Innovations in Comfort, Efficiency, and Safety Solutions.
Al De Wachter,
In the high-tech contractor world, we have a tendency to focus on technical problems and solutions. Here, we invite the reader to take a step in a different direction, one that is as important as his technical savvy: running a business to make a reasonable profit year after year, on every job.
This may seem like a statement that should not require repeating: we all know that in the absence of making a profit, a contractor can’t last long under the weight of cash flows and business risks. However, while everyone may agree that profits are important, many hurdles can get in the way of that essential goal.
Contractors face a daunting task to achieve that profit: with a fixed price contract, any increase in costs beyond what was estimated reduces the planned profit. That erodes his ability to fund the business, overloads his resources, and can lead to financial losses and business failure.
Successful contractors know these basic truths. They do not personally get bogged down in the minute details of every technical aspect of their contracts; instead they have learned to train and delegate to others. They manage their business at a financial level as a first priority, particularly cashflow. They eradicate waste and unwarranted risk, and pursue quality and productivity standards that set them apart from their peers. And they go to great lengths to form trusting relationships with customers that result in long term mutual benefits.
At the heart of this process is the cost estimate.
Who benefits from a better project cost estimate? The contractor is an obvious beneficiary. However, consider the following: if a contractor is awarded a contract based on a poor estimate, he will at some point realize his mistake, and try to recover. If that somehow results in cutting corners and delivering less, he is likely to get caught red-handed, and forced to re-do the work at even greater expense. This implies that the owner, his representatives and other contractors also enter into a cycle of unanticipated disputes, delays, meetings and costs. If the contractor experiences financial setbacks, even his product suppliers may not get paid. The preferred scenario is that the job gets done right, gets done just once, and everybody involved makes a profit margin according to their plan. Therefore all involved parties benefit from better estimates: owners, consultants, contractors, and suppliers.
Regardless of the effect on the probability of receiving an order, it is clear that a contractor requires the most accurate cost estimate he can get to define and protect his profit margin. Ideally, he should be able to get an accurate estimate (so he can make informed decisions on pricing) and a fast estimate (so his estimating time investment is not excessive, and he can handle more estimates with a given staffing level). These two factors (accurate and fast) tend to conflict: more accurate estimates imply more time invested; fast estimates imply lack of detail and hence increased risk.
In addition, there are other aspects to cost estimating. A credible estimating system should:
Be consistent and repeatable so that different estimators can independently arrive at similar results.
Allow users to profit from past estimating efforts by re-using previous estimates.
Remove “optimism/pessimism” emotion from the estimating process, and replace it with pragmatic experience-based factors.
Offer detailed reports so that others can review and clearly understand what’s in the estimate.
Offer industry specific product databases.
Offer supportable estimates that a sales person can reasonably explain and defend during a bid review with his manager.
Offer useful and tangible information to design and installations personnel to avoid expensive re-interpretation of the estimated project parameters after an order is received.
Offer a good first cut at project planning for project manager personnel.
To make every year a great year, your company should have a viable system to anticipate project costs. Concerto Suite from ICS is the industry Gold Standard for speed, accuracy and credibility in estimating of high-tech projects such as Access Control, Security, Building Automation, and Intelligent Buildings.
About the Author
Al De Wachter has been active in the Building Automation industry for over 38 years. He has held senior positions with leading companies in the field and is currently the president of ICS (Independent Control Specialists Inc). ICS develops advanced productivity software for Facility Automation Integrators and consults on related productivity issues. www.ics-controls.com
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