Hiring the right project manager (PM) in the construction industry is essential for project success. A poor hiring decision can lead to delays, increased costs, legal disputes, and even project failure. This paper outlines the financial impact of not hiring the right PM, including recruiting, training, onboarding, legal costs, loss of business, and compares internal recruiting versus hiring a recruiting company.
Introduction
Effective project management is crucial in construction to ensure timely project delivery, quality control, and budget adherence. The consequences of hiring the wrong project manager are severe and go beyond just recruitment costs. This whitepaper provides a detailed breakdown of the costs associated with hiring the wrong PM, focusing on five key areas:
- Recruiting Costs: Internal recruiting vs. external recruitment through a specialized firm
- Training and Onboarding Costs
- Productivity and Operational Costs
- Legal Costs
- Loss of Business and Reputation
This analysis also compares the financial and operational implications of internal recruiting versus using a professional recruiting agency.
1. Recruiting Costs: Internal vs. External Recruiters
Recruiting is a critical first step, but choosing between internal recruitment and hiring a recruiting company has significant cost implications.
Internal Recruiting
-
- HR Department Time: When companies use internal resources, HR staff must dedicate time to drafting job descriptions, posting vacancies, reviewing applications, and conducting interviews. For construction project management positions, this can take 30-50 hours of HR time per candidate. With the average cost of an internal HR employee being about $30-$60 per hour, the cost for one hire ranges between $900 and $3,000.
- Sourcing Costs: Advertising the position on relevant job boards can cost anywhere between $300 and $1,000 depending on the platform (e.g., Indeed, LinkedIn).
- Pre-Screening: The time and costs associated with conducting initial phone screenings, assessments, and background checks can add another $500 to $1,000.
Average Cost of Internal Recruiting: $1,700 to $5,000 per hire.
External Recruiting (Hiring a Recruiting Company)
Recruitment agencies often provide a faster, more specialized process, especially for high-stakes roles like construction PMs. However, these services come with higher fees.
-
- Agency Fees: External recruiters typically charge between 15-25% of the candidate’s first-year salary. With an average PM salary of $90,000 to $150,000, the cost of hiring a recruitment agency ranges from $13,500 to $37,500.
- Speed to Hire: External recruiters often have an existing network of qualified candidates, which can shorten the hiring process. Reducing vacancy duration can save the company on productivity losses.
Average Cost of External Recruiting: $13,500 to $37,500 per hire.
Cost Comparison: Internal vs. External
While internal recruitment is significantly cheaper on paper, the process can take longer, and internal HR teams may lack the expertise or network to find highly specialized candidates, potentially leading to prolonged vacancies and suboptimal hires. Hiring a recruiting firm is more expensive but may offer better candidate matches and shorter vacancy durations, which could be crucial for large construction projects.
2. Training and Onboarding Costs
Once a new PM is hired, significant resources are dedicated to getting them up to speed. However, if the wrong person is hired, these costs are wasted.
-
- Onboarding Costs: Onboarding a construction PM typically involves software access, HR support, orientation, and other resources, costing around $5,000 to $10,000.
- Training Costs: Specific training related to project management software (e.g., Primavera, MS Project) and safety protocols can cost between $2,000 and $15,000, depending on the scope and complexity.
- Time to Productivity: On average, it takes 3-6 months for a construction PM to reach full productivity. During this time, the project might experience delays or inefficiencies. The costs of these delays can be substantial, but they are difficult to quantify precisely.
Total Training and Onboarding Costs: $7,000 to $25,000.
3. Productivity and Operational Costs
A poorly selected PM can result in operational inefficiencies, cost overruns, and delays that directly impact the bottom line of a construction project.
-
- Delays: A mismanaged project can experience delays costing $10,000 to $50,000 per day. For medium-sized projects, even a one-month delay can cost between $300,000 and $1.5 million.
- Cost Overruns: Poorly managed budgets, resource allocation, or contractor coordination can lead to significant cost overruns, typically ranging from 20-30% of a project's original budget. For a $10 million project, this equates to an additional $2 million to $3 million.
- Rework and Defects: Mismanagement can also result in low-quality work, necessitating rework. Rework costs are estimated at 5-15% of the total project cost. For a $10 million project, this translates to $500,000 to $1.5 million.
Total Productivity and Operational Costs: $500,000 to several million dollars per project.
4. Legal Costs
Poor project management can lead to legal disputes, including contract breaches, delays, and safety violations.
-
- Litigation Costs: Legal fees for construction disputes can range from $50,000 to $500,000, with settlements often reaching into the millions.
- Insurance Premiums: Poorly managed projects may increase claims on performance bonds and general liability insurance, driving up future premiums.
Total Legal Costs: $100,000 to $1 million or more.
5. Loss of Business and Reputation
Poor project management not only affects the immediate project but also the company’s long-term reputation.
-
- Client Loss: Delays, budget overruns, and poor quality can alienate clients, potentially leading to the loss of future contracts worth millions.
- Reputation Damage: Negative word of mouth or bad press can cause significant harm, particularly in the construction industry, where trust and reliability are critical. A tarnished reputation may result in reduced bid opportunities.
Total Loss of Business Costs: Millions in future revenue.
Conclusion
The cost of not hiring the right project manager in construction is far-reaching, with both direct and indirect costs potentially totaling millions of dollars. While internal recruiting may appear to be cheaper, it can take longer and may not produce the best results. On the other hand, hiring a recruiting company involves higher upfront costs but often leads to faster, better-quality hires. In the long run, the investment in hiring the right PM is well worth it, as a poorly managed project can result in significant financial losses, legal liabilities, and reputational damage.
Key Takeaways
- Internal Recruiting: Costs between $1,700 and $5,000 per hire but may take longer and increase the risk of a bad hire.
- External Recruiting: Costs between $13,500 and $37,500 per hire but offers a higher likelihood of finding the right candidate quickly.
- Training and Onboarding: Costs between $7,000 and $25,000 per hire, which is wasted if the wrong PM is hired.
- Operational Costs: Poor PM decisions can lead to $500,000 to millions in delays, rework, and cost overruns.
- Legal Costs: Legal disputes can add another $100,000 to $1 million or more.
- Reputation: The loss of future contracts and client trust could cost millions in lost business.
Recommendation
CLICK HERE: To schedule a call with PMJOBS.US today to discuss your specific requirements, this is what we do and all we do each day. Use us for our expertise in identifying and qualifying the correct person for the role you are looking to fill.
- Option1: 20-minute quick introduction and discovery call
- Option2: 45-minute in-depth requirements discussion
