You all have been there. A project comes along. It has a familiar scope of work. You accept the terms, complete the work, deliver it, and then realize that…wow…you made no profit. If fact, you lost money.
What went wrong?
The easy answer is to blame staff for incompetence, for not using their time efficiently, for failing to understand the scope of work. But what if your staff isn’t the source of your net loss on that project? Is that possible?
You’ll have to dig more deeply and analyze. The results of that analysis may be discomfiting and expose glaring errors in your decision making, but positive changes based on those results and codified into a process that guides work on similar projects can prevent future errors.
Before you negotiate a fee for a project, you must understand the work necessary to deliver that project. That requires more than merely looking at current materials pricing and what the customer is offering to pay.
The very act of performing this analysis involves a process by which one begins at the delivery end of the project and works backward. To deliver, we have to do this, which require completion of that, which then requires doing the other task(s). Each task involved will have to be assigned to a staff member or outsourced. Don’t assume how long something will take: ask the employee or vendor for an estimate. Be as specific as possible to obtain as accurate an estimate as possible.
I always find it helpful to pad the overall schedule for delivery with a little extra time to cover the inevitable glitches that arise, which may include a technical failure, a severe weather, or a key employee calling in sick with a nasty case of the ’flu.
Analysis of the work involved, who will do it, and how much time it will take may surprise you. The analysis should also include determination of when approvals are necessary to move the project forward. Who approves the work so it can proceed to the next step? Is it always necessary to have top management or the client approve every step? How much time should you allot for approvals? Be certain, your staff will not appreciate necessary approvals coming through at the last second, thereby enforcing them to work feverishly in order to meet deadlines.
When analyzing the steps and work required to deliver a project on time and within budget, be sure to consider your team’s existing workload. If a project task will require six hours of someone’s time, then make sure that employee will have six hours to spare. If that employee misses his child’s school play because you dumped an assignment on his already full workload, then you’ll do nothing more than build his resentment toward you and the client. In addition, hastily completed work often suffers from errors, which reflects poorly upon your business and merits your customer’s dissatisfaction.
Once the process is determined feasible and is in place, it will serve as a reliable guideline for other projects with similar requirements. Periodically review the process to adjust for changes in labor, materials costs, and other variables that affect performance and delivery.
But the customer is prepared to pay only “this much,” you complain.
Be critical of the customer’s budget; you’re working from opposite angles. The customer wants to get the best work or product for the least amount of money and delivered in the fastest time possible. Your business seeks to at least cover labor, material, equipment, and overhead costs and, preferably, to make a profit. If a customer’s budget for a project won’t even cover your costs, then make a counteroffer based on a justifiable estimate of the work or decline the project.
No process in the world will reconcile a completely unrealistic budget with justified costs, unless the company is prepared to burden its staff, take a loss, and be prepared to grow a reputation as the low-cost provider.
Process. There’s no escaping it. The trick is to develop and use processes that work with you and your staff to produce predictable excellence within realistic deadlines. The Heggen Group provides the objective analysis and process development that will help your business determine feasibility and sustain profitability.