As the state of the economy remains stagnant and with predictions of even more hard times ahead, the construction industry continues to take a hit. Revenues are down and competition for work is stiffer than ever, which means many contractors are looking at ways to minimize operating costs—including the option of reducing their workforce.

Short-term gain versus long-term value We’ve been through tough times before, and we know things will eventually turn around. While Colorado lost more than 31,000 construction jobs last year (almost a quarter of the state’s construction employment), as a small business owner, I know I can’t be truly optimistic, or bullish, about eventual business opportunities if I surrender my biggest asset—my people.

ALLISON

According to the Society for Human Resource Management, it costs a business 37% of a departing employee’s salary to train their replacement. When the economy finally does pick up again, many contractors will face the high costs of recruiting and re-training to make up for staff they previously let go, perhaps spending significantly more money than the cost of retaining and continuing to invest in talented staff during the recession. Despite the immediate savings in payroll and overhead, cutting back on your workforce means the loss of invaluable knowledge, training and skills in which employers often spend years investing.

Markets change Today it may be an “employer’s market,” with many employers feeling they have the upper hand, but economies have a way of turning before you know it. With job satisfaction rates at an all-time low, smart companies have continued efforts to keep their employees happy, minimizing the chance that they’ll get left in the dust when the market flips and their loyal employees jump ship just as soon as they can find something better.

Sacrifices made Although I’ve been able to provide consistent employment for my team through the recession, sacrifices were made on several fronts to make it happen. All staff, including management, agreed to temporary salary cuts in order to reduce overhead and make sure we could keep our prices competitive. This was done with the anticipation that, if these cuts enabled the company to return a profit in 2010, we could use those funds to pay back the staff at the end of the year. We also agreed to wiser spending on recreational company functions—money was set aside in the marketing budget for one company-wide entertainment event for the year—and we stiffened the parameters for employees expensing the company for items such as office supplies, lunch, express tolls, etc.

Whether or not the construction industry has seen the worst of what’s to come, implementing creative ways to cut costs while retaining a solid and sustainable workforce will ensure that when the market does move upward again (which it always does), we are able to grow along with it.

Eero Allison is president of Lakewood’s AMA Construction, which employs 20 individuals. AMA Construction’s revenue was nearly $15 million in 2009 and its was recently named 2010 Small Business of the Year by the Denver Metro Chamber of Commerce. Eero Allison can be reached at eallison@amaconst.com.