Would you send an Engineer to do an Installer’s job? Starting a bid with unrealistic resource allocation assumptions will negatively impact project profitability before the job even begins. It’s just one of the things to consider when bidding a project. Having the right people to do the right job is critical, but having realistic labor installation estimates is just as important to not only create a winning bid, but to create efficiencies in your overall project execution.
I hear from many people in operations that they are often setup to lose money on jobs before they schedule a single resource to the project because the labor estimates they are obligated to meet are not realistic. With all the variables that can negatively affect the delivery of a job you certainly don’t want to start without enough hours to complete the job on paper. That only leads to rushed work, which leads to re-work or it leads to profit killing overtime.
So, how do you properly calculate the resources needed for a job during the bidding process so you are not setting up a losing situation even before the job is awarded?
Here are two important bidding best practices:
1. Know what steps and skills are required to resource the job appropriately.
First, use a work break down structure (WBS) to divide the job into deliverable oriented smaller tasks. This will help you define the project’s discrete work elements that define the total scope of the project. This will provide you with the necessary framework for you to come up with your detailed cost estimating.
Once you have your framework laid out you can develop the overall planning of how the job will unfold and natural control points will emerge. This will allow you to divide the work into increments that will form the statement of work. With the technical design and engineering work defined, the material schedule, the staging labor and installation labor broken out you can plan what resources are required when. You can plan material deliveries just in time and ensure human resources are planned to optimize their time and skills to ensure an efficient delivery is scheduled. Ideally this type of breakdown is templated so you are always working with your internal best practices of the actions needed for a successful and profitable outcome.
2. Benchmark and template your labor standards.
One of the most difficult things to do when bidding a job is to calculate your labor estimates. With margins so low on material, labor is your best lever to affect profit; unfortunately it can have both a negative or positive affect so accuracy in your bids is the first step to success. When done well, this step will allow you to win business you can make a profit on as well as to ensure your installers have the best chance to deliver or exceed on the profit projected on the estimate.
There are basically two sources of information to consider at this stage of your bid.
“labor variables have become the single biggest risk factor for determining the true cost of each project. Having this document for bench-marking your productivity and efficiency against fellow NSCA Members is an extremely valuable tool”.
|– Access Control||– Fire Alarm|
|– Audio||– Industrial/Commercial Sound|
|– Cabling||– Networking|
|– CATV/MATV||– Nurse Call|
|– CCTV||– Security & Alarm|
|– Clocks||– Telephony|
|– Digital Signage||– Video|
|– Equipment Racks||– Video Teleconferencing|
|– Fiber Optics||– Miscellaneous|
b) The second best practice for estimating your labor when bidding is to take an objective look at how your teams have performed on similar jobs in the past. If you are tracking your job costing in detail you can go back to individual jobs to see the actual hours vs. the budgeted hours to see where the estimates came in. Then you can pull back to all jobs of a similar type over a period of time to see how the project actuals vs. budgeted have trended. This allows you to see the reality of what happens on the execution of your jobs. It also has the added bonus of allowing you to run a comparison to how you are doing against the industry gold standard as noted in point a) above. Depending on how you are trending against industry standards this information should have an impact on the bid.
If you are able to access this information, it should be utilized by two groups in your organization; the estimating supervisor to make sure your company’s past performance is factored into your bid, and the manager in charge of operations so that improvements can be made in the department as a whole to meet or exceed the industry standard. It is a great opportunity to compare your team against a higher bar.
Armed with these two objective sources of information your bid should be well on its way to being accurate and a dependable projection for your team to deliver against. Other elements such as travel, paperwork, internal administration and other burden inputs will have to be considered to ensure the most accurate bid can be prepared.
Allocate your resources effectively and improve your project profitability.
Having accurate records of how efficient you are at various tasks affecting project delivery will help you create winning bids and allow you to create a culture of continuous improvements in your project execution. Then you’ll be poised to provide excellent and efficient service to all of your clients.
Ultimately, you will have happier clients and employees, a more efficient workforce and more profitable projects. What else do you need to consider during your bidding process? Check out the Job Costing Survival Guide.
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You can start measuring the success of your business through the full life cycle of work. Right from your $100,000 investment into a trade show, measuring the effectiveness of your qualification process and the resulting business. Through to the effectiveness of bidding, delivering and maximizing the profit on a job through to providing exceptional customer service while keeping an eye on the overall profitability of that customer. Each of these areas can represent a million dollars opportunity or a million dollar mistake. Which way your business goes depends on how fast and accurate information comes back to your decision makers so they can adjust in time to affect the next business cycle.
Centralizing your database is important to the success of your business. It removes latency issues, improves customer service, and it makes way for profitable, rapid business growth. Find out what else could be cutting into your project profitability with our Job Costing Survival Guide.