Conducting job debriefs is critically important. You can’t improve what you don’t measure. If you fail to identify errors, then you’ll be doomed to perpetuate them.
Interior trim is a good example of a line item that can be off the mark to a considerable degree with many remodelers. If the error on interior trim is the result of a problem in estimating, it sets off a chain reaction. You will be marking up on top of an incorrect estimate, frequently one that is too low. As a result, your sale price and your profit will be too low.
If the error in your interior trim estimate is happening during production, then you are likely to continue exceeding your budget on either cost or on time. There are different implications under both these scenarios. If you are overbudget, then your reports should be clear enough to spot the source.
If you are underbudget, that’s good news. Was it a fluke or is this part of a trend where you’re consistently overestimating? If you are consistently overestimating on a particular line item, then your sale price is going to be consistently higher. Maybe you can still make your margin with a tighter estimate at a lower price to your clients.
Look for trends. Finished carpentry labor is often underestimated. One area in the finished-labor estimate often left out is the time allowed for set up and breakdown. Remodelers often do not allow an adequate amount of time for these tasks.
Another common mistake is an overage of materials, or waste. Do you need to provide some training? Is it overestimating? If so, you may need to have conversation with your estimator.
Sometimes the issue is with your trade partners. If they’re not doing a good job in estimating and their scope is incomplete, they may try to make up the shortfall by submitting change orders. Those will need to be passed along to your client, which is not something you will want to do. This needs to be addressed with your trade contractor.
The most common examples of overages stem from missing change orders. There are a couple of ways this happens. If you’ve not added the appropriate cost for that change order to your estimate, and you run software that shows your estimated cost, then your software will give you bad information.
Here’s an example: Let’s say your electrician comes in with a price of $20,000. Therefore, in your estimated cost, you’ll see $20,000 for electrical. But let’s say there is a change order that will add $4,000. If you don’t modify your estimate, then when you see the actual cost, say $23,000, and you’ll appear to be overbudget by $3,000. In fact, that change order estimated cost should have been added to that estimate, so the client’s price is also adjusted.
Oftentimes change work is never invoiced. Whenever there’s an overage in a job-cost report where the actual cost is significantly in excess of the estimated cost, check whether that item was charged out. It could be the entire change order bypassed the invoicing process. Meanwhile, your trades are still recording their time as well as the cost of the material. You’ll see those costs in your software, but you’ve skipped invoicing them.
Project End Dates
You should also be looking at the anticipated ending dates for each project. If you get a third of the way through a project and realize you won’t finish on time, then action is required. If you’ve been hung up with delays, what can you do? One option is to supplement your labor force with contracted laborers. Can you bring in additional trades? If you’re really stuck, maybe there’s a back order on a critical material, and you literally can’t do anything about it.
For those situations, maybe a small job in the background can keep them going for a brief time. This can be dangerous because you don’t want to upset the client on your current job. But sometimes it’s appropriate to do that.
If you really can’t move forward, remember that regardless of whether your guys are out there producing work, your overhead continues to accrue. Every day there’s overhead. If you simply halt a project and send everybody home on personal days for five days, you will still incur five days of overhead.
If that situation happens once or twice during a year, you may not be able to produce all the jobs that you have sold. This will have huge implications in terms of meeting your overall margin goals.
Also, at the end of the job, one thing to keep in mind is the number of jobs that you estimated, priced and sold while this one was in progress. Are they repeating the same errors in them? How quickly can you recover if you find a problem that has recurred in future jobs? Can you revise a sale price? Or is it already a done deal?
As a contractor and a small business owner, it is always about looking ahead while looking back. What will your job debriefs tell you? You may need to do conduct retraining. You may need to add an employee if part of the problem is due to unreliable subs. If you start to get held up on projects because a trade does not show up on time, and there’s a pattern, do you need to change subs?
It is your job to determine next steps but, in order to understand a problem, you must analyze your numbers. QR
The full webinar is available for you to watch, compliments of NARI. Click here to view it. To take a test and earn CEUs on what you have just learned, go to QualifiedRemodeler.com and search for this article, which will have a link to the quiz.