Poor communication cost my average client nearly $236,000 in 2013, thanks to a common discussion between an estimator and a project manager:
Estimator: “How could you possibly have lost money on the job that I won the bid for the company?”
Project manager: “It was easy.”
In most companies, this is an all too common discussion. While sometimes a very hot discussion, usually no action is taken to resolve the issue from not happening again and again and again. Estimators don’t intentionally bid a job to be a loser and project managers don’t intentionally try to lose money on the jobs they are given.
I put together a bidding experiment for 14 clients. The job was a straight forward one with all materials and subs being supplied. So the only question was how much labor the estimator thought would be required for each line item. They all used the same labor rate so the only variance was the estimator’s opinion as to how long they thought the job would/should take. Thirteen clients bid on the job, but the 14th bidder refused. When asked why, he responded “too many bidders.” The answer brought the house down and it took quite a few minutes to get the remaining 13 bidders to quit laughing!
The 13 bidders’ total bids came in between $8,000 and $15,000 and two of the bidders were within $1 dollar of each other. Sounds pretty focused so far, right? When we showed the numbers for each line item, there was no commonality at all. The bids were totally helter skelter, with neither one coming up with the same amount on any of the line items. How did two of the companies come within $1 of each other? When each of their line items was totaled, they just happened to come out within a dollar of each other. Pure mathematical happenstance!
So what’s the message here? Pretty simple: All estimators will see the same job differently - and that’s OK. What has to happen to change the job results though is that production needs to see the job estimate amount the same way as the estimator does. They can both see the job differently, but the job has to:
1. Produce what was promised and
2. Come in at or below the amount that it was estimated to come in at.
Sounds simple doesn’t it? If it’s so simple, why aren’t more companies doing it?
In 2013, my client base on average experienced a 6.6% decrease from the amount that was bid and the amount that was produced. Not bad, right? I mean, we’re only talking 6.6%! However the amount of money lost, between what was bid and what was produced was an average of $235,610.16. Certainly not chump change! The reason that it was lost? A lack of proper communication, agreement and or understanding between the estimator and project manager, who both work at the same company and are on the same team.
So what will be done about this 6.6% lack of communication last year in 2014? Let me relay some typical responses from different parts your team:
- Sales/Estimators: “Well, maybe I should estimate my production team’s actual capabilities, not what I think I could do it for if I were doing the work.”
- Owner: “We’re going to get our act together in 2015 or I’m going to have to make some changes.”
- Administration: “We need and will prepare job costs weekly.”
- Production: “We need to and will review job costs weekly.”
The entire team needs to be aware of and take action on any jobs that are not on time or on budget at regularly scheduled weekly company meetings.
So what’s the message here? If these actions had been completed in 2013 as I’ve described, the entire $235,610.16 loss would have fallen straight to the bottom line and become a pre-tax profit. The real irony here is that no one is being asked to do anything extra. They are being asked to do their job.
Wishing you and your company a much more profitable 2015!