational Capacity

Having the proper number of skilled staff to handle the backlog effectively reflects positively on the company’s health and operational capacity. Proper workforce management ensures timely project completion.

Knowing Limits and Realistic Planning

Be realistic about the scale and scope of work the company can handle to avoid overcommitting. Efficient backlog management involves knowing limits and planning realistically to maintain quality and project timelines.

Tools and Solutions

Software Solutions

Using construction management software, like those from Bluebeam, can help firms manage their backlog and project logistics effectively. These tools assist in creating, organizing, and sharing detailed logistics plans for complex jobsites, enhancing efficiency and accuracy.

In conclusion, understanding and managing construction backlog effectively is vital for a construction firm's financial health, client satisfaction, and operational efficiency. A balanced backlog contributes to ongoing work without overextending resources or losing potential business opportunities, leading to sustainable growth and success in the construction industry.

Leave a Reply

Your email address will not be published. Required fields are marked *

Mission

Traffic Dave is on a mission to help traffic engineers, transportation planners, and other transportation professionals improve our world.
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram