Project managers and estimators play crucial roles that can determine whether a restoration company will be profitable or not. The estimator’s job is to identify the scope of work and estimate what it will take to do the work and make a profit. The project manager’s (PMs) job is to coordinate and execute the work within a given budget to realize the profit. If your reconstruction and repair projects trend to be unprofitable and your estimator is highly skilled at writing profitable estimates, then there may be a problem in the production phase. There are a number of red flags to watch out for that may indicate that your PM may be killing your company. Keep in mind that it doesn’t take many unprofitable jobs to bankrupt a restoration company, so this is one area where restorers need to pay close attention.

Doing Work Out-of-Scope

One of the leading causes of restoration work being unprofitable is when PMs allow work to be done that is not included in the contracted scope of work. All too often, PMs are focused more on getting the job done fast and pay little attention to the line-by-line entries in the estimate or whether the trade summary allows enough for each trade.

Some PMs take the position that certain trades are more profitable than others and, in the end, the most profitable ones will carry the less profitable ones and the desired profit margin will work out in the end. This mentality can lead to a financial catastrophe, especially if you are doing hundreds of jobs per year.

Prior to commencing the reconstruction phase of a project, the PM and estimator should walk the job together and go over every line item in detail. If additional work is needed, tasks or line items are missed, or if certain trade allowances are found to be insufficient, a supplemental estimate should be written and sent to the materially interested parties for approval before incurring costs or purchasing materials. The same holds true when the PM discovers damage or additional work needed during the course of the repairs that may have been concealed or unknown at the time the original estimate was written. Here, the PM needs to have the estimator revisit the job, document the damage, and compile a supplemental estimate prior to incurring additional costs. Once the additional costs are approved, the PM should get the customer to sign a change order detailing the added scope and costs of the new work.

Depending on the estimator’s experience, the scope of work and estimate that the PM has to work off of may not be accurate, especially if the PM has to work off of an adjuster’s estimate or one written by a third party. It is important for PMs to scrutinize the scope of work carefully and notify their superiors of any deficiencies.

Giving Away Freebies to Customers

Another problem that can cause a major loss of profits is when PMs give customers freebies. This can be small items like new doorknobs or light fixtures, adding an electrical outlet here or there, to painting entire rooms, extending flooring to unaffected areas, filling up your dumpsters with their junk, etc. Whatever the case may be, the added costs will impact the profitability of the job and expose the company to additional liability.

All too often, PMs give away little items from the get-go, which raises the customer’s expectations that you will do all sorts of stuff for free. Then the moment someone says “no”, you instantly become the bad guy. To avert this issue, the PM should from the very beginning get signed change orders for anything big or small that the customer wants done that is not in the scope. One way to fund additional work is when the customer wants to cash out on certain line items in the scope of work. Here you may want to allocate those funds as credits to be used towards any extra work the customer wants.

Backdoor Deals

Probably the worst scenario where PMs can create real havoc with your profit margins is when they get kickbacks from vendors or subcontractors. Unethical PMs will reveal their budget figures and tell the vendors how much to charge or allow them to charge as much as they want as long as the job remains marginally profitable. The reason for this is that devious PMs know that if the subs take too much, management may look deeper into the job and find out why it didn’t make very much or any money. 

Here are some tips to help you avoid this from happening:

  • Watch your job costing and budgets like a hawk
  • Require multiple bids for every trade
  • Spot check jobs to see if work is being done out of scope or if supplements are needed
  • Periodically bring in new subs and vendors and put them on a rotation so the same subs don’t get all the work
  • Check sub bids, especially larger dollar contracts
  • Set profit minimum thresholds and offer profit sharing incentives for jobs that make great profit margins. If profit sharing is spread out to the project manager, superintendents, estimator, and salesperson, there will be a far greater level of accountability since everyone involved will have a vested interest in a positive outcome.
  • Do peer review of job budgets with the estimators and production staff

Setting systems in place to hold PMs and estimators accountable is vitally important to the financial health of your business.